Case- Ishan Resins & Paints Ltd [2020] 113 taxmann.com 424 (AAR-WEST BENGAL)

1. Facts

The Applicant intends to lease trucks or tankers without operator to goods transport agencies (hereinafter called “GTA”) or any other persons.

2. Query

Whether supply of services by way of leasing of goods transport vehicles without operators to GTA would be exempt under serial no. 22 (b) of Notification no. 12/2017 CT(Rate) dated 28-06-2017 (corresponding State Notification No. 1136 – FT dated 28-06-2017), as amended from time to time (hereinafter collectively called ‘Exemption Notification’).

If the above service is not exempted what will be the appropriate classification and rate of tax in GST Act, 2017. Further, the applicant seeks clarification on whether the credit of input tax paid on purchasing of motor vehicles is admissible or not.

3. Observation by AAR

Meaning of Hiring and means transfer of right to use goods:- In Black’s Law Dictionary hiring is discussed as a kind of bailment, which is classifiable into five categories. One of them is ‘locatum’ or hiring. It is further subdivided into ‘locatio rei’ where the hirer gains temporary possession of the thing. Hiring, therefore, includes agreements where control and possession of goods are transferred to the hirer. It is known as the transfer of the right to use the goods. Sl. No. 22 of the Exemption Notification should, therefore, apply to all hiring of the means of transportation of goods, provided the hirer is a goods transport agency and no other specific provision is made for taxing the transfer of the right to use such goods.

Entry of Leasing restricts the meaning of hiring-A specific provision, however, is made under Sl. No. 17(iii) of the Rate Notification. The service of transferring right to use any goods for any purpose (whether or not for a specified period) is taxable under the said provision at the same rate as may apply to supply of the goods. Such a provision restricts the meaning of the term ‘hire’ in Sl. No. 22 of the Exemption Notification only to those transactions that do not involve transfer of the right to use the goods. Sachin Malhotra (supra) is relevant so far as it shows that the meaning attributable to an act of hiring is dependent upon the context in which the term is applied.

Activity of the Applicant is not covered under the meaning of Renting since it is only restricted to rental service with operators- The Applicant intends to lease out vehicles like trucks, tankers etc. that are designed to transport goods. The control and possession of the vehicle will be transferred to the lessee, who will engage operator and bear the cost of repair, insurance etc. It is, therefore, not classifiable under SAC 9966, which is restricted to rental services of transport vehicles with operator.

Activity of the Applicant is covered under 9973-The service is classifiable under SAC 997311 as leasing or rental services concerning transport equipment without operator. It amounts to the transfer of the right to use the goods and taxable under Sl. No. 17(iii) of the Rate Notification.

IT Credit is allowable to the applicant- Section 17(5)(a) of the GST Act does not allow input tax credit on inward supply of motor vehicles of a specific category (those meant for transportation of persons having seating capacity not exceeding thirteen persons). The restriction, therefore, does not apply to the goods transport vehicles. Sl. No. 17(iii) of the Rate Notification does not prohibit claiming input tax credit on the goods given on lease.

4. Held

The Applicant’s service of leasing goods transport vehicles is classifiable under SAC 997311 and taxable under Sl. No. 17(iii) of Notification No. 11/2017 – CT (Rate) dated 28-06-2017 (corresponding State No. 1135-FT dated 28-06-2017), as amended. The Applicant can claim input tax credit in accordance with law on the goods transport vehicles so leased out.

5. Comment

AAR has held that activity of applicant of leasing the vehicles to GTA is taxable under 997311 since entry “Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration” restricts scope of exemption entry relating to “Giving on Hire  to a goods transport agency, a means of transportation of goods”. In this case, there are two aspects which might have been missed by AAR-

a) Service of Giving means of Goods on hire covered both under 9966/9973-It seems that it missed from observation of AAR that entry “Giving on Hire to a goods transport agency, a means of transportation of goods” is covered under both 9966 and 9973. Therefore, whether means of transport of goods are given with operator or without operator to Goods Transport Agency, both are exempted from the levy of tax by virtue of Entry No. 22 of Notification No. 12/2017CT (Rate) Dated 28^th June 2017.

b) Even if observation of AAR is accepted then out of the two competing entries neither of which are overriding the other entry, assessee can opt for beneficial entry out of the two entries

Even if it is assumed that there are two competing entries which are not specifically overriding each other then in such case conclusion of AAR that entry “Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration” restricts scope of exemption entry relating to “Giving on Hire  to a goods transport agency, a means of transportation of goods” seems to be on the wrong side.

If at all two competing entries are there and neither of them are expressly having overriding impact over the other then in such case, assessee can opt for the most beneficial of them. CBIC in Circular No. 82/01/2019-GST Dated 1^st January 2019 also accepted the principle by referring to the same as follows:

The legal position in such situation has been clarified by Hon’ble Supreme Court in many cases that if there are two or more exemption notifications available to an assessee, the assessee can claim the one that is more beneficial to him. Therefore, from 31st January, 2018 to 31st December, 2018, IIMs can avail exemption either under Sl. No 66 or Sl. No. 67 of the said notification for the eligible programmes. In this regard following case laws may be referred

1. H.C.L. Limited vs Collector of Customs [2001 (130) ELT 405 (SC)]
2. Collector of Central Excise, Baroda vs Indian Petro Chemicals [1997 (92) ELT 13 (SC)]
3. Share Medical Care vs Union of India reported at 2007 (209) ELT 321 (SC)
4. CCE vs Maruthi Foam (P) Ltd. [1996 (85) RLT 157 (Tri.) as affirmed by Hon’ble Supreme Court vide 2004 (164) ELT 394 (SC)

It would be pertinent to highlight that Section 17(5)(b) also uses terms renting, hiring and leasing separately. Therefore, intention of the legislature also seems to that meaning of the hiring, leasing and renting are not overlapping and have to be treated as separately. On the other side, one might also feel that legislature themselves might not be very clear and therefore to be on safer side, all three have been mentioned in Section 17(5)(b) of CGST Act, 2017. It would only be clear once the maters start to travel the courts.

The view have not been settled since service tax law and some of our articles on the given subject are given below are as follows-

1. #GSTCase-92-Allowability of ITC on renting of Vehicles-Section 17(5) of CGST Act, 2017-Precarious case of Opposite Judgements by AAR Madhya-Pradesh and AAR/AAAR-West Bengal–

2. Difference between Passenger Transportation Service and Service by way of Renting of Vehicle and Allowability of ITC on Renting of Motor Vehicle-Applicability of Section 17(5) of CGST Act, 2017–

3. #GSTCase-38: Activity of Supply of Non-Air-Conditioned Motor Vehicle is an activity of Renting of Motor Vehicle- and the story of Hiring and Renting Continues-

4. #GST-Case-31-Is there any difference between Renting of Motor Vehicle and Hiring of Motor Vehicle in GST Regime

Case-Students’ Welfare Association [2019] 103 taxmann.com 449 (AAR – MAHARASHTRA)

1. Facts-

Students Welfare Association (SWA) is 63 years old registered charitable Trust having Section 12AA & 80-G certificate of exemption under Income-tax Act, 1961, since 1973. Trust activity, is exclusively connected with students and education. Under the GST Act, not a registered person. Applicant offers lodging and boarding facilities besides compulsory personality development training which includes computer awareness activities besides developing skills to operate the computers, training for development of communication skills in English and other foreign languages for a consolidated fee of Rs.22,250/- (Rupees twenty two thousand two hundred and fifty only with no option to choose the activities such as only lodging or only boarding or only training, etc.

2. Query

Query 1: Whether hostel accommodation provided by Trusts to students is covered within the definition of Charitable Activities and thus, exempt under Sl. No. 1 of Notification No.12/2017-CT (Rate)?

Query 2: Whether different treatment would be required for use of hostel rooms given by us for residential purposes but ultimately been used by the hirer for commercial use?

Query 3: Whether the said notification would be applicable if the accommodation if decided to be given for commercial purposes in future whether the activity still would be able to enjoy exemption under said notification?

Question 4: Whether the large donations given by the donors would be treated as ‘service and taxed accordingly and whether only sponsored donations are believed to be covered under said mega exemption notification?

3. Contention of the Applicant

The trust meets its expenses by charging nominal fee to the students and from donations collected from public. The activity carried by the trust is bound to result into incurring financial losses. The recoupment of these sums of expenditure which causes financial loss to the trust is made good out through donations.

It is the submission of applicant that activities are covered by the expression ‘Charitable activities’ as defined in the notification under the GST law and therefore exempt from the levy of tax.

4. Held

Query 1: Whether hostel accommodation provided by Trusts to students is covered within the definition of Charitable Activities and thus, exempt under Sl. No. 1 of Notification No.12/2017-CT (Rate)?

Held: AAR relying upon Circular No. 32/06/2018-GST, dated 12th February, 2018 held that Hostel accommodation services do not fall within the ambit of charitable activities as defined in para 2(r) of Notification No. 12/2017-CT (Rate).

Query 2: Whether different treatment would be required for use of hostel rooms given by us for residential purposes but ultimately been used by the hirer for commercial use?

Held: It has bene submitted by applicant that during vacation period hostel is offered for residential purpose and hired for labourers of a commercial organization.

Entry at Sr. No. 14 of Notification No. 12/2017 (Before Amendment vide Notification No. 20/2019-Central Tax (Rate) Dated 30^th September 2019)

Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent.

It was observed by AAR that description of service is use based, meaning that if the accommodation is used for residential or lodging purpose then it is immaterial who the user is. Vide Circular No. 32/06/2018-GST, dated 12th February, 2018, distinction between services by a hotel, inn guest house club or campsite, by whatever name called, for residential or lodging purposes and Hostel accommodation services is done away.

The services provided by such hostel, for residential and lodging purposes would be covered by the scope of notification entry where the declared tariff of a unit of an accommodation is below one thousand rupees per day. Therefore, the scope of entry is restricted to use of the accommodation unit for residential and lodging purpose.

Query 3: Whether the said notification would be applicable if the accommodation if decided to be given for commercial purposes in future whether the activity still would be able to enjoy exemption under said notification?

Held:  The scope of exemption entry 14 of the Notification 12/2017 which is applicable to accommodation unit when used only for residential or lodging purpose. Therefore, if the unit is used for residential or lodging purposes, irrespective of who the user is, then in such case, exemption would be available. However, if the unit is used for purposes other than residential or lodging, then exemption under the said entry would not be available.

Question 4: Whether the large donations given by the donors would be treated as ‘service and taxed accordingly and whether only sponsored donations are believed to be covered under said mega exemption notification?

Held: SWA is not a commercial hostel or commercial organization and thus meets its expenses by charging nominal fees to the students. They further meet the expenses form donations collected from public. It is this donation subject matter of this question. As per the contention of applicant donations received by them would not be chargeable to GST. The issue before AAR thus was whether consideration received by applicant in the form of public donation is towards any supply and chargeable to GST.

AAR referred to the concept of income by a charitable Trusts from donations collected from the public explained by Board vide GST Flyers dated 01/01/2018 at Sr. 39:

“Income from a religious ceremony organized by a charitable trust exempt as per the above notification. So the income from Navratri Functions, other religious junctions, and religious poojas conducted on special occasion like religious festivals by persons so authorized for this purpose by the charitable or religious trust are exempt from GST. But a careful perusal of this exemption shows that all income from such a religious ceremony is not exempt (services other than by way of conduct of religious ceremony are not exempt). Therefore the nature of income is an essential factor by ascertaining whether it will be taxable or exempt, the nature of income loses its religious nature, it is definitely chargeable.

For example, if with regard to Ganeshotsav or other religious functions, charitable trusts rent out their space to agencies for advertisement hoardings, income from such advertisement is chargeable to GST, as this will be considered as income from the advertisement services. Further, if donation for religious ceremony is received with specific to GST. But is donation for religious ceremony is received without such instructions, it may not be subjects to GST.”

AAR observed that principle emerging from the above is equally applicable to the case at hand and that if the income is in nature of donation received without any instructions, then it would not be subject to GST.

In view of the above guideline, it was concluded that donations received without any instruction would not be taxable however where the donor is clearly receiving identifiable benefits in return either in terms of advertising or publicity, the said donation amount received is to be treated as a consideration for supply of goods or services or both and liable to GST.

5. Comment

The above ruling is a significant ruling terms of taxability of the donations received by a charitable organisation. There are few other clarifications issued in respect of taxability of donations in GST Regime as well as pre-GST Regime. Two such clarifications are as follows:

a) Education Guide 2012-Some Examples of “Consideration”-Vis-à-vis-Donation

b) Donations to a charitable organization are not consideration unless charity is obligated to provide something in return e.g. display or advertise the name of the donor in a specified manner or such that it gives a desired advantage to the donor.

c) Conditions in a grant stipulating merely proper usage of funds and furnishing of account also will not result in making it a provision of service.

d) Activity carried out without any consideration like donations, gifts or free charities are therefore outside the ambit of service.

e) Circular No. 116/35/2019-GST [F.NO. 354/136/2019-TRU], Dated 11-10-2019

The Circular sought to clarify the issue whether GST is applicable on donations or gifts received from individual donors by charitable organizations which is acknowledged by them by placing name plates in the name of the individual donor.

Circular then referred to some examples of cases where there would be no taxable supply are as follows:—

(a) “Good wishes from Mr. Rajesh” printed underneath a digital blackboard donated by Mr. Rajesh to a charitable Yoga institution.

(b) “Donated by Smt. Malati Devi in the memory of her father” written on the door or floor of a room or any part of a temple complex which was constructed from such donation. It was finally clarified vide circular that in each of these examples, it may be noticed that there is no reference or mention of any business activity of the donor which otherwise would have got advertised. Thus, where all the three conditions are satisfied namely the gift or donation is made to a charitable organization, the payment has the character of gift or donation and the purpose is philanthropic (i.e. it leads to no commercial gain) and not advertisement, GST is not leviable.

Case: – Ramnath Bhimsen Charitable Trust [2019] 105 taxmann.com 153 (AAR – CHHATTISGARH)

1. Facts:

Applicant is registered under Public Trust Act, 1951 w.e.f. 27-06-1991. They are running girls hostels in the name of Shree Ramesh Sewa Sadan and Godavari Sewa Sadan (hereinafter referred to as ‘hostel’). Hostel is providing basic facilities which are required for stay and to purse studies which include well-furnished residence, round the clock security, homely ambience, nutritious food, ample parking space etc. and in consideration, hostel is charging a nominal lump sum fee of Rs. 6000/- per month per person. In other words hostel is charging a single amount for providing above-mentioned services.

The applicant is running two girls hostels. They are providing 205 bed facility at Shree Ramesh Sewa Sadan which include 12 single bedrooms and 550 beds facility including 37 single bed rooms at Godavari Sewa Sadan. All the rooms are air-conditioned. For the above accommodations, monthly charges of Rs. 6000/- per month are paid by the occupants. The following facilities are jointly and exclusively being provided to the occupants of hostel:-

Canteen: – The hostel has well maintained canteen which provides healthy diet and hygienic food.

Parking Facility: – Students are provided parking facility in the hostel campus which is very safe & spacious.

Hot Water Facility:-The hostel has solar geyser which ensures hot water facility to the students.

Guest Rooms: – There is provision to accommodate the parents of occupants in the three guest rooms.

Temple: – Hostel also comprises of a temple at the ground floor.

Above mentioned facility and accommodation is provided in consideration of Rs. 24000/- charged quarterly from boarders.

2. Query:

Query 1: Whether the activity of providing the hostel on rent to various boarders is exempted? If it is exempted in such case, under which exemption notification the same is exempted?

Query 2: Whether the activity of providing the hostel on rent to various boarders is taxable? If it is taxable, in such case, under which service access code the same is taxable?

3. Observation by AAR

Observation by AAR about supply by the applicant being a composite supply-AAR observed from thedocuments/brochure/submitted by applicant that it is evident that girls residing in both hostels are provided with various facilities like food supply from canteen, parking space, coaching, library, entertainment which are all taxable supplies. Apart from above they are also provided with provision of guest rooms for visiting parents of occupants. All facilities are only for occupants of hostels. The girls residing there are neither allowed to have food from outside nor are outsiders allowed to have food from hostel canteen. Thus accommodation facility at hostel is the only principal supply and all other facilities are interrelated as they are provided exclusively to the occupants of hostel only, without any extra charge. It has categorically been stated by the applicant that no other charges other than above amount is collected from the occupants on account of other allied facilities being provided. On above lines, the amount/charges received from the occupant girls at Shree Ramesh Sewa Sadan (205 beds comprising 12 single rooms) and Godawari Sewa Sadan (550 beds comprising 37 single rooms) against the facility of accommodation is during the course of business.

Reference to Circular No. 32/06/2018-GST, dated 12-02-2018- It was observed by AAR that primarily occupants approach Hostel facility providers for having accommodation facility and only once this accommodation facility gets ensured, does the need for other allied facilities arise. Here in the instant case no other charges are being collected from the occupants for the allied services being provided. Further it is clear from Circular No. 32/06/2018 dated 12-02-2018 that amount received for providing taxable supplies in hostel under Notification No. 12/2017(Rate) illustrating lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent are exempt. The lump sum amount received per unit (bed) per day against the accommodation services in hostel is to be treated as exempt supply.

Observation about the Taxability of the Activity or Transaction of the Applicant- Applicant is collecting Rs. 28000/- and Rs. 24000/- respectively from occupants of Hostel, quarterly in lump sum. This amount is less than Rs. 1000/- per unit (bed) when computed on a daily basis. Such supply under GST gets categorized under Notification No. 12/2017, dated 28-06-2017 (Rate) (Serial No. 14) tariff heading 9963 services by a hotel, inn, guest house, club or campsite by whatever name called, for residential or lodging purposes having declared tariff of a unit accommodation below one thousand rupees per day or equivalent and accordingly merits treatment as nil rated liability.

4. Held:

The activity of providing accommodation services by the applicant in their hostel for which the applicant is collecting an amount below the threshold limit of Rs. 1000/- per day and no other charges are being collected for providing other allied facilities/services therein viz. canteen food, parking space for vehicles, coaching, library, entertainment etc. merits exemption as stipulated under Notification No. 12/2017-State Tax (Rate) No. F-10-43/2017/CT/V(80), Dated 28.06.2017 under Serial No. 14, Chapter 9963. This amount received for such supply by the applicant falling under tariff heading 9963 qualifies being treated as nil rate tax exempted supply.

5. Comment The judgement has relied upon the Circular for holding that facilities provided by applicant was in the nature of accommodation services and therefore eligible for exemption. However, there is a very thin line wherein the composite supply of hostel accommodation becomes mixed supply liable to tax at the highest rate. Therefore, the transaction has to be analyzed in detail before arriving at the conclusion.

Case-Raj Quarry Works [2020] 117 taxmann.com 423 (AAR – GUJARAT)

1. Facts:

Applicant is carrying out mining activity on a plot of land leased from the government of Gujarat. The applicant is quarrying “BLACK TRAP” products used for concrete mixing and sells it to the customers. BLACKTRAP material attracts GST at 5% under Heading 2517 in Schedule-I. The said lease is operative for 10 years from 19-6-2010 to 18-6-2020. The applicant lease holder as per the terms and condition is required to pay Rent of Rs. 2,62,147/- per year or Royalty @ Rs. 250/- per Metric Ton, whichever is higher to the Govt. Of Gujarat.

2. Query:

a) What is the classification of service provided in accordance with Notification No. 11/2017-CT (Rate) dated 28-6-2017 read with annexure attached to it, issued by the State Government to M/s Raj Quarry Works, for which royalty is being paid. Whether said service can be classified under Tariff Heading 9973, specifically under 997337 as Licensing services for the right to use minerals including its exploration and evaluation or as any other service?

b) What is rate of GST on given services provided by State of Gujarat to M/s Raj Quarry Works for which Royalty is being paid?

c) Whether services provided by the State Government is governed by applicability of Notification No 13/2017-CT(Rate), dated 28-6-2017 under entry number 5 and whether M/s Raj Quarry Works is taxable person in this case to discharge GST under reverse charge mechanism or whether given service is covered by exclusion clause number (1) of entry no 5 and State Government is liable to discharge GST on same?

3. Observation:

a) HSN Applicable for mining services: The nature of service is covered under the Service Accounting Code 997337 – Licensing services for the right to use minerals including its exploration and evaluation. The Government provides service of licensing services for the right to use minerals after its exploration and evaluation to applicant and applicant has to pay a consideration in the form of rent/royalty to the Government for the same. Payment of rent/royalty is for license given to extract minerals and the amount of rent/royalty paid is based on the quantum of mineral extracted. Hence it is covered under Service Accounting Code 997337 – Licensing services for the right to use minerals including its exploration and evaluation, as it is a license to extract mineral ore and also the right to use such minerals extracted.

b) Applicable Tax Rate on Amount paid towards Royalty-

Reference-to-the-Rate-Chart

The aforesaid description of service received by the applicant has subsequently been classified against item no. ‘vii’ [From 13-10-2017 to 24-1-2018] and item no. ‘viii’ from 25-1-2018 onwards. The rate prescribed in the relevant notification against aforesaid item is ‘same rate of Central tax as applicable on supply of like goods involving transfer of title in goods’ till 31-12-2018 and 9% thereafter. It was also observed that GST rate so prescribed at Sl. No. 17(vi) or at clause (vii) or (viii) after amendment was not implementable due to the absence of any underlying goods.

• Reference to Agenda of 31^st GST Council Meeting when new rate at 9% was introduced from the earlier one –AAR then referred to the Agenda to 31^st GST Council Minutes which provided as follows:

Heading 9973 of scheme of classification of services under GST includes “Group 99733: the licensing services for the right to use intellectual property and similar products”. However, the rate notification No. 11/2017-C.T. (R), dated 28-6-2017, prescribes rate only for transfer or permitting the use or enjoyment of Intellectual Property Rights (IPR). No rate has been prescribed for transfer of intellectual property and similar products other than IPR. IPR, as held in several decisions of the Tribunal and the Courts, refers to rights in intellectual property protected by the relevant IPR law in force. Intellectual property not protected by IPR law in force cannot be termed as IPR.

2. The residuary entry for the Heading 9973, i.e. entry Sl. No. 17(viii) prescribes GST rate as “same rate of Central Tax as on supply of like goods involving transfer of title in goods”. However, the intellectual property does not have underlying goods and thus the prescribed rate does not apply to transfer of intellectual property and similar products other than IPR.

• Conclusion by AAR- AAR on examining recommendation of the 31st GST Council observed that amendment of Entry Sl. No. 17(viii) was approved merely to clarify GST rate applicable to the right to use Intellectual Property and similar products other than IPR which are covered under Group 99733. The impugned service received by the applicant was appropriately covered under description ‘Licensing services for the right to use minerals including its exploration and evaluation’ which is classifiable under SAC 9973 37 under Group 99733. AAR held that as per agenda to the GST Council Meeting, it was pretty clear that for Licensing services for the right to use intellectual property and similar products other than IPR, GST Council carved out a new entry No. (viii) with the Service description “Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi), (vii) and (viia) above” with rate of tax as 18%.

The rate of GST applicable on lease of goods may have been prescribed as the rate of GST applicable to supply of like goods involving transfer of title over the goods but the rate of GST prescribed for lease of goods can’t be made applicable for leasing of mining area conferring the right to extract and appropriate the minerals. The lease by Government not being a lease of any goods, conditional rate of tax applicable to sale of like goods cannot be imported for prescribing the rate of GST applicable to leasing of mining area. Therefore, in view of above discussion of GST Council it was held that amendments have been carried out vide the aforesaid notification No. 27/2018- CT (Rate) Dated 31-12-2018 to clarify the legislative intent as well as to resolve the unintended interpretations. It is well settled that the legislative intent cannot be defeated by adopting interpretations which is clearly against such interpretations.

• Reference to the Apex Court Decision- AAR relied on decision of Hon’ble Supreme Court of India in the case of W.P.I.L. Ltd. v. Commissioner of Central Excise, Meerut, U.P. [2005 (181) E.L.T. 359 (S.C.)] wherein a ‘3’ Judges Bench of the Hon’ble Supreme Court while interpreting applicability of exemption notifications have observed in Paras 15 and 16 as follows :

“15. The Learned Counsel for the appellant is also right in relying upon a decision of this Court in Collector of Central Excise, Shillong v. Wood Craft Products Ltd. [(1995) 3 SCC 454]. In that case, this Court held that a clarificatory notification would take effect retrospectively. Such a notification merely clarified the position and makes explicit what was implicit. Clarificatory notifications have been issued to end the dispute between the parties.

16. In view of the consistent policy of the Government of exempting parts of power driven pumps utilized by the factory within the factory premises, it could not be said that while issuing Notification No. 46/94 of March 1, 1994, the exemption in respect of said item which was operative was either withdrawn or revoked. The action was taken only with a view to rescinding several notifications and by issuing a composite notification. The policy remained as it was and in view of demand being made by the Department, a representation was made by the industries and on being satisfied, the Central Government issued a clarificatory Notification No. 95/94 on April 25, 1994. It was not a new notification granting exemption for the first time in respect of parts of power driven pumps to be used in the factory tor manufacture of pumps but clarified the position and made the position explicit which was implicit.

• Amendment to 17(viii) held to be clarificatory and therefore retrospective- The ratio of the aforesaid decision of the Hon’ble Supreme Court of India was held to be squarely applicable to the instant case in as much as the amendment of the Notification No. 11/2017-( Rate)- Central Tax dated 28-6-2017 vide Notification No. 27/2018 (Rate)- Central Tax dated 31-12-2018 is of clarificatory notification and therefore impugned service ‘Licensing services for the right to use minerals including its exploration and evaluation’ which is classifiable under SAC 9973 37 will be covered under residual entry No. (viii) of the Notification No. 11/2017-(Rate) Central Tax dated 28-6-2017 as amended vide Notification No. 27/2018-CT (Rate) dated 31-12-2018. Since the insertion of entry (viia) and (viii) vide said amendment Notification was being nature of clarification of the GST rate in respect of “right to use Intellectual Property and similar products other than IPR”, the applicability of said residual entry (viii) would be from the date of Not. No. 11/2017-(Rate) Central Tax as the same view is held by Hon’ble Supreme Court of India. Accordingly, impugned service ‘Licensing services for the right to use minerals including its exploration and evaluation’ which is classifiable under SAC 9973 37 will be covered under residual entry No. (viii) of the Notification No. 11/2017-(Rate) Central Tax dated 28-6-2017 and would attract GST rate 18% {9% CGST+9% SGST} from the period of July, 2017 onwards.
• Reference to AAR Ruling of M/S Pioneer Partners- The applicant has referred to Advance Ruling in the case of M/s. Pioneer Partners reported in 2018 (18) GSTL 58 (AAR-GST), wherein the Haryana Authority for Advance Ruling held that “The services for the right to use minerals including its exploration and evaluation, as per Sr. No. 257 of the annexure appended to Notfn. No. 11/2017-C.T. (Rate), dated 28-6-2017 is included in Group 99733 under Heading 9973. Hence it attracts the same rate of tax as on supply of the like goods involving transfer of title in goods. The said Authority have passed their rulings without properly appreciating the consequences of amendments made vide Notification No. 27/2018-Central Tax (Rate), dated 31-12-2018. Further, as per Section 103 of the CGST Act, any Advance Ruling is binding on the Applicant who has sought it and on the concerned officer or the jurisdictional officer in respect of the Applicant. Accordingly, AARs Ruling as cited above can’t be relied upon in the present case of the Appellant.

Liability to pay tax on Reverse Charge- The transaction/service i.e. “leasing of mines” was between State Government and applicant and services were supplied by State Government to the applicant which was a business entity. The subject transaction/service being a supply was not covered under the exceptions, the applicant being the recipient of such service shall have to pay tax on the said supply under reverse charge mechanism as per Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017. Hence the applicant is liable to pay GST under reverse charge mechanism

4. Held:

i) What is the classification of service provided in accordance with Notification 11/2017-CT (Rate) dated 28-6-2017 read with annexure attached to it, issued by the State Government to M/s Raj Quarry Works, for which royalty is being paid. Whether said service can be classified under Tariff Heading 9973, specifically under 997337 as Licensing services for the right to use minerals including its exploration and evaluation or as any other service?

Ans- The activity undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services, with or without operator), as mentioned in the annexure at Serial No. 257 (Licensing services for the right to use minerals including its exploration and evaluation) sub-heading 997337 of Notification Number 11/2017-C.T. (Rate), dated 28-6-2017

ii) What is rate of GST on given services provided by State of Gujarat to M/s Raj Quarry Works for which Royalty is being paid?

Ans. The activity undertaken by the applicant attracts 18% GST (9% CGST+ 9% SGST).

iii) Whether services provided by the State Government is governed by applicability of Notification No 13/2017-CT(Rate), dated 28-6-2017 under entry number 5 and whether M/s Raj Quarry Works is taxable person in this case to discharge GST under reverse charge mechanism or whether given service is covered by exclusion clause number (1) of entry no 5 and State Government is liable to discharge GST on same?

Ans. The applicant is not covered under exclusion clause 1 of Sr. No. 5 of the Notification. Therefore, applicant is liable to discharge tax liability under reverse charge mechanism vide Notification No. 13/2017-C.T. (Rate), dated 28-6-2017 (as amended from time to time) of the CGST Act, 2017.

5. Comment

The decision holds amendment to the entry as a retrospective amendment (even though entry has been given a prospective effect in the rate notification amendment) by referring to the decision of Hon’ble Apex Court given totally in a different context, ignoring the rules laid down for interpretation of a retrospective amendment, AAR empowering itself for treating amendment as a retrospective amendment and last but not the least holding other AAR as not having “passed their rulings without properly appreciating the consequences of amendments made vide Notification No. 27/2018-Central Tax (Rate), dated 31-12-2018”. The reason why decision needs reconsideration

a) It has to be first admitted that the amendment made on 31^st December 2018 does not seek to explain a pre-existing legislation but seeks to modify or fasten a new liability on the assessee.

b) Amendment to the Entry 17(viii) has been brought with prospective effect by the legislature. The agenda might refer to as “clarificatory” but then it is not a clarification by Circular but a notification which has brought change to the rate notification. A Change to a rate notification cannot be held to be clarificatory and that too from a retrospective effect wherein legislature themselves have brought them from a prospective effect.

c) Clarification is always there to clarify an existing thing. If there was no entry for tax rate of 18% prior to the amendment from in the entire Entry 17 of Rate Notification 11/2017-Central Tax Rate for HSN 9973, how would have one thought of the rate and how would one have waited for the amendment that on one fine day entry of 18% would be brought. Supposedly if the amendment to Entry 17(viii) would not have come on 31^st December 2018, whether a tax payer would have waited for eternity for the clarification.

d) Hon’ble Apex Court in the matter of Commr.Of Income Tax-I, New Delhi vs Vatika Township P.Ltd on 15 September, 2014 laid down landmark precedence for retrospective amendment-

• The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward.

                                                                                                            Emphasis Supplied

• Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties.
• We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect.

                Emphasis Supplied

• In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity.
• We may note that under certain circumstances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labeled as “declaratory statutes”. The circumstances under which a provision can be termed as “declaratory statutes” is explained by Justice G.P. Singh[7] in the following manner:

“Declaratory statutes The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court : “For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word ‘declared’ as well as the word ‘enacted’. But the use of the words ‘it is declared’ is not conclusive that the Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is ‘to explain’ an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language ‘shall be deemed always to have meant’ is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law.” The above summing up is factually based on the judgments of this Court as well as English decisions.

                                                                                                            Emphasis Supplied

• A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas & Anr.[8], while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows:

“The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional juris-diction was before the amendment derived from s. 115, Code of Civil Procedure, and the legislature has by the amending Act attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act.”

                                                                                                        Emphasis Supplied

 The judgement clearly lays down that generally

• “Law looks forward not backward”,
• Where a benefit is conferred by a legislation, the rule against a retrospective construction is different,
• In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous.
• The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective.

Thus, in no way the amendment made by entry 27/2018-Central Tax (Rate) can be held to be clarificatory as it was not made to clarify a pre-existing legislation and sought to carve a new rate of 18% which was not there in entry no. 17 in any of its entry prior to the amendment.

e) Beneficiary Amendment was held to be retrospective in the matter of W.P.I.L. Ltd. v. Commissioner of Central Excise, Meerut, U.P. [2005 (181) E.L.T. 359 (S.C.) –

The judgement in W.P.I.L. Ltd. v. Commissioner of Central Excise, Meerut, U.P. [2005 (181) E.L.T. 359 (S.C.) was given in a beneficial amendment for the assessee as Hon’ble Apex Court in the matter of Vatika Township has held that that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. In the case referred by AAR facts of the case were

The case of the appellant is that it is the manufacturer of power driven pumps and parts thereof designed for handling water. The power driven pumps as well as parts thereof which are used for manufacture of pumps have been exempted from levy of excise duty since 1978. Various notifications had been issued from time to time granting exemption to both, i.e. power driven pumps and also parts of power driven pumps which were used in the manufacture of the power driven pumps. Parts of power driven pumps which were not utilized for manufacture of power driven pumps within the factory were, however, outside the purview of exemption and they were subjected to levy of excise duty.

According to the appellant, with a view to reducing special exemption notifications and consolidating various exemption notifications, in 1994, the Government rescinded 389 notifications with effect from March 1, 1994 and re-issued a consolidated notification incorporating earlier notifications vide Notification No.46/94 dated March 1, 1994. In the said notification, power driven pumps were shown as an exempted item. Due to inadvertence, however, parts of power driven pumps used in manufacture of pumps within the factory which were all along exempted from 1978 were omitted. But there was no change in the Government policy in 1994 which was in vogue since 1978. The omission was, therefore, brought to the notice of the Government by the industries. The Government was also satisfied and amended the notification No.46/94 dated March 1, 1994 by issuing another notification No.95/94 on April 25, 1994 correcting the mistake and clarifying the position that parts of power driven pumps which were used in manufacture of power driven pumps would also be exempted. According to the appellant, the notification No.95/94 dated April 25, 1994 was thus merely clarificatory in nature and an obvious error or omission which remained while issuing notification No.46/94 on March 1, 1994 was rectified by the subsequent notification No.95/94 on April 25, 1994 and hence it was retrospective in operation. The resultant effect, according to the appellant, was that parts of power driven pumps which were to be utilized for manufacturing power driven pumps within the factory would continue to be exempted from payment of excise duty.

It can be seen from the above that it was a beneficial notification which was held to be clarificatory in nature and given a retrospective effect. Hon’ble Apex Court has held in the case of M/S Vatika Township that for the sake of completeness, where a benefit is conferred by a legislation, rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect.

AAR has held that amendment was clarificatory and therefore retrospective in nature. Firstly, amendment to Entry 17(viii) was made prospectively by the legislature and secondly it is not a beneficial amendment but would fasten a liability on the taxpayer. Therefore, AAR has treated an amendment to be retrospective by applying an Apex Court Ruling on a beneficiary provision to the assessee wherein Hon’ble Apex Court in the matter of Vatika Township has clearly laid down that consideration in a beneficial provision amendment and detrimental provision amendment would be different.

f) AAR Rulings on Royalty- Following are the Ten judgements on Royalty which have taken a contrary view to the view now taken Gujarat AAR.There are decisionswhich have referred to the amendment made on 31^st December 2018 but nowhere it has been held that the amendment is retrospective in nature.

Situation as existed post Amendment of 31^st December 2018-

1. Wolkem Industries Ltd. [2019] 104 taxmann.com 418 (AAR- RAJASTHAN)– The said service is classifiable under “Licensing services for the right to use minerals including its exploration and evaluation” at Serial No. 257, Heading 9973, Group 99733, sub-heading 997337 of annexure “Scheme of classification of Services to Notification No. 11/2017-CT (Rate) dated 28.06.2017. Service undertaken by applicant falls at item (viii) of serial no. 17 of Notification No. 11/2017 (as amended from time to time) which attracts 18% GST (9% CGST+ 9% SGST). The applicant is receiving leasing/licensing services from the Government of Rajasthan hence, provisions of reverse charge mechanism are applicable under the Notification No. 13/2017-CT (Rate), dated 28.06.2017 (as amended from time to time) of the CGST Act, 2017.

2. Aravali Polyart (P.) Ltd [2019] 108 taxmann.com 373 (AAAR-RAJASTHAN)– Upheld the decision of Rajasthan AAR holding that the activity undertaken by the applicant is classifiable under Heading 9973 (Leasing or rental services, with or without operator), as mentioned in the annexure at Serial No. 257(Licensing services for the right to use minerals including its exploration and evaluation) sub heading 997337 of notification number 11/2017-CT (Rate) dated 28.06.2017 and attracts 18% GST (9% CGST+ 9% SGST)

3. Ajay Kumar Dabral, [2020] 116 taxmann.com 156 (AAR- UTTARAKHAND)– Where the Government had allotted specified areas to Garhwal Mandal Vikas Nigam (GMVN) to extract accessory minerals (sand, gravel, boulders) from the same and GMVN further allotted said work to the applicant against some consideration and GMVN is paying prescribed fee as royalty to the Government from said consideration, services rendered by GMVN to the applicant is covered under heading No 997337 under serial No. 257 of annexure appended to Notification No. 11/2017- Central Tax (Rate), dated 28-6-2017 as “Licensing services for the right to use minerals including its exploration and evaluation” and supply of said service during the period 1-7-2017 to 31-12-2018 attract GST at 5%

4. Naren Rocks and Mines (P.) Ltd. [2019] 110 taxmann.com 280 (AAR – KARNATAKA)– The royalty paid in respect of Mining Lease is a part of the consideration payable for the Licensing services for right to use minerals including exploration and evaluation falling under the Heading No. 9973, which is taxable at the rate applicable on supply of like goods involving transfer of title in goods upto 31.12.2018 and taxable at 9% CGST and 9% SGST from 01.01.2019, under the residual entries of Serial No.17 of the Notification No. 11/2017- Central Tax dated 28.06.2017 as amended by Notification No. 27/2018 – Central Tax (Rate) dated 31-12-2018.

5. NMDC Ltd-[2019] 110 taxmann.com 284 (AAR – KARNATAKA)- The royalty paid in respect of Mining Lease is a part of the consideration payable for the Licensing services for right to use minerals including exploration and evaluation falling under the Head 9973 which is taxable at the rate applicable on supply of like goods involving transfer of title in goods upto 31.12.2018 and taxable at 9% CGST and 9% SGST from 01.01.2019 onwards under the residual entries of Serial No.17 of the Notification No.11/2017-Central Tax, dated 28.06.2017.

6. PKR Projects and Engineers [2019] 112 taxmann.com 10 (AAR – ANDHRA PRADESH)–The activity undertaken by the applicant falls at item (viii) of serial No. 17 of Notification No.11/2017, which was further amended vide Notification No. 27/2018-Central Tax (Rate), dt. 31-12-2018 and attracts 18% GST (9% CGST+ 9% SGST) w.e.f. 01.01.2019.

7. Vinayak Stone Crusher-[2019] 107 taxmann.com 273 (AAR- RAJASTHAN)– The rate of GST on service provided by the State of Rajasthan to the applicant for which royalty is being paid is 18% (SGST9% +CGST9%) pursuant to amendment made after 31^st December 2018.

Situation as existed prior to 31^st December 2018

8. United Mining Corporation [2019] 102 taxmann.com 276 (AAR – HARYANA)– The services for the right to use minerals including its exploration and evaluation, as per Sr. No. 257 of the annexure appended to Notification No. 11/2017-CT (Rate), dated 28.06.2017 is included in group 99733 under heading 9973. Hence it attracts the same rate of tax as on supply of the like goods involving transfer of title in goods. As per Notification No. 1/2017-CT (Rate), dated 28.06.2017 under the CGST Act, 2017 and the corresponding State Tax notification under HGST Act, 2017, Schedule -I the stone boulders extracted by the applicant attract 5% GST (2.5 % CGST+ 2.5% HGST) as covered under HSN 2516 (At Sr. No. 124 of the Notification).

9. Poineer Partners [2018] 97 taxmann.com 511 (AAR- HARYANA)- The services for the right to use minerals including its exploration and evaluation, as per Sr. No. 257 of the annexure appended to notification no. 11/2017-CT (Rate), dated 28.06.2017 is included in group 99733 under heading 9973. Hence it attracts the same rate of tax as on supply of the like goods involving transfer of title in goods. As per notification no. 1/2017-CT (Rate), dated 28.06.2017 under the CGST Act, 2017 and the corresponding State Tax notification under HGST Act, 2017, Schedule -I the stone boulders extracted by the applicant attract 5% GST (2.5 % CGST+ 2.5% HGST) as covered under HSN 2516 (At Sr. No. 124 of the notification). 10. NMDC Ltd [2019] 105 taxmann.com 266 (AAR – CHHATTISGARH)–The royalty  paid by M/s NMDC in respect of mining lease is classifiable under sub heading 997337 ; ‘Licensing services for the right to use minerals including its exploration and evaluation’ (covered under entry no. 17 of Notification No. 11/2017(Rate), dated 28.06.2017, attracting GST at the same rate as applicable for the supply of like goods involving transfer of title in goods, under reverse charge basis.

Case-IZ-Kartex named after P G Korobkov Ltd (GST AAR West Bengal)

1. Facts: The applicant is a local branch of a Russian business entity by the same name hereinafter “Foreign Company‟), which entered into a Maintenance and Repair Contract (hereinafter called “MARC”) with Bharat Coking Coal Ltd (hereinafter “BCCL”) with respect to the machinery and equipment it had supplied.

2. Query: The applicant wants to know whether the MARC makes the supplier liable to pay GST (which, for the purpose of this order, includes IGST). More specifically, the applicant wants to know whether the recipient is not liable to pay tax on reverse charge basis in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28/06/2017.

3. Observation by AAR

Responsibility of the Maintenance and Repair Contract Holder:- The contract was a longtermcontract spanning over seventeen years from date of commissioning of equipment. The Maintenance and Repair Contract Holder was responsible for supply of spares, components, and consumables over the entire period. It was required to depute officers, support staff and system expert at the site for maintenance and repair of equipment and train the BCCL personnel. BCCL was to provide the Maintenance and Repair Contract Holder access to the machines and repair facilities at all reasonable time. BCCL and the Maintenance and Repair Contract Holder shall jointly sign Equipment Logbook on daily basis recording actual working hours per shift, breakdown hours and other details. The Maintenance and Repair Contract Holder is to be paid at an agreed rate for supervision, supply of spares and consumables, and for overheads per working hour of the equipment for 5000 expected annual working hours.

AAR Observed that It was evident from the discussion that Maintenance and Repair Contract Holder had to maintain suitable structures in terms of human and technical resources at the sites of BCCL. It ensured supervision of equipment, supply of spares and consumable and overheads for 5000 annual working hours for seventeen years, indicating sufficient degree of permanence to the human and technical resources employed at the sites. The Maintenance and Repair Contract Holder, therefore, supplied service at the sites from fixed establishments as defined under section 2 (7) of the IGST Act. The location of the supplier should, therefore, be in India in terms of section 2 (15) of the IGST Act.

Supply of the MARC Holder to BCCL was not, therefore import of service within the meaning of section 2 (11) of the IGST Act. The MARC Holder was held as a supplier located in India triggering clause 9.2.2 of Maintenance and Repair Contract, and made liable to pay GST, the place of supply being determined in terms of section 12 (2) (a) of the IGST Act. The applicant, therefore being registered branch of Foreign Company, was held to be treated as the domestic Maintenance and Repair Contract Holder in terms of clause 9.2.2 of the MARC and be liable to pay tax accordingly.

4. Held

Supply of service to BCCL in terms of the MARC is not import of service. The recipient is not, therefore, liable to pay GST on reverse charge basis in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28/06/2017. The applicant, being the domestic MARC Holder, is liable to pay tax as applicable in terms of clause 9.2.2 of the Maintenance and Repair Contract.

5. Comment

The issue regarding Location of Supplier is far from over. Initially there was a ruling form Rajasthan AAR in the matter of Jaimin Engineering Private Limited [2018] 97 taxmann.com 195 (AAR- RAJASTHAN) wherein it was held that while supplying services if the supplier of services (i.e. applicant who in the given case is a Works Contractor and is registered in State of Gujarat) has any place of business/office in the State of Rajasthan i.e. has a fixed establishment for operation in State of Rajasthan (place where the services are to be provided) then he is required to get himself registered in State of Rajasthan. However, the ruling did not categorically held whether or not applicant was required to get registered in the State of Rajasthan and laid out general principle.

In case of T & D Electricals, [2020] 116 taxmann.com 390 (AAR – KARNATAKA) although it washeld that the there was no requirement for a separate registration in other state wherein contract was being executed but the ruling was given on the basic premise that applicant intended to supply goods or services or both from their principle place of business, which is located in Rajasthan and does not have any other fixed establishment other than the principle place of business, as admitted by the applicant. Therefore, this ruling again did not go into the fact of the case whether presence of staff or otherwise at Karnataka was to be treated as “Fixed Establishment” or not but straightaway assumed that there was no fixed establishment. This  decision in the case IZ-Kartex named after P G Korobkov Ltd (GST AAR West Bengal) clearly provides that responsibility of applicant to ensure supervision of equipment, supply of spares and consumable and overheads for 5000 annual working hours for seventeen years, indicated sufficient degree of permanence to the human and technical resources employed at the sites. Therefore, Maintenance and Repair Contract Holder, supplied service at sites from fixed establishments as defined under section 2 (7) of the IGST Act. The given case is specific to holding of fixed establishment or otherwise.

Case-IZ-Kartex named after P G Korobkov Ltd (GST AAR West Bengal)

1. Facts: The applicant is a local branch of a Russian business entity by the same name hereinafter “Foreign Company‟), which entered into a Maintenance and Repair Contract (hereinafter called “MARC”) with Bharat Coking Coal Ltd (hereinafter “BCCL”) with respect to the machinery and equipment it had supplied.

2. Query: The applicant wants to know whether the MARC makes the supplier liable to pay GST (which, for the purpose of this order, includes IGST). More specifically, the applicant wants to know whether the recipient is not liable to pay tax on reverse charge basis in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28/06/2017.

3. Observation by AAR

Responsibility of the Maintenance and Repair Contract Holder:- The contract was a longtermcontract spanning over seventeen years from date of commissioning of equipment. The Maintenance and Repair Contract Holder was responsible for supply of spares, components, and consumables over the entire period. It was required to depute officers, support staff and system expert at the site for maintenance and repair of equipment and train the BCCL personnel. BCCL was to provide the Maintenance and Repair Contract Holder access to the machines and repair facilities at all reasonable time. BCCL and the Maintenance and Repair Contract Holder shall jointly sign Equipment Logbook on daily basis recording actual working hours per shift, breakdown hours and other details. The Maintenance and Repair Contract Holder is to be paid at an agreed rate for supervision, supply of spares and consumables, and for overheads per working hour of the equipment for 5000 expected annual working hours.

AAR Observed that It was evident from the discussion that Maintenance and Repair Contract Holder had to maintain suitable structures in terms of human and technical resources at the sites of BCCL. It ensured supervision of equipment, supply of spares and consumable and overheads for 5000 annual working hours for seventeen years, indicating sufficient degree of permanence to the human and technical resources employed at the sites. The Maintenance and Repair Contract Holder, therefore, supplied service at the sites from fixed establishments as defined under section 2 (7) of the IGST Act. The location of the supplier should, therefore, be in India in terms of section 2 (15) of the IGST Act.

Supply of the MARC Holder to BCCL was not, therefore import of service within the meaning of section 2 (11) of the IGST Act. The MARC Holder was held as a supplier located in India triggering clause 9.2.2 of Maintenance and Repair Contract, and made liable to pay GST, the place of supply being determined in terms of section 12 (2) (a) of the IGST Act. The applicant, therefore being registered branch of Foreign Company, was held to be treated as the domestic Maintenance and Repair Contract Holder in terms of clause 9.2.2 of the MARC and be liable to pay tax accordingly.

4. Held

Supply of service to BCCL in terms of the MARC is not import of service. The recipient is not, therefore, liable to pay GST on reverse charge basis in terms of Notification No. 10/2017 – Integrated Tax (Rate) dated 28/06/2017. The applicant, being the domestic MARC Holder, is liable to pay tax as applicable in terms of clause 9.2.2 of the Maintenance and Repair Contract.

5. Comment

The issue regarding Location of Supplier is far from over. Initially there was a ruling form Rajasthan AAR in the matter of Jaimin Engineering Private Limited [2018] 97 taxmann.com 195 (AAR- RAJASTHAN) wherein it was held that while supplying services if the supplier of services (i.e. applicant who in the given case is a Works Contractor and is registered in State of Gujarat) has any place of business/office in the State of Rajasthan i.e. has a fixed establishment for operation in State of Rajasthan (place where the services are to be provided) then he is required to get himself registered in State of Rajasthan. However, the ruling did not categorically held whether or not applicant was required to get registered in the State of Rajasthan and laid out general principle.

In case of T & D Electricals, [2020] 116 taxmann.com 390 (AAR – KARNATAKA) although it washeld that the there was no requirement for a separate registration in other state wherein contract was being executed but the ruling was given on the basic premise that applicant intended to supply goods or services or both from their principle place of business, which is located in Rajasthan and does not have any other fixed establishment other than the principle place of business, as admitted by the applicant. Therefore, this ruling again did not go into the fact of the case whether presence of staff or otherwise at Karnataka was to be treated as “Fixed Establishment” or not but straightaway assumed that there was no fixed establishment.

This  decision in the case IZ-Kartex named after P G Korobkov Ltd (GST AAR West Bengal) clearly provides that responsibility of applicant to ensure supervision of equipment, supply of spares and consumable and overheads for 5000 annual working hours for seventeen years, indicated sufficient degree of permanence to the human and technical resources employed at the sites. Therefore, Maintenance and Repair Contract Holder, supplied service at sites from fixed establishments as defined under section 2 (7) of the IGST Act. The given case is specific to holding of fixed establishment or otherwise.

Case : Indag Rubber Ltd., In re [2020] 115 taxmann.com 215 (AAR- RAJASTHAN)

1. Query:

Whether applicant is eligible to claim credit of GST charged by vendor at the time of supply of goods and services to it, which are used for carrying out the following activities for setting up of MRO facility which will be rented out:

a) Civil Work

b) External Developmental Works

2. Subject:

ITC Eligibility used for construction of for immovable property which will be lease out.

3. Facts:

The applicant has entered into agreement with M/s Elcom Systems Pvt. Ltd for providing on lease a Maintenance Repair and Overhaul facility (MRO). That, the applicant further engaged M/S Akanksha Contracts Pvt. Ltd. for supplying various goods and services for setting up the MRO facility on its land.

4. Contention of the Assessee:

Applicant has contended that he is eligible to claim input tax credit in respect of goods and services supplied by M/S Akanksha Contracts Pvt. for carrying out the activities of Civil Work and External Development Works for setting up of MRO facility which will be further leased to M/S Elcom Systems Pvt. Ltd. by the applicant.

Intent behind GST is that wherever, the supplier is engaged in providing taxable supply, it should be given credit of the inputs and input services used by it for providing the said supply. The intent behind incorporating Section 17(5)(d) is to restrict the credit where the immovable property is being supplied after the completion certificate, as supply of immovable property does not attract levy of GST. However, for all other cases, such as renting of immovable property, as supply of service is being undertaken, credit of inputs and input services is available.

Relied Upon- M/S Safari Retreats Private Limited and Another vs. Chief Commissioner of Central Goods & Service Tax & Others, 2019 (5) TMI 1278, Orissa High Court, Tara Exports v. Union of India, 2018 (9) TMI 1474, Madras High Court, Eicher Motors Ltd. v. Union of India, (1999) 2 SCC 361, Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd., (1999) 7 SCC 448, Punjab Authority of Advance Ruling in the matter of In Re: K.P.H. Dream Cricket Private Limited, 2018 (18) G.S.T.L. 278 (A.A.R. – GST), Oxford University Press vs. Commissioner of Income Tax, (2001) 3 SCC 359, K.P. Varghese v. Income-Tax Officer, Ernakulam and another, Vol. 131 (1981) ITR 597

5. Observation by AAR

The nature of work undertaken in the activity of MRO is for supply of goods and services leading to creation of immovable property.

AAR negated the contention of the application of Section 17(5)(d) only deals with unavailability of credit of inputs/ input services in case where the output is not taxable by holding that this is only one of the dimension of the law. They further held that this is an implicit interpretation which is not the intentional outcome of the said section. The purposive dimension of the said section is blocking of credit for construction of immovable property. The activity of the applicant has two phases viz. construction of immovable property and leasing of the same for MRO purposes. The question raised by applicant regarding ITC was held to be restricted with first phase of construction itself. Therefore, contention of the applicant that output supply which will take place post construction is taxable or not was held to be immaterial in determining eligibility of ITC. The provisions of Section 17(5)(d) of GST Act, 2017 were therefore held to be clear that if goods or services are used for construction of an immovable property, ITC shall not be available irrespective of the use of said property.

6. Decision:

The applicant is not eligible to claim credit of the GST charged by vendor for supply of goods and services to it, which are used for carrying out the activities (Civil Work and External Developmental Works) for setting up of MRO facility.

7. Comment: The issue is now getting more or less settled from the point of view of AAR/AAAR that once a property is held to be Immovable Property and even if it is used for making further supply, no credit is allowable to the applicant. The decision of M/S Safari Retreats Private Limited by Hon’ble Orrisa High Court has been oft quoted by all applicants in similar matters but have been negated either by holding that the decision is not of Jurisdictional High Court or is pending before Hon’ble Apex Court. Therefore, its only the decision of the Hon’ble Apex Court in the matter of M/S Safari Retreats Private Limited which will set the tone for the future of Section 17(5)(c) and 17(5)(d) of CGST Act, 2017 in cases of eligibility of Input Tax Credit relating to the immovable property used for further supply.

1. Facts: M/s. Kandla Port Trust (Deendayal Port Trust), CDC Section, Sewa Sadan- III, Kandla, Kachchh (hereinafter referred to as the “Applicant” for the sake of brevity), is engaged in port service to various clients. The Applicant, vide Annexure-I of their application dated 23.03.2018, has sought for advance ruling for eligibility of Input Tax Credit (ITC) with respect of below mentioned specific expenses occurred by the applicant:-

A) Purchase of medicines for employees as prescribed by their doctor from outside on contractual basis.

B) Purchase of movable medical equipment at hospital.

C) AMC for repair and maintenance of residential colony and hospitals and school (other than new constructions, ITC for which is blocked u/s 15 of CGST Act, 2017).

D) Telephones & Mobiles at residence of officers and at hospitals.

E) Caretaking /housekeeping services at Guest House.

2. Contention by the Applicant–The employees are backbone for any organization for providing output services to customers/clients. It is not possible for any organization to do business activities without employees. Accordingly, expenses are incurred in the course and furtherance of business. Further, as directed during the personal hearing held on 12.07.2018, they have submitted the copy of the Chapter V of Major Port Trust Act, 1963 (Object clause). They further submitted that as the “Deendayal Port Trust” is carrying out its activities as per the provisions of the Major Port Trust Act, 1963 and as per the directions of ministry of shipping, there is no any Memorandum and Article of Association like in case of other organizations.

3. Observation by AAR- Applicant is engaged in supply of port services to various clients. Said expenses are for providing common facilities to their employees within the residential colony and the same are not relates to furtherance of their business/output service i.e. “Port Service”. It is very clear from the provisions of Sub Section (1) of Section 16 and Sub section (1) of Section 17 of the CGST Act, 2017, that a registered person is entitled to take credit of input tax charged on supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business only. In view of the above, the applicant is not entitled to take credit of input tax charged in respect of above-mentioned expenses as the same is not used in furtherance of their business.

4. Held-

The applicant is not entitled to take credit of input tax charged in respect of above-mentioned expenses, as the same is not used in the course or furtherance of his business.

5. Comment-

1. Other Judicial Pronouncements on similar Matter-: There are three other cases on the above matter which have been provided as below-

• National Aluminium Company Ltd. [2019] 102 taxmann.com 371 (AAAR-ODISHA) –Similar view was taken in the matter of National Aluminium Company Ltd. [2019] 102 taxmann.com 371 (AAAR-ODISHA) wherein in addition to holding that these services are not in the course or furtherance of business, it was also observed that provision of housing to its employees by Appellant is nothing but a perquisite. As clarified by the CBIC vide its Press Release dated 10.10.2017, referred to by the Appellant-I, perquisites are not subjected to GST. Therefore, since the perquisites are outside the scope of GST, input tax credit shall not be available to the Appellant-I in respect of tax paid on goods and services procured by it for management, repair, renovation, alteration or maintenance services (including watch and ward services, security services, Plantation/Gardening/Landscaping services, etc.) pertaining to residential accommodation for its employees in township/colony.

• General Manager Ordnance Factory Bhandara [2019] 106 taxmann.com 246 (AAR – MAHARASHTRA)-Similarly, in this case, it was held thatprovision of guest houses is a perquisite for their employees and therefore tax paid on maintenance and upkeep of guest houses cannot be allowed as ITC. Guest houses are generally used for temporary accommodation of employees as well as outsiders. Such provision of guest house cannot be treated as an activity in course or furtherance of its business and related to the applicant’s business. Further, it is found that the goods or services, or both pertaining to Guest House are used for personal consumption of the employees/guests and are not used or intended to be used in the course or furtherance of business. As such in view of the provisions of section 17(5)(g), no ITC is available to the applicant. Hence, it is held that they are not eligible for ITC on taxes paid for maintenance and upkeep of guest houses

• Posco India Pune Processing Center (P.) Ltd., [2019] 102 taxmann.com 21 (AAR – MAHARASHTRA)-In this case, it was held thatHotel Accommodation is being used by applicant as a residential premises of their MD/GM which is for personal comfort of both and therefore in view of the provisions of Section 17(5)(g) we hold that they are not eligible to claim the ITC for the same.

On a perusal of the above cases and the case discussed in detail today, it can be seen that out of the four cases, all the four cases have held that provision of Residential and similar services is not in the course or furtherance of business and only one of them i.e. AAAR Odisha referred to the aspect of perquisites to the employees.

2. Eligibility of ITC in case of Perquisites or otherwise: While these services are treated as perquisites and therefore part of salary, there would be question mark over the Input Tax Credit part and might result in denial of ITC and if these services are not provided as part of perquisites, they might be subject to Para 2 of Schedule I of CGST Act, 2017. Therefore, in either way taxability or reversal of ITC might have to be considered by the taxpayer.

3. Restricted Meaning of “used in the Course or furtherance of Business” being taken by AAR: Irrespective of the allowability of Input Tax Credit in the above cases, it can be observed that restricted meaning of term “in the course or furtherance of business” is being taken by Authorities. While assessing Output Tax Liability, even PPF and savings bank account Interest has bene considered (Shree Sawai Manoharlal Rathi (GST AAR Gujarat)) as in the course of business and therefore part of supply but while assessing the Input Tax Credit eligibility, restricted meaning of “In the course or furtherance of business” is being considered. One might say that this is no different then the past. Even ITC on Guest Houses are being disallowed treating the same as not in the course or furtherance of its business and not related to the applicant’s business.

Let’s take an example, wherein there is an outstation posting for a month and company has to provide residence to their employees. Whether such provision of accommodation would not be treated as “in the course or furtherance of business”.

It has to be seen that term used in Section 37 of Income Tax Act “laid out or expended wholly and exclusively for the purpose of the business or profession” is similar to “in the course or furtherance of business”. Hon’ble Gujarat High Court in the matter of Commissioner Of Income-Tax, … vs Navsari Cotton & Silk Mills Ltd. on 23 March, 1981 Equivalent citations: 1982 135 ITR 546 Guj laid down following test to arrive at commercial expediency of any expenditure under section 37 of Income Tax Act. The test are as follows:

The tests can be divided into two categories, namely, (1) positive tests, (2) negative tests. One (at least one) of the positive tests must nod its head and none (not even one) must do so in order to affirmatively hold that the expenditure is a business expenditure – inter alia, incurred on account of commercial expediency.

Positive tests

If the expenditure incurred :-

1. with a view to bring profits or monetary advantage either today or tomorrow.
2. to render the assessee immune from impending or reasonably apprehended litigation.
3. in order to save losses in foreseeable future.
4. for effecting economy in working which may pay dividends to-day or to-morrow.
5. for increasing efficiency in working
6. for removing inefficiency in the working.
7. where the expenditure incurred in such as a, (i) wise, (ii) prudent, (iii) pragmatic, (iv) ethical, man of the world of business would conscientiously incur with an eye on promoting his business prospects subject to the expenditure being genuine and within reasonable limits.
8. where it is incurred solely by way of a civil duty owed by the assessee to the society having regard to the nature of his business which brings him profits but results in some detriment to the public at large either by way of health hazard or ecological pollution or serious inconvenience to the citizens with a view to mitigate the aforesaid evil consequences and consequences of a like nature, subject to its being genuine and within reasonable limit.

Negative tests :

If it is incurred :-

1. for a mere altruistic consideration.
2. mainly in order to satisfy his philanthropic urges.

Explanation – Factors (1) and (2) are laudable but the altruistic or philanthropic urges can be satisfied at one’s own cost or sacrifice. Not at the cost of public exchequer or other taxpayers and those living below the poverty line. mainly in order to win applause or earn garlands or public appreciation.​

• for illegal, immoral or corrupt purposes or by any such means or for any such reasons.
• mainly in order to oblige a relative or an official.
• mainly in order to earn the goodwill of a political party or a politician.
• mainly in order to show off or impress others with his affluence or for ostentatious purposes.
• Apparently for a factor listed as a positive factor in the left side column but in reality for one of the obnoxious purposes listed hereinabove.
•  On a nebulous plea or pretext by way of an alibi in the name of winning profits in remote future or promoting business prospects by really for one or the other of the above-mentioned purposes.
• it must not be a bogus, fictitious or sham transaction.
• it must not be unreasonable and out of proportion.
• it must not be an expenditure merely with a view to avoid tax liability without any genuine purpose or reason in good faith.
• the advantage to be secured by incurring the expenditure must not be of the nature of a remote possible advantage depending on “ifs” and “buts”, and if at all, to be secured at an uncertain future date which may be considered too remote.

As we pointed out earlier :

One of the positive tests must be attracted whereas, (2) none of the negative tests should be attracted. 

There is plethora of judgements over this and broader views needs to be taken for the meaning of the term “in the course or furtherance of business”. Any restricted meaning might defeat the intention of the law.

“Since Demo vehicles would be further supplied in future, and there is no time limit prescribed in GST Act for making such further supplies, applicant held to be eligible to avail ITC on Demo Vehicle”-(AAR-Mah)-Equally Applicable for other Motor Vehicles??

Case: Chowgule Industries (P.) Ltd., [2020] 113 taxmann.com 365 (AAR – MAHARASHTRA)

1. Query:

Whether applicant is entitled to avail and utilize ITC on inward supply of Demo Cars which have been capitalized in books of accounts

2. Facts:

Applicant is authorized dealer for Maruti Suzuki India Limited for supply of motor vehicles and spares and for servicing as also for some other commercial vehicle manufacturers. The Applicant as per the dealership norms has made purchases of demo cars, used for providing trial run to customers to understand features of vehicle, against tax invoice which are reflecting in books of account of Applicant as capital goods.

3. Contention of the Assessee:

As per section 17(5)(a) input tax credit shall not be available on motor vehicles except when they are used for making further supply of such motor vehicles. Further supply of such demo motor vehicle is made after one or two years and constitutes a taxable supply and GST is paid thereon. GST Act does not prescribe the time within which further supply is to be affected. Hence, impugned tax credit is available. This activity does not come under negative clause, as after a limited period of use as demo car, the vehicles are sold at the written down book value. Relied Upon Chowgule Industries (AAR-Kerala) and A.M. Motors, [2018] 98 taxmann.com 157/70 GST 484 (AAR – Kerala).

4. Observation by AAR:

a) Demo Vehicle to be Capitalized in Books of Account: It was observed by AAR that demo vehicles are capital goods for applicant and will be capitalized and accounted under Fixed Assets of Company excluding GST component. Applicant have/will not claim depreciation on tax component of said demo cars nor will claim such expenses incurred as business expenditure u/s. 37 of Income Tax Act. They are accounting for fixed assets, excluding GST which is accounted as input credit separately. They have also stated that the depreciation is claimed only on cost of car and not on GST.

b) Eligibility under Section 16 of CGST Act, 2017-Section 16 does not make any distinction between capital goods and other goods for allowing credit of ITC. Hence, ITC in respect of capital goods, is available and can be taken, since ITC credit for capital goods is in parity with other goods. In applicants line of business, it is of utmost necessity to have vehicles for providing trial run to customers to understand features of vehicle. These vehicles, known as Demo Vehicles are an important and essential requirement for marketing and promoting sale of motor vehicles. Thus, we find that these Demo Vehicles are being used to further their business i.e. sale of motor vehicles and further, purchases of such Demo Vehicles are capitalized in their books of accounts.

c) Provisions of Section 17(5)(a) does not blocks credit in instant case-In the subject case, applicant has submitted that every model of demo cars is used by them for demonstration only for a limited period i.e. every two years or 40,000 Kms whichever is earlier and thereafter, the said vehicles are sold after paying the applicable taxes on sale value at that point of time. Since the applicant will be making further supplies of the Demo vehicles, and there is no time limit prescribed in the GST Act for making such further supplies, we are of the opinion that they will be eligible to avail ITC in the subject case.

d) Utilization of ITC of Demo Vehicles for discharging Output Tax Liability-The manner of utilization of ITC is provided as per provisions of Section 49 of the CGST Act. Section 18 of the CGST Act, deals with availability of credit in special circumstances. As per Section 18(6) of the CGST Act, when there is a supply of capital goods on which ITC has been taken, as in the subject case then the applicant shall pay an amount equal to the ITC taken on the said Demo Vehicles reduced by such percentage points as maybe prescribed or the tax on the transaction value of such Demo Vehicles, whichever is higher.

5. Held:

ITC is available for demo car and the same can be utilized for payment of output tax payable under this Act.

6. Comment-

Decision by AAR supports a valid point that since applicant will be making further supplies of Demo vehicles even though capitalized in books of accounts, and there is no time limit prescribed in the GST Act for making such further supplies, applicant was eligible to avail ITC in the subject case. This view cannot be held to beyond the scope of interpretation of law.

Can the same principle be applied in case of motor vehicles purchased by taxpayer for use in their business. In an earlier article published in July 2017 on our website, similar view was articulated.

The link of the article is as follows: Does 17(5)(a)(i) allows ITC only to persons engaged in buying and selling of of motor vehicles -Part II

Few Excerpts of the Article are as under:

Section 17(5) only allows claim for ITC when such motor vehicles are used for making further taxable supply of such vehicles. The key word used here is “further supply” which has been used without any further condition of whether or not such supply of motor vehicle is from stock in hand or capital asset. Thus, if section 7 treats sale of capital assets as “supply”, then any motor vehicle sold as capital asset would also be treated as taxable supply on sale of such motor vehicle.

Further, if such would have been the intention that registered person who makes supply of motor vehicle from his stock would only be allowed the credit, then in such case, provisions of section 17(5)(a)(i) would have specifically detailed out that credit would only be allowed on the inputs held in stock just as they have done in section 18 and section 140 for reference.

The provisions of section 17(5)(a)(i) nowhere restricts credit only to motor vehicles sold out of stock in hand. The section only provides that input tax credit of motor vehicle would be available when they are used for making taxable supplies namely further supply of such vehicles. Thus, attaching any other condition linked with usage of the product or supply of vehicle out of stock in hand would be adding language to the law, which has not been provided in the law.

Therefore, when law has treated both sale of motor vehicle out of stock in hand or out of capital asset as supply and section 17(5)(a)(i) also does not makes any specific exclusion out of the two, then in such case, input tax credit on motor vehicle whether capitalized or not should be allowed.

K.K. Polymers (Prop. Adventage Agency (P.) Ltd.) [2018] 100 taxmann.com 17 (AAR- RAJASTHAN)

 1. Facts:

a) Nature of Business and Scope of Activity of the Applicant:

There are three parties involved in the transaction i.e. Principal who is the supplier of goods, Del Creder Agent (hereinafter referred as DCA) who is the applicant also and customer who receives goods from the principal.

The applicant takes order from the customers and places these orders with the Principal (actual supplier of goods to customers and receiver of payments). Collection of payment from customers is the responsibility of DCA.

b) Payment of Due amount of goods to the Principal:

On the due date, either the customer pays to principal directly or DCA pays to the principal and in turn customer pays to the DCA.

If payment is made directly by the DCA before due date (before 10 days credit period) on behalf of customer, Principal gives additional commission to DCA as per agreement between Principal and DCA. Wherever the payment is directly made by the customer before due date (before 10 days credit period), early Payment Incentive is given to the customer as per the pricing policy of Principal.

c) What happens if customer makes the payment to DCA earlier than 10 Days

In some circumstances, customer routes the payment through DCA. The customer makes the payment to the DCA within 10 Days. Applicant (DCA) makes payment against supplies of goods on customer’s behalf and claims additional bonus from principal. The applicant then raises invoices for claiming such additional bonus and pays GST thereon. Thereafter, customer asks for the reimbursement towards early payment at a predetermined rate, as is being offered by the Principal.

2. Query:

Query 1:-The customer requests the applicant to make early payment to principal against the supplies and the applicant makes immediate payment. The customer also makes payment within prescribed time limit of 10 days. In this situation the applicant is required to pass on the bonus to the customer. The applicant has sought clarification whether such passing on the bonus is in the nature of any supply.

 Query 2:If GST is charged by the customer on invoice for such transaction, Whether the DCA can take credit of the ITC of the GST charged on such supply?

 3. Observation

Observation on Query 1: Transaction made between DCA and customer for passing on specified bonus given by principal is nothing but an additional discount given for early payment made by the customer to the Principal through DCA. In this case there is only one supply made by the principal to the customer of the goods supplied. The additional discount relates to supply already made by the principal and passing on such bonus to the customers by DCA is in the nature of pure agent. However, any amount retained by the DCA on account of early payment is in the nature of supply made to the principal as business support services on which the DCA has already paid GST.

Observation on Query 2: Invoices can be issued by supplier of goods and services only. When there is no supply to DCA by customer, the DCA is not entitled to take ITC of GST passed on to the DCA in any manner. Since, the said transaction is not a supply by the customer; invoice cannot be raised/issued by the customer and if any amount passes on to the DCA in any manner, the DCA is not entitled to take ITC of the said amount passed on by the customer.

4. Held:

Query 1: The additional bonus passed on by the applicant (DCA) to the customer, is not in nature of a supply in accordance with GST Act, 2017.

Query 2: Since, the said transaction is not a supply by the customer; invoice cannot be raised/issued by the customer and if any amount passes on to the DCA in any manner, the DCA is not entitled to take ITC of the said amount passed on by the customer.

5. Comment:

Query 1: The judgement is based on the premises that the discount given by the principal is for early payment incentives to the customer. Since discount is linked to supply of goods and once excluded from value of supply on satisfaction of conditions as provided under Section 15(3)(b), such discount cannot vice versa become supply by customer to principal. This holds good in cases wherein discount is directly passed by the principal to the customer.

However, things gets a bit complicated wherein payment is routed by the customer through DCA and DCA receives the discount from the principal and reimburses to the customer. In such case, DCA is raising full invoice of the amount of incentive received from the principal and is charging GST thereon. Out of such incentive received, DCA passes the amount to the customer. The DCA has acted as an intermediary for passing of the amount received from customer to the Principal and in turn received discount which has been duly passed on to the customer and any amount retained by the DCA on account of early payment is in the nature of supply made to the principal as business support services on which the DCA has already paid GST.

For the amount passed, judgement holds that since DCA has acted as pure agent and customer has received discount which firstly relates to supply of goods by principal to the customer and secondly there is no supply of service by the customer to DCA, therefore no GST needs to be levied.

Query 2: The judgement holds that since the transaction between customer and DCA is not a supply by the customer to DCA; invoice cannot be raised/issued by the customer and if any amount passes on to the DCA in any manner, the DCA is not entitled to take ITC of the said amount passed on by the customer.

The judgement in the first limb holds that since transaction between customer and DCA is not supply, therefore no invoice is required to be issued by the customer. However, it further goes ahead and holds that if any tax is passed on to DCA by the customer, DCA is not entitled to take ITC. This view might need reconsideration because if a supplier has wrongly or incorrectly charged tax on any invoice, how can recipient be restricted to take ITC of the same. The recipient cannot be expected to sit in the shoes of the supplier and judge what is leviable and what is not. His responsibility ends with the fulfillment of conditions as prescribed under the Act. If any tax has been wrongly collected by the supplier then the recipient is entitled to take refund of the same and availing ITC is equivalent to availing refund. Hon’ble Punjab and Haryana High Court in the matter of Commissioner Central Excise, Chandigarh V/s M/s Guwahati Carbons Ltd dated 22nd July 2010 held that Learned counsel for the Revenue is unable to show any law that even if duty paid was in excess of the amount due, without excess amount being refunded, the assessee will be debarred from availing of the CENVAT Credit. Further in Nitco Tiles Ltd. v. CCE, Mumbai – 2007 (220) E.L.T. 827 (Tri. – Mum.), Hon’ble Tribunal observed held that the Cenvat Credit taken by the appellant was nothing but refund of the Service Tax paid by them on the services on which they were not required to pay Service Tax.