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Solved Queries

Ques: One of my client has factory in Andhra Pradesh with AP GSTIN. All purchase and sales are done in AP SGTIN. They also have a HO/Sales office in Hyderabad with TS GSTIN. The only expense incurred in HO is Rent paid in FCM. They also have a Guest house in Hyderabad to temporarily accommodate staff/vendors/customers travelling from other places. Rent of Guest house in RCM. There is no sales in HO therefore no Output GST to set-off the GST paid on Rent (both HO and GH). How can my client utilize the GST paid on rent for HO/GH against the sales made in AP GST. The purpose of HO is to promote the business/sales.

Ans:

In the given case, your client has its principal place of business (factory) in Andhra Pradesh (AP) registered under AP GSTIN, where all purchases and outward supplies are made. Additionally, it maintains a Head Office (HO) and a Guest House in Hyderabad, Telangana (TS GSTIN). The HO incurs rent under Forward Charge Mechanism (FCM), and the Guest House incurs rent under Reverse Charge Mechanism (RCM). As the HO has no outward supply and no direct revenue generation, the input tax paid on HO rent and RCM liability on Guest House rent is leading to unutilized ITC accumulation under the TS registration. The issue, therefore, is how to utilize or transfer the ITC accumulated in the TS registration against the tax liability of the AP registration, given that the business operations are integrated and the HO primarily supports sales and promotion of the AP factory’s products.
Under the GST law, each GST registration obtained in different States is treated as a distinct person as per Section 25(4) and 25(5) of the CGST Act, 2017. Consequently, the HO in Telangana and the factory in Andhra Pradesh are considered distinct taxable persons, even though both belong to the same legal entity. This allows supply of services between distinct persons to be treated as taxable supplies under Schedule I, even if made without consideration. Therefore, the most legally sound and compliant way to transfer the benefit of ITC accumulated in the Telangana GSTIN to the Andhra Pradesh GSTIN is to treat the HO’s administrative and managerial support activities as “supply of services” to the factory and raise a tax invoice accordingly.
This arrangement is supported by the CBIC Circular No. 199/11/2023-GST dated 17th July 2023, which clarified that Head Offices (HOs) can distribute input services to branches/units registered in other States either through Input Service Distributor (ISD) mechanism or by issuing a tax invoice under Schedule I for cross-charge. In your client’s case, there are two options:
Option 1 – Cross Charge Mechanism:
The HO can raise a tax invoice on the AP factory towards business support and administrative services, including functions such as marketing, promotion, management, coordination, and liaison activities performed by the HO. The value of supply can be determined on a reasonable basis (e.g., proportion of turnover or expense allocation). The HO will charge IGST on this supply, which the AP factory can claim as input tax credit, thereby utilizing the ITC accumulated in Telangana registration. This method aligns with Section 7(1)(c) read with Schedule I, and the corresponding ITC transfer is justified as the HO’s expenses are directly attributable to overall business operations.
Option 2 – Input Service Distributor (ISD) Mechanism:
Alternatively, the HO can register as an Input Service Distributor (ISD) under Section 20 of the CGST Act, 2017 and Rule 39 of the CGST Rules, 2017. Through this registration, it can distribute ITC related to common input services such as rent, telephone, or consultancy fees to other units (like the AP factory) in proportion to their turnover. However, ISD registration is suitable only when the HO is not making taxable outward supplies. It is a purely distributional mechanism and avoids the need for cross-charging, but it requires a separate ISD registration in Telangana and compliance with ISD-specific return filings (GSTR-6).
Given that your HO’s primary expense is rent and it is otherwise not engaged in any operational activities, cross-charging a nominal value for administrative support services to the AP unit is often the simpler and more defensible approach, as it enables seamless flow of ITC through IGST while maintaining compliance with Schedule I provisions. The Guest House rent, being under RCM, can also be included as part of the HO’s general administrative cost, and proportionate ITC thereof can be passed to the AP unit through the same cross-charge mechanism.
Therefore, the recommended approach is to utilize the GST paid on HO and Guest House rent by:
Paying RCM on Guest House rent under TS GSTIN and availing corresponding ITC;
Consolidating the total ITC under HO (including HO rent and Guest House rent);
Issuing a cross-charge tax invoice from HO (TS GSTIN) to Factory (AP GSTIN) for administrative support services;
Charging IGST on such invoice (since inter-State supply); and
Allowing the AP GSTIN to avail IGST as ITC against its output tax liability.
This ensures complete compliance, transparency, and effective utilization of input tax credit while aligning with Section 25(4), Schedule I, and CBIC Circular 199/11/2023-GST

Ques: ASMT 10 was fgiven for FY 21-22 only. Now departmemnt has issued for 20-21 and 21-22 on 25-09-2025 combine show casue notice u/s 74 . Will this be valid . In SCN alos refereed that ASMT 10 . ISsue was related to ITC as per GSTR3B and reflecting in GSTR2A. What remedy is availbe
Query 2)For FY 21-22 department is asking to pay for non complaicne of Rule 86B. If we pay the same today , 1) Can we this cash balance paid agaiant FY 21-22 Rule 86B liability for discharging current year liability . 2) Do we need to file DRC for cash payment done. 3) IF DRC filed for tax amount then we can not use this cash balacne. What is remedy.

Ans:

Pre-adjudication reply / representation

You may file a detailed reply raising:

  1. Procedural defect – FY 2020-21 was never subjected to ASMT-10 scrutiny; reference to ASMT-10 of FY 2021-22 renders notice non-speaking.
  2. Violation of Rule 142(1)(a) – if DRC-01 summary not properly served or not segregated year-wise.
  3. Vagueness – No separate computation, mismatch details, or documentary linkage provided for FY 2020-21.
  4. Natural justice – Combined SCN prevents meaningful reply; each year must be separately detailed.
  5. On merits – Explain ITC mismatch (e.g., vendor filing delay, genuine ITC, etc.).

 (B) Writ remedy before High Court

If adjudicating authority proceeds mechanically or refuses to drop proceedings, you can approach High Court seeking quashing of the SCN or order on grounds of:

  • Combined vague SCN for two years;
  • Absence of foundational scrutiny for FY 2020-21;
  • Violation of natural justice / Rule 142.

 Query 2 – If you pay today towards Rule 86B non-compliance for FY 2021-22, you must file Form DRC-03 to close the issue. Once filed, that cash balance is utilised and cannot be reused for other liabilities. The only remedy for re-credit is refund under Section 54 if payment is found erroneous.

Q No. Query Legal Answer
1 Can the cash paid today for FY 21-22 (Rule 86B non-compliance) be used to discharge current year liability? No, not if it is paid through DRC-03 for FY 21-22 — because it becomes utilised for that period. Only un-utilised cash in ledger can be used for any period.
2 Do we need to file DRC-03 for this payment?  Yes, if you are paying voluntarily to regularise FY 21-22 non-compliance; otherwise, there is no formal evidence of payment being made for that year.
3 If DRC-03 is filed, can the same cash balance be reused?  No. Once DRC-03 filed, the amount is adjusted from your ledger. It cannot be re-utilised.
Remedy For re-credit, you must claim refund u/s 54 (if paid erroneously under wrong head/year) — only if permissible. Otherwise, you cannot use the same cash balance again.

Ques: WE AREDOING BUSINESS IN GROUND NUT SEEDS. THE ISSUED NOTICE INS-1 UNDER SECTION 67 OF THE ACT AND AFTER INSPECTION SOME STOCK VARIATION WAS NOTICED AND ESTIMATED THE VALUE 10 LAKHS . THEY ISSUED A NOTICE TO PRODUCE BOOKS OF ACCOUNTS IT RETURNS FOR 4 YEARS AND ASKED THE LEDGER EXTRACTS 180 DAYS PAYMENTS ETC . WE REPLIED THE DEPT SIR INSPECTION WAS CONDUCTED UNDER SECTION 67 OF THE ACT AND WE READY TO PAY GST AND PENALTY IF IT IS LIABLE AND WE ARE NOT IN A POSITION TO SUBMIT OTHER INFORMATION AS REQUESTED IN THE NOTICE AS IT IS NOT A NOTICE ISSUED UNDER SECTION 65 AUDIT. THE DEPARTMENT ISSUED AGAIN A NOTICE TO SUBMIT ALL THE PARTICUCLARS AS REQESTED. LET ME KNOW WHETHER THEY ARE AUTHORISED TOASK ALL THE PARTICULARS UNDER SECTION 67 PL INFORM WHAT ARE THE POWERS OF THE DEPARTMENT UNDER SECTION 67 PL INFORM ANY CASE LAW ON THIS ISSUE.

Ans:

Section 67 – Power of inspection, search and seizure

The section empowers the proper officer (Joint/Assistant Commissioner or above) to:

  • Inspect any place of business, warehouse, godown, or transporter’s premises if he has “reasons to believe” that:
    • (a) A taxable person has suppressed transactions, or
    • (b) Stock of goods liable to tax has been kept to evade tax, or
    • (c) A person engaged in transport/warehousing is keeping goods that escaped tax, or
    • (d) A person is keeping accounts/documents that may be useful for proceedings.

If such belief exists, he can authorise an officer to inspect, and if necessary, seize goods, documents, books or things.

 Key Powers under Section 67

Power Reference Remarks
Inspection Sec 67(1) Limited to verification of goods, documents, records found at the premises.
Search & Seizure Sec 67(2) If after inspection, officer forms a belief that goods/documents useful for proceedings are secreted, he may seize them.
Access to electronic records Sec 67(3) Officer can access computer systems and require assistance.
Retention & release Sec 67(7)-(9) Must prepare inventory; release when not required; cannot keep beyond statutory limits.
Provisional release Sec 67(6) Goods can be released provisionally upon execution of bond/security.
  1. Limits on Power — What They Cannot Do Under Section 67
  • Section 67 authorises inspection, search and seizure, not audit or scrutiny of past returns.
  • Demanding complete books of accounts for four years, ledger extracts for 180 days, etc., is outside the immediate scope of inspection, unless they are directly relevant to the reason recorded for inspection (for example, verifying the ₹10 lakh stock variation).

Caution: The above opinion is framed based on the limited information available and merely a personal opinion. We will not be responsible for any damage or loss in whatever manner consequent to any action taken on the basis of any content of this opinion. We suggest you take a detailed opinion for better clarity based on extensive information and research thereof.

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