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ITC Transfer From One State To Another Is Not An Inward Supply: Orissa High Court

In the case of M/s. JSW Steel Ltd. Versus Union of India, W.P. (C) No. 10052 of 2022, the Orissa High Court bench of Justice Jaswant Singh and Justice M.S. Raman has ruled that an input service distributor (ISD) can claim ITC only in the case of an inward supply, and an ITC transfer from one state to another is not an inward supply.

Brief Facts Of The Case: JSW Steel is the petitioner and assessee. It is a public limited company. The assessee manufactures and sells hot and cold rolled coils and sheets, plates, and coils and sheets that have been galvanised. Both, a GSTIN for the State of Maharashtra and a GSTIN for the State of Odisha have been assigned to the assessee.

According to the petitioner, JSW Steel (Mumbai) took part in the tendering process that the Government of Odisha asked them to. A lease for JSW Steel (Mumbai) to carry out iron ore mining activities in the state of Odisha has been obtained. A firm in the state of Odisha has been given access to the Jajang Block, Ganua Block, Narayan Poshi Block, and Nuagaon Block. The petitioner said that JSW Steel (Odisha) either supplied the JSW Plants with the iron ore mined from the iron ore blocks via stock transfer or, to the degree permitted, transferred it to other parties. It claims to have paid the relevant GST and to have issued tax invoices for the supplies as well.

In accordance with the reverse charge process, JSW Steel (Odisha) has paid SGST and CGST on bid premium, royalty, DMF, NMET, NPV, etc. The order stated that the petitioner-company in Odisha had transferred to JSW Steel in Maharashtra after using a portion of the tax paid on RCM. JSW Steel in Maharashtra was designated as an IGST-ISD under the guise of providing JSW Steel with external facilitation services (ISD). The Revenue objected to the method of claiming adjustment of unutilized input tax credit. It is contrary to the statutory mandate to use a device to make it easier for JSW Steel operations in other states to collect input tax credits due to the State of Odisha. As a result, the requirements for starting legal action under Section 74 were met. A notification from the Deputy Commissioner of State Tax resulted in a 901.48 crore rupee demand.

Judgement: According to the court, the phrase “Input Service Distributor” is defined under Section 2(61) of the CGST Act (ISD). Tax invoices for inside supplies must be submitted to the ISD as an office. According to this opinion, the petitioner doesn’t have a strong case to start with since JSW Steel Ltd. of Odisha and JSW Steel Ltd. of Maharashtra haven’t demonstrated that they supplied goods or services of that kind to each other. The petitioner has established a prima facie case based on the questioned transactions. The court determined that because the transactions in question appear to be a syphoning of tax funds, Section 74 of the OGST/CGST Act should be invoked. The court rejected the request for a restraining order prohibiting the department from carrying out recovery of the demand while listing the matter on August 12th, 2022.

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Judgement Reviewed By Prakirti Jena

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