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June 4, 2022

Transferring ITC from one state to another is not considered an inward supply.

by CA Shivam Jaiswal in GST

Transferring ITC from one state to another is not considered an inward supply.

Facts and Issue of the case

Assailing the Order dated 28th March, 2022 passed by the Deputy Commissioner of State Tax, CT & GST Enforcement Unit, Barbil under Section 74 of the Odisha Goods and Services Tax Act, 2017 (for short, “the OGST” Act)/the Central Goods and Services Tax Act, 2017 (for brevity, “the CGST Act”) for the tax periods from April, 2020 to March, 2021, the Petitioner has approached to this Court invoking provisions of Article 226/227 of the Constitution of India with the following prayers:

  • “(a) A writ of and/or order and/or direction in the nature of Certiorari commanding the Opp. Parties to transmit and certify the records relating to Impugned Order dated 28.03.2022 under Annexure-1 so that the said Impugned Order dated 28.03.2022 under Annexure- 1 so that the said Impugned Order and all proceedings relating thereto may be set aside and/or quashed and conscionable justice might be rendered;
  • A writ of and/or order and/or direction in the nature of Mandamus commanding the Opp. Parties to not give any effect to and/or take any step whatsoever pursuant to and/or in furtherance of the Impugned Order dated 28.03.2022;
  • A writ of and/or order and/or direction in the nature of Prohibition commanding the Opp. Parties to forebear from giving any effect to and/or taking any step whatsoever pursuant to and/or in furtherance of the Impugned Order dated 28.03.2022;
  • Costs of any incidental to this application be paid by the Opp.Parties;
  • Such further or other order or orders be made and/or directions be given as would afford complete relief to the Petitioner.”

The case of the Petitioner, public limited company, is that being engaged in the business of manufacturing and sale of hot and cold rolled coils and sheets, galvanized coils and sheets, and plates, it has been allotted with GSTIN 21AAACJ4323N2ZR (in the State of Odisha) and GSTIN 27AAACJ4323N2ZF (in the State of Maharashtra). In the State of Maharashtra the said registration number as ISD (Input Service Distributor) as defined under Section 2(61) of the CGST/OGST Act.

From the impugned Order dated 28.03.2022 it is revealed that scrutiny of returns filed for the tax periods in question depicted that JSW Steel Ltd. bearing GSTIN 21AAACJ4323N2ZR (in the State of Odisha) has paid OGST and CGST under reverse charge mechanism (referred to as “RCM”) on bid premium, royalty, DMF, NMET, NPV, etc. (towards availing of licensing services for right to use minerals including exploration and evaluation in respect of four mines located inside the State of Odisha (falling under Heading 9973). Further fact delineated in the said Order shows that having utilized a portion of the tax paid on RCM, the Petitioner- company in Odisha has passed on to JSW Steel Ltd. in Maharashtra which is declared as ISD bearing GSTIN 27AAACJ4323N2ZF in shape of IGST in the garb of outward supply of facilitation services to M/s. JSW Steel Ltd. (ISD). Said fact is apparent from disclosures made in invoices, Part-B of GSTR-2A, GSTR-1 and GSTR-3B and cash ledger of the taxpayer and GSTR-6 filed by JSW Steel Ltd. GSTIN 27AAACJ4323N2ZF (in the State of Maharashtra).

Observation and Conclusion of the Court

Court has patiently heard both the sides, and with able assistance of counsel perused the pleadings. It is apparent that JSW Steel Ltd., public limited company, has units located in different States including the State of Odisha with its Head Office at Mumbai. The Head Office at Mumbai is registered as ISD bearing GSTIN 27AAACJ4323N2ZF. It is also registered as normal taxpayer being GSTIN 27AAACJ4323N3ZE in the State of Maharashtra. No doubt JSW-Company from its Head Office at Bombay had applied and participated in the tender process, however it cannot be lost sight of that its JSW-Company, and not Head Office, Bombay, which has been granted the mining lease for the four Iron mines situated within the State of Odisha. The Company to undertake the process of mining had to get itself registered in State of Odisha as per the statutory provisions of CGST/OGST to undertake the execution of the mining lease. It is conceded that the execution of work and all transactions including payment of tax being input recipient have been conducted by the JSW-Company from its office Barbil (Odisha). It cannot also be disputed that the outward supply of goods and services of the Company has been provided by the unit at Odisha to other units of the Company and other parties upon payment of tax for supply of such outward goods and services, thereby providing the JSW units in other States to avail the input tax credit on the tax paid to JSW Odisha for their outward supplies from such locations outside the State. It is conceded that the Input Tax Credit with JSW Steel Limited (in the State of Odisha) was found in excess, which remained unutilized. This excess input tax credit has been sought to be utilized by raising tax invoices in favour of JSW Steel Ltd. in the State of Maharashtra, declared ISD, in the garb of support service. That apart, it is not clear at all as to what is support service which has been provided by JSW Steel Ltd.(Odisha) to JSW Steel Ltd.- ISD at Mumbai, much less any common services which could be utilized by other units located in other parts of the country. It also emerges that JSW Steel Ltd. in Odisha has utilized JSW Steel Ltd.- ISD Mumbai as wrongful conduit and facilitated the utilization of input tax credit by other units of JSW Steel Ltd., which in this manner have availed input tax credit twice, i.e., once on the strength of the purchase invoices of supply of iron ore and the other on the strength of the tax invoices for alleged services issued by JSW Steel Ltd.-ISD at Mumbai.

In view of the foregoing Para, court is not very impressed by the argument that it is the JSW Steel Ltd.-ISD Mumbai which has been awarded with the contract for four mines in the State of Odisha and therefore whatever tax has been deposited by its unit in Odisha, the same is actually paid on behalf of the JSW Steel Ltd.- ISD in Maharashtra, which we find is not supported by any documentary evidence nor has the statutory backing.

It is pertinent to notice that in view of definition of “Input Service Distributor” contained in Section 2(61), it is necessary that the ISD as an office is required to receive tax invoices towards inward supply. Since no such supply being shown to have been made by JSW Steel Ltd. of Odisha to JSW Steel Ltd. of Maharashtra, no prima facie case is made out by the Petitioner. Thus transactions in question prima facie amount to siphoning of tax amounts, therefore, apparently warrant invocation of proceeding under Section 74 of the OGST/CGST Act.

Court declineed to allow the prayer for restraining the Opposite Parties from effecting recoveries of the demand more so, in equitable jurisdiction under Article 226 of the Constitution of India. The Petitioner has not questioned vires of relevant and related provisions as discussed above. However, considering the other challenges as to jurisdiction (lack of jurisdiction or otherwise) of the State of Odisha as set out in the writ petition and pressed into service by the senior counsel for the Petitioner, while declining to allow prayer for restraining the opposite parties from effecting recovery of demand, this Court issues notice in W.P.(C) No.10052 of 2022 along with I.A. No.5190 of 2022.


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