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#GSTCase-223- 15 Judgements on Input Tax Credit-Blocked Credit, ITC Reversal on Taxable and Exempt Supplies, Eligibility of Input Tax Credit on Motor Vehicle, Availability on Input Tax Credit on CSR Expenses vis-a-vis Pre-GST Judgement, ITC-02-Part-II

Case-1-Bangalore Medical System, [2020] 119 128 (AAR – KARNATAKA)

Applicant established a medical diagnostic laboratory to carry out diagnostic or investigative services of diseases. Thus, applicant qualifies to be a clinical establishment. the applicant is eligible for input tax credit on the tax paid on the purchases of goods, i.e. equipments, furniture, etc. which are purchased for this project and also on the reagents/consumables which are used for performing the test, subject to the restriction of the same in terms of Section 17(2) of the CGST Act, 2017.

Case-2-Knanaya Multi Purpose Co-operative Credit Society Ltd. [2020] 119 65 (AAR – KERALA)

On a conjoint reading of the provisions of clauses (c) and (e) of Section 45-I of the Reserve Bank of India Act, 1934 it is evident that the applicant being a Co-operative Society registered with the Central Registrar of Co-operative Societies carrying on the business of financing whether by means of making loans or advances or otherwise, of any activity other than its own qualifies to be a “financial institution” as per the Reserve Bank of India Act, 1934 and consequently also under the CGST Act, 2017. The applicant satisfies both the conditions to be eligible for exercising the option provided under sub-section (4) of Section 17 of the Central/State GST Act, 2017.

Case-3-Ishan Resins & Paints Ltd. [2020] 113 424 (AAR-WEST BENGAL)

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.

Case-4- Metro Dairy Ltd. [2019] 109 455 (AAR-WEST BENGAL)

When the production of taxable goods commenced in December, 2018, the Applicant enjoyed the credit the of entire input tax in terms of rule 43(1)(b) of the GST Rules. Subsequently, the same capital goods are being used for manufacturing exempted goods also. The question, therefore, arises how much of the input tax credit should be attributed to the period when such capital goods were used for manufacturing taxable goods, and how the balance amount of the input tax should be apportioned after production of the exempted goods commences. The Proviso to rule 43(1)(d) of the GST Rules answers the first question, and prescriptions under Rule 43(1)(e), (f) and (g) of the GST Rules answer the second question. Based on such prescriptions, the Applicant is required to compute the admissible amount of the input tax credit on such capital goods in the tax periods over the useful life calculated from the date of invoice and reverse the balance amount.

In the Applicant’s case, the commercial production of taxable goods started in December, 2018. The commercial production of the exempt goods did not begin in 2018-19. The value of D1, therefore, is zero during the tax periods in 2018-19. No amount of the common credit of input tax on input services available during 2018-19 should, therefore, be attributed towards exempt supplies. In other words, subject to the provisions under rule 42(2) of the GST Rules, the entire input tax on input services is an admissible credit during 2018-19.

Case-5-Orix Auto Infrastructure Services Ltd., [2019] 104 9 (AAR – KERALA)

Whether the applicant Is eligible to take credit of the input tax credit as defined in Sec.2(g) of the GST (Compensation to States) Act, 2017 of the Cess paid on purchase of motor vehicles used in providing services of transportation of passengers or renting of motor vehicles given the fact that as a matter of business polity, the said motor vehicles would be initially used for supply of rental business services and disposed of after three or four years of such use.

Considering the provision envisaged in Rule 43 of GST Rules, applicant Is eligible to ITC of entire amount of Compensation Cess paid on the purchase of vehicles used for rental business. Such ITC claimed shall be reversed every month equally apportioned. over the prescribed period of 60 months to the extent of usage of exempted supply of service. As per Rule 43(c) of GST Rules, applicant is eligible to claim 1TC of Compensation Cess paid at the time of purchases of Motor Vehicles and need to reverse a proportionate amount of ITC every month based on the turnover of rental service business and utilize balance ITC for discharging liability of Compensation Cess arising at the time of sale of such vehicles.

Case-6-Polycab Wires (P.) Ltd. [2019] 104 36 (AAR – KERALA)

As per Sec. 17(5)(h), input tax credit shall not be available in respect of goods lost, stolen, destroyed, written off or disposed by way of gift or free samples. In this case after availing input tax credit, the applicant disposed goods as free supply for CSR activities, Hence, the applicant is liable to reverse the input tax credit already availed. Applicant is liable to reverse the input tax credit already availed on goods distributed directly by them to flood affected people under CSR expenses on free basis without collecting any money.

Case-7-Pre-GST Judgement- Essel Propack Ltd. Vs Commissioner of CGST, Bhiwandi (CESTAT Mumbai)

“To pin point the dispute, it is now to be looked into as to if CSR can be considered as input service and be included within the  definition of “activities relating to business” and if in so doing, a company’s image before corporate world is enhanced so as to increase its credit rating as found from the handbook of CSR activities discussed above.”

In Para 11 of the Judgement, CESTAT observed that

The answer is in the affirmative since to win the confidence of the stake holders and shareholders including the people affected by the supply of raw material from their locality say natural resources like mines and minerals etc. the hazardous emission that may result in production activities.

In Para 11.1 CESTAT observed that

Therefore, sustainability is dependent on CSR without which companies cannot operate smoothly for a long period as they are dependent on various stake holders to conduct business in an economically, socially and ethical. Hence in my considered view, CSR which was a mandatory requirement for the public sector undertakings, has been made obligatory also for the private sector and unless the same is to be treated as input service in respect of activities relating to business, production and sustainability of the company itself would be at stake.

CESTAT finally held that

The appeal is allowed and the order passed by the Commissioner (Appeals) demanding duty, interest and penalty against input service availed by the appellant company towards fulfilment of CSR activity is hereby set aside.

CESTAT in the above decision has considered CSR as an input service and within the “activities relating to business”.

Further under the Income Tax Act as well, to clarify non-deductibility of CSR Expenditure, the Finance (No.2) Act, 2014 has inserted an Explanation to section 37 which is reproduced as under:

“Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.”

Therefore, a specific explanation was inserted vide Finance Act, 2014 to clarify the issue. Prior to that both views were prevalent regarding allowability and non-allowability of the expenditure under CSR.

Case-8- KSR & Company [2019] 112 145 (AAR – ANDHRA PRADESH)

The applicant is providing work contract service for construction of road and the issue is to be clarified whether they are restricted to claim Input Tax Credit in terms of clause (c) or (d) of sub-section 5 of section 17 of CGST Act 2017.

ITC for works contract can be availed by the applicant as he is in the same line of business and entitled to take ITC on the tax invoice raised by his supplies as his output is works contract services. Section 17(5)(d) reads as “Goods or Services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business”.

Even as per the provision of Section 17(5)(d), this authority concurs with the opinion of the applicant that he does not fall under this ineligible category.

Case-9-Manjira Machine Builders (P.) Ltd. [2018] 95 63 (AAR- TELANGANA)

ITC is allowed on the supplies effected by paying duty at concessional rate of tax. Moreover, the supplies effected at concessional rate of duty are not exempt supplies. Hence, Input tax credit is allowable on the raw materials used for these supplies.

Case-10- VNR Seeds (P.) Ltd-[2018] 95 89 (AAR – CHHATTISGARH)

As per the above stipulated provisions of section 17(2) of CGGST Act, 2017 any registered recipient can claim ITC to the extent of taxable stock or taxable outward supply shown in their returns. The registered recipient cannot claim ITC on the amount of taxable supply component included in the total amount of exempted supply. The amount of unclaimed ITC shall also be reversed in the electronic ledger of the same month. Thus, it is clear from the above legal provisions that if the applicant supplies seeds (exempted item) in packaged form using such packing materials (taxable item), to its own branches in other States, then no ITC could be claimed on the packaging material used for the said exempted supply of seeds. Whereas, if the applicant supplies only packing material to own branches. In other States, then the ITC involved in purchase of such packing material could be availed as per section 17(2) of CGGST Act, 2017.

Case-11- Bahl Paper Mills Ltd.-[2018] 94 70 (AAR- UTTARAKHAND)

As per Explanation to the Section 17 of CGST Act, 2017 credit is not available in respect of land, building or any other civil structure……. Therefore, in view of the aforesaid provisions of law, Cenvat Credit of GST paid in relation with building or any other civil structure is not available and since sanitary fittings are integral part of building or any other civil structure, cenvat credit of GST paid on such sanitary fittings is not available. However, credit of GST is available on office fixtures & furniture, AC plant. To further strengthen the view, the authority rely on the CBIC Board Circular No. 943/04/2011-CX dated 29th April 2011 wherein it was clarified that the goods such as furniture and stationery used in an office within the factory are goods used in the factory and are used in relation to the manufacturing business and hence the credit of the same is allowed. Further the Hon’ble CESTAT, Principal Bench, New Delhi in the case of M/s Balkrishna Industries Ltd v. CCE, Jaipur-I vide its Final Order No. A/53217-53218/2015 dated 09.10.2015 reported in 2016 (335) ELT 559 (Tri-Del) has held that the credit on duty paid on air-conditioners installed in the office of factory is admissible. Therefore the credit of input tax charged on the supply of fixtures & furniture and AC plant is admissible under CGST/SGST Act. 2017, provided that the registered person has not claimed depreciation on the tax component of the cost of the capital goods and plant and machinery under the provisions of the Income-tax Act 1961.

Case-12- Narsingh Transport [2019] 104 86 (AAR – MADHYA PRADESH)

In the light of the facts as discussed in details in previous paras, the activities carried by the Applicant regarding supply of tax paid motor vehicles on monthly ease rent plus Goods & Service Tax as applicable to their customer under a proper agreement properly satisfies the conditions laid down under Section 17(5) (a) (i) (A) before the amendment and under subsection 5(a)(A) after the amendment to make it eligible for availment of input tax credit on motor vehicle for the Tax paid by it while acquiring the said vehicles. We also find it necessary to mention here that the cars, which the applicant intends to lease, or has already leased, should be registered with the transport authority in the capacity of commercial use. In case the vehicle is owned and used by the Applicant for his own use, the facility of ITC shall seize to be available to them.

Case-13-B.M. Industries [2019] 102 282 (AAR – HARYANA)

Thus, it is evidently clear that there are provisions in the law, where in case of merger, a registered person, by filing Form GST ITC-02, electronically on common portal, can transfer unutilized input tax credit lying in his electronic credit ledger to the transferee. Here it is to be noted that these provisions pertain to transfer of unutilized input tax credit. These provisions are not applicable to unutilized balance lying in electronic cash ledger.

Case-14-Prasar Bharti Broadcasting Corpn. of India [2020] 117 394 (AAR-HIMACHAL PRADESH)

If the facility provided by a taxpayer for transportation of employees is not obligatory under any law, for the time being in force then no ITC will be available to such a taxpayer. The applicant will however be eligible to claim ITC for the service supplied at 12% GST Rate if the conditions laid down in the second proviso to section 17 (5)b are satisfied.

Case-15- KM Trans Logistics (P.) Ltd. [2019] 110 331 (AAR- RAJASTHAN)

The applicant has submitted in his submission that he is engaged in providing GTA service for both i.e. supply of taxable goods as well as non-taxable or exempted goods (as defined under Section 2(47) of the GST Act, 2017).

In view of facts stated above, where the goods or services or both used by the registered person partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies as per provisions and procedure prescribed under Section 17(2) of GST Act read with Rule 42 of GST Rules, 2017.