1. Query:
Whether input tax credit is admissible on ambulances purchased for the benefit of the employees under legal requirement of the Factories Act, 1948.
2. Facts:
Applicant has factories in Howrah and Hooghly for manufacturing agricultural machinery and has purchased an ambulance for the benefit of the employees, as required under Section 45(4) of the Factories Act, 1948.
3. Observation by AAR:
The Applicant purchased the ambulance on 22/11/2018, as evident from the submitted Invoice No. INV19A001475 dated 22/11/2018 of M/s Supreme & Co Pvt Ltd (GSTIN: 19AACCA7232K1ZK). Eligibility for claiming input tax credit under section 16(1) is subject to the provisions of law at the time of occurrence of the taxable event, irrespective of when the claim is made.
4. Held
Input tax credit on inward supply of ambulance, being a motor vehicle, is not admissible under Section 17(5)(a) of the GST Act. The exception carved out under Section 17(5)(b)(iii)(A) of the GST Act for services which are obligatory for an employer to provide to its employees under any law for the time being in force is limited only to rent-a-cab, life insurance and health insurance.
5. Comment:
Following are the important issues coming out of the said judgement:
a) Eligibility of Claim of Credit of Tax Paid on Ambulance as per the amended provisions of Section 17(5) post CGST Amendment Act, 2018: Section 17(5)(a) post CGST Amendment Act, 2018 provides as follows:
(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—
(a) Motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:—
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
The provision restricts credit in case of motor vehicles used for transportation of persons having an approved seating capacity of not more than thirteen persons. The question now arises is whether an Ambulance falls under the motor vehicles used for transportation of persons. There are two conditions to be fulfilled before falling under this clause:
- Motor Vehicle should be used for Transportation of Persons: Does ambulance falls under the category of Motor Vehicle for Transportation of persons:
HSN Code for Ambulance falls under 8703 under the heading “Motor cars and other motor vehicles principally designed for the transport of persons”. Therefore, ambulance is a vehicle used for transportation of persons. The next question is regarding the seating capacity.
- Whether the seating capacity of the Ambulance is more than or less than thirteen persons:
For e.g. Ambulance by Force Motors comes with two descriptions i.e. 8 Passengers + Driver + 1 Patient and 12 Passengers + Driver + 1 Patient.
Therefore, if the seating capacity of the ambulance is less than thirteen persons including the driver, then credit of the ambulance would be blocked under the provision of the law. However, if the seating capacity exceeds, then in such case Input Tax credit would be allowed.
Therefore, it has to be analysed on a case to case basis regarding allowability of input tax credit on ambulance post CGST Amendment Act, 2018. However, pre CGST Amendment Act, 2018 Input Tax credit on purchase of Ambulance is not allowed.
b) Conditions for Blocked Credit as prescribed under Section 17(5): Overrides Section 16(1): Provisions of Section 17(5) starts as follows:
“Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:—”
As is pretty much evident from the wordings of the section that provisions of Section 17(5) overrides provisions of Section 16(1). Thus, any credit of Input Tax which is allowable as per the provisions of section 16(1) would have to satisfy conditions or restrictions as laid down under Section 17(5). One just cannot plainly contend that as conditions under section 16(1) have been fulfilled therefore he is entitled for credit of Input Tax.
Discussing principle laid down by Hon’ble Gujarat High Court in the matter of Gujarat Chamber of Commerce & Industry Vs Union of India, Judgement dated 17th March 2017 although with regard to the taxes on fringe benefit, it was held that
“Under the circumstances with respect to any expenses incurred by the employer on, or by the payment made by the employer for the purposes mentioned in any of the provisions of Section 115WB(2)(A) to 115WB(2)(P), irrespective of the fact whether such services are relatable to the employees or not, the employer is liable to pay the FBT, as the aforesaid benefits are treated as Fringe Benefits deemed to have been provided by the employer to his employees. Any other interpretation and/or reading of sections 115W and 115WB shall be contrary to the provisions of the Statute and/or any other interpretation and/or reading, more particularly as sought to be canvassed on behalf of the respective assessees / employers would make sections 115WA and 115WB nugatory and/or otiose.”
Hon’ble Gujarat High Court in the above matter clearly upheld that once certain expenses have been incurred by the assessee for the purposes mentioned under Section 115WB, then irrespective of the fact that such expenses are relatable to the employees or not, fringe benefit would have been deemed to have been provided by the employer to his employees.
On a similar footing, even though supply of goods or services might have been used in the course or furtherance of business, but if it falls within the clutches of Section 17(5)(h), then in such case input tax credit would be blocked and would not be available to the taxpayer.
c) Eligibility of claiming input tax credit under section 16(1) is subject to the provisions of law at the time of occurrence of the taxable event, irrespective of when the claim is made:
Provisions of Section 16(1) provides for eligibility for taking input Tax Credit in respect of supply of goods or services made to the registered person. Section 16(2) provides that unless registered person fulfils conditions as prescribed under the law, he will not be entitled to take credit. Therefore, for being eligible to take credit, Provisions of Section 16(1) and 16(2) have to be fulfilled and time limit for satisfying the conditions provided under Section 16(1) and Section 16(2) in respect of an invoice have been provided in Section 16(4) of CGST Act, 2017.
- Whether entitlement to take credit and taking credit are two different things:
The question now arises whether entitlement of credit and claim of credit are two different things since Section 16(2) provides that return under section 39 has to be filed for being entitled to claim the credit. It seems that entitlement and claim are two different things because for that matter a person may have filed the return for a particular month but could have forgotten to claim credit in that return which he had filed for that month. In such a case, he can take the credit till the time limit prescribed under Section 16(4) of CGST Act, 2017. Therefore, it might be possible that a person might be eligible to claim credit in the month of December 2018 as per provisions of Section 16(1) and 16(2) but he claims the credit in the month of January 2019.
- Which provisions of the law would be applicable for a supply with regard to the availability or denial claim of Input Tax credit: Date of Supply, Date of entitlement and Date of Claim
Now supposedly, invoice for a particular supply of goods is received by a person in April 2018. All the Four conditions prescribed under Section 16(2) for the goods covered by the said supply are fulfilled in the month of June 2018. The claim for the input tax credit has been made in return filed for the month of July 2018. The issue now arises is which provisions would be relevant for arriving whether registered person is entitled to take credit in respect of a supply covered by an invoice or debit note:
- Date of Supply: Invoice for the supply have been raised in the month of “April 2018”;
- Date of Entitlement: Say barring goods being received, all three conditions were fulfilled but goods were received in June 2018, therefore all four conditions prescribed under Section 16(2) for goods covered by said supply were fulfilled in the month of “June 2018”;
- Date of Claim: Claim for the credit is made by the recipient in the return filed for the month of “July 2018”.
AAR has held that eligibility of claiming input tax credit under section 16(1) is subject to the provisions of law at the time of occurrence of the taxable event i.e. supply being made, irrespective of when the claim is made. The conclusion also be gain strength from the fact that
- Section 16(1) refers to registered person being “entitled to take credit of input tax charged on any supply of goods or services or both.
- Section 16(2) also provides for satisfaction of conditions by registered person for being “entitled to the credit of any input tax in respect of any supply of goods or services or both to him”. These conditions are directly linked to supply i.e. invoice of supply, goods specified in supply being received, tax in respect of supply being paid and return for the said month being furnished under section 39.
- Section 16(4) also links the last date to claim of credit by the registered person with the “invoice or debit note for supply of goods or services”.
All three provisions above have linked eligibility of input tax credit either with the supply or with the invoice for the supply i.e. taxable event. Therefore, it can be concluded that provisions as on date of supply i.e. date of raising of invoice would be relevant for claim of credit by recipient and not date of eligibility or date of claim.
However, alternatively one might argue that provisions prevailing in the law as on date of issue of invoice by supplier should not be relevant. What would be relevant would be the provisions prevailing as on the date of entitlement of credit because it is when such rights are vested with him to claim the credit and act of supplier cannot regulate the manner in which the rights relating to Input Tax Credit are vested in him. Supplier is well entitled under section 31 to raise the invoice well before the date of supply and goods or services covered by the invoice might be received well after that, therefore date of invoice by the supplier should not be the relevant date.
The issue is not free from ambiguity but only for now the matter has been decided by AAR that eligibility of claiming input tax credit under section 16(1) is subject to the provisions of law at the time of occurrence of the taxable event, irrespective of when the claim is made. Alternative views might exist and finality in this regard may be hard to achieve in the near future. Would like to add that both the interpretations in some cases might result in some illogical results but that’s how the provision has been framed and can’t be avoided.
d) When are the provisions of Section 17(5) applicable i.e. at the time of taxable event or anytime till the final use or consumption by the supplier:
We have earlier discussed on the issue of applicable date for the purpose of checking eligibility for claim of input tax credit in respect of an invoice or debit note under section 16 of CGST Act, 2017. Now question arises when is the applicability of provisions of Section 17(5) needs to be checked. Section 17(5) provides that even though a person might be entitled to take credit in respect of goods or services or both as per provisions of Section 16(1) but the credit would not be available in circumstances as provided thereunder.
Let’s try to decode the provision with the help of following scenarios:
Scenario 1-Goods purchased for the purpose of distribution as a Gift: M/S ABC Car is a person engaged in selling Car. M/S ABC Car received a Car in the month of April 2018. He gifted the car to one of its customers in April 2018. Input Tax Credit of the Car would be blocked by virtue of provisions of Section 17(5)(a) and 17(5)(h) of the CGST Act, 2017.
Scenario 2-Goods purchase initially for selling but subsequently distributed as a Gift: M/S ABC Car is a person engaged in selling Car. M/S ABC Car received a Car in the month of April 2018. He claimed credit of the Tax paid in the month of April 2018 itself as he intended to sell the Car at that time. However, later on Car was gifted to one of the customers in October 2018. He would have to reverse credit claimed on Car in the month of October 2018 by virtue of provisions of Section 17(5)(h).
Therefore, in the above two examples we can clearly observe that the following the provisions of Section 17(5), person would have to reverse the credit as and when the goods or services are put to use for the purposes specified in Section 17(5). Thus, provisions of Section 16(1) might be applicable initially at the time of availing credit but provisions of section 17(5) have to be fulfilled until the goods are supplied or finally used for purposes other than specified under Section 17(5).
Scenario 3-Goods purchased for purpose specified in Section 17(5) but subsequently used for other purposes: M/S ABC Car is a person engaged in selling Car. He purchases a Maruti Car for his business purposes in the month of April 2018 but did not intend to sell the car and capitalized the car in fixed assets. He did not avail credit of the same. However, subsequently in the month of November 2019, he sold the car converting it into stock in trade. Now initially as the car was not intended to be sold, claim of Input Tax Credit was blocked by virtue of provisions of Section 17(5)(a) of CGST Act, 2017. However, he sold the car after converting the same to stock in trade. Whether he would be entitled to claim the credit. There is no such provision in the law.
CGST Act, 2017 allows credit of input tax credit initially denied only in case of person withdrawing from the composition scheme or where an exempt supply of goods or services or both by a registered person becomes a taxable supply. But no similar provision is there in law wherein input tax credit on supplies was initially blocked as they attracted provisions of Section 17(5) however subsequently when such supplies are used for purposes other than the purposes specified in Section 17(5), such credit can be re-availed
Scenario 4-Goods purchased for purposes specified in erstwhile Section 17(5)(a) but subsequently used for purposes not covered under the Section 17(5)(a) amended vide CGST Amendment Act 2018: Ambulance when purchased was hit by the provisions of Section 17(5)(a) and credit was denied but subsequently by virtue of provisions of CGST Amendment Act, 2018, purpose for which Ambulance has been put to use was taken out of the purview of provisions of Section 17(5)(a) as it was used for transportation of persons and had seating capacity of more than thirteen persons including the driver. Therefore, subsequent to 1st February 2019, ambulance was out of the purview of Section 17(5)(a) and since the ambulance was out of the purview of Section 17(5)(a), can credit be availed back again by the registered person.
The answer by using the principle laid down by AAR seems to be “No” i.e. eligibility of claiming input tax credit under section 16(1) is subject to the provisions of law at the time of occurrence of the taxable event, irrespective of when the claim is made. Therefore, since the applicable provisions at the time of purchase of ambulance denied the credit, therefore even though subsequent to 1st February 2019, the said purpose Is eligible for credit
There are numerous other examples like a registered person is constructing an office for his business purpose but in midway after two years of construction and pending completion of construction, decides to sell the office and receives an advance against the said office. He completes construction of office and sells the office. Whether such person would be eligible to claim credit of the supplies received earlier before the receipt of advance, as they were hit by provisions of Section 17(5)(c) and 17(5)(d) earlier and subsequently moved out of the purview of the provisions of Section 17(5)(c) and 17(5)(d).
Let’s take another example, a registered person engaged in the business of selling of computers purchases a car and capitalizes the car in his Balance sheet as Fixed Asset. He sells the car after four years. Now since car has been used for making taxable supply and is out of the purview of 17(5)(a) whether credit can be availed in such case of the tax paid earlier.
The scenario is not pretty clear but the conclusion which comes out of above discussion and scheme of the things is as follows:
- Credit once availed under Section 16 can be denied under Section 17(5) anytime until final use or disposal if inward supplies are used for purposes specified in Section 17(5).
- Credit once denied on inward supplies under Section 17(5) whether initially or subsequently; cannot be re-availed anytime even if such inward supplied are used for purposes other than specified in Section 17(5) of CGST Act, 2017.
There is a dire need for clarification on the issue and unless addressed might result in lapsed credit and litigation. It seems that the revenue is enjoying the both sides of the coin i.e. credit under section 17(5) can be blocked anytime till the final use or consumption of the inwards supplies and once blocked such credit cannot be re-availed even though used for purposes other than the ones mentioned in Section 17(5) of CGST Act, 2017.
