M/S. DURGA PROJECTS & INFRASTRUCTURE PVT. LTD.

Rectification of Mistake – Mistake apparent on the face of record or not – Liability to pay Service Tax / GST proportionate to the services provided before / after 30.06.2017 respectively – section 161 of the CGST/KGST Act 2017 – it was held in the case of IN RE: M/S. DURGA PROJECTS AND INFRA STRUCTURE PRIVATE LIMITED [2019 (8) TMI 395 – AUTHORITY FOR ADVANCE RULING, KARNATAKA] that the applicant is liable to pay GST towards work executed under Joint Development Agreement on Land Owner’s portion, on the value to be arrived at in terms of para 2 of the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, at the time of transfer of possession of the land owner’s portion of the flats and that the tax liability arises entirely under the GST Law since possession of land owner’s share of flats has not been given to the land owner till the inception of GST Law.

HELD THAT:- The applicant filed the instant application for ROM in the IN RE: M/S. DURGA PROJECTS AND INFRA STRUCTURE PRIVATE LIMITED [2019 (8) TMI 395 – AUTHORITY FOR ADVANCE RULING, KARNATAKA], without bringing anything on record to negate the findings in the said order that the possession of land owner’s share of flats was not handed over to the land owner till 30.06.2017. Further, the time of supply and point of taxation, for the purpose of valuation, are same in CGST Act 2017 (Notification No.04/2018-Central Tax (Rate) dated 25.01.2018) and Service Tax i.e. Finance Act 1994 (para 2.1 (B) (i) of Circular No.151/2/2012-ST dated 10.02.2012) i.e. liability shall arise at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (eg. Allotment letter).

It is clearly evident that the authority has considered all the submissions and issued proper orders. Hence there is no error / apparent mistake on the face of the record in the case of IN RE: M/S. DURGA PROJECTS AND INFRA STRUCTURE PRIVATE LIMITED.

The applicant filed the instant application for ROM, under Section 161 of the CGST Act, 2017 whereas Section 102 of the CGST Act 2017 is the relevant one for filing the application for rectification of advance ruling – the instant application is not maintainable and is liable for rejection in terms of Section 98(2) of the CGST/KGST Act 2017 and hence the same is dismissed as inadmissible..

No.- KAR ADRG ROM 03/2020

Dated.- September 11, 2020

DR. RAVI PRASAD M.P. AND SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER (CENTRAL TAX)

Represented by : Sri. Sanjay M Dhariwal. C A & Authorised Representative.

PROCEDINGS UNDER SECTION 102 OF THE CGST ACT, 2017 & UNDER SECTION 102 OF THE KGST ACT, 2017

1. M/s. Durga Projects & Infrastructure Pvt. Ltd., (called as the ‘Applicant’ hereinafter), 1st Floor, # 125/1-18, G.K. Arcade, T Mariyappa Road, I Block, Jayanagar, Bengaluru-560011, having GSTIN  29AACCD5554H1ZI, have filed an application for rectification of mistake (ROM), under Section 161 of CGST/KGST Act, 2017, alleging that the ruling passed in Order No. KAR ADRG 17/2019 dated 25/07/2019 = 2019 (8) TMI 395 – AUTHORITY FOR ADVANCE RULING, KARNATAKA differed significantly with a ruling in another case having a similar set of case facts.

2. The applicant filed the instant application on the following grounds namely

i. The ruling issued in their case differed significantly with the ruling issued in the case of M/s Nforce Infrastructure India Pvt. Ltd., (AAR Order KAR ADRG 30/2018 dated 28.11.2018) = 2018 (12) TMI 534 – AUTHORITY FOR ADVANCE RULINGS, KARNATAKA, even though both the applications shared similar subject matter & facts

ii.  The different rulings issued constitute an error apparent on the face of record as provided under section 161 of the CGST/KGST Act 2017.

3.  The applicant alleges the significant difference in the rulings of the aforesaid orders, in respect of the construction service, started in pre-GST regime & completed in GST regime, provided to the land owner by the developer, under Joint Development Agreement that in the Order No.17/2019 dated 25.07.2019 = 2019 (8) TMI 395 – AUTHORITY FOR ADVANCE RULING, KARNATAKA it is ruled that “Applicant is liable to pay GST” whereas in the order No.38/2019 it is ruled that “Applicant is liable to pay Service Tax / GST proportionate to the services provided before / after 30.06.2017 respectively”. Further they also furnished additional submissions vide their letter dated 12.06.2020, requesting to consider at the time of issuing the ROM order.

4.  Sri Sanjay M Dhariwal, C A & authorised representative of the applicant appeared for personal hearing proceedings held on 28.07.2020 before this authority and reiterated their submissions made in the ROM application.

5. DISCUSSION & FINDINGS

5.1 We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made by them during the personal hearing.

5.2 The authority in the Order No.17/2019 dated 25.07.2019 = 2019 (8) TMI 395 – AUTHORITY FOR ADVANCE RULING, KARNATAKA ruled that the applicant is liable to pay GST towards work executed under Joint Development Agreement on Land Owner’s portion, on the value to be arrived at in terms of para 2 of the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, at the time of transfer of possession of the land owner’s portion of the flats and that the tax liability arises entirely under the GST Law since possession of land owner’s share of flats has not been given to the land owner till the inception of GST Law.

5.3 The authority in the case of M/s Nforce Infrastructure India Pvt. Ltd., (AAR Order KAR ADRG 30/2018 dated 28.11.2018) = 2018 (12) TMI 534 – AUTHORITY FOR ADVANCE RULINGS, KARNATAKA ruled that the applicant is liable to pay Service Tax/GST proportionate to the services provided before / after 30.06.2017 respectively.

5.4 We find that the applicant filed the instant application for ROM in the Order No.17/2019 dated 25.07.2019 = 2019 (8) TMI 395 – AUTHORITY FOR ADVANCE RULING, KARNATAKA, without bringing anything on record to negate the findings in the said order that the possession of land owner’s share of flats was not handed over to the land owner till 30.06.2017. Further, the time of supply and point of taxation, for the purpose of valuation, are same in CGST Act 2017 (Notification No.04/2018-Central Tax (Rate) dated 25.01.2018) and Service Tax i.e. Finance Act 1994 (para 2.1 (B) (i) of Circular No.151/2/2012-ST dated 10.02.2012) i.e. liability shall arise at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (eg. Allotment letter). We find that the findings given in the said rulings are as per the discussions made therein.

5.5 In view of the above, it is clearly evident from the aforesaid orders that the authority has considered all the submissions and issued proper orders. Hence there is no error / apparent mistake on the face of the record in the Order No.17/2019 dated 25.07.2019 = 2019 (8) TMI 395 – AUTHORITY FOR ADVANCE RULING, KARNATAKA.

5.6 The applicant filed the instant application for ROM, under Section 161 of the CGST Act, 2017 whereas Section 102 of the CGST Act 2017 is the relevant one for filing the application for rectification of advance ruling. Thus the instant application is not maintainable and is liable for rejection in terms of Section 98(2) of the CGST/KGST Act 2017 and hence the same is dismissed as inadmissible..

M/S. SRI SIDDALINGAPPA PALALOCHANA RAKSHIT, “BANGALORE MEDICAL SYSTEM”,

GST Input credit – purchase of equipments, furniture etc. – purchase of reagents/ consumables for performing the tests as the reagents / consumables – Healthcare services or not – Clinical establishment or not – whether the diagnostic services being supplied by the applicant to the aforesaid hospital are covered under Entry no. 74 of Notification No.12/2017- Central Tax (Rate) dated 28.06.2017?

Healthcare services – HELD THAT:- In the instant case the services provided by the applicant are by way of diagnosis of an illness and hence the same are covered under “health care services”.

Clinical establishment or not – HELD THAT:- In the instant case the applicant established a medical diagnostic laboratory to carry out diagnostic or investigative services of diseases. Thus the applicant qualities to be a clinical establishment.

Exempt service or not – HELD THAT:- The services provided by the applicant are covered under clause (a) of Entry no. 74 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and hence is exempt from tax under the CGST Act 2017. Similarly, they are also exempted from tax under the KGST Act, 2017 and also under the Integrated Goods and Services Tax Act, 2017. The applicant is involved in taxable as well as exempted supplies.

Therefore the applicant need to restrict the credit to the amount attributable to taxable supplies including zero rated supplies in the case of both capital goods as well as reagents/consumables or drugs. Further if the applicant claims depreciation on the tax component of capital goods and plant & machinery, under Income Tax Act 1961, the input tax credit on the said tax component shall not be allowed, in terms of Section 16(3) of the CGST Act 2017 – thus, 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.

No.- KAR ADRG 44/2020

Dated.- September 7, 2020

  1. RAVI PRASAD M.P. AND SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER

Represented by : Sri.S.Manjunath, General Manager

ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 & UNDER 98(4) OF THE KGST ACT, 2017

M/s. Bangalore Medical Systems, #5 866,1st Floor, S.M.Road, T.Dasarahalli, Bengaluru-560057 (hereinafter referred to “the applicant”) and having a GSTIN 29ADRPR1448K1ZS, have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of the KGST Act, 2017 read with Rule 104 of KGST Rules 2017, in FORM GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act, KGST Act and IGST Act.

  1. The applicant is a proprietary concern having brand name of “Bangalore Medical System” and registered under the provisions of the Goods and Services Act, 2017. They are into supply of various reagents/ medical consumables (goods) in addition to provision of diagnostic services. The applicant have been Molecular Diagnostic services by M/s. Kidwai Medical Institute of Oncology, Bengaluru, a Karnataka Government hospital. They have been allotted around 5000 sq. ft. of room space to establish & set up a complete Molecular Diagnostic Laboratory. The Lab would be a complete clean room which would be built with PUF panels and Air Handling Units, Lab’s furniture and power backup, equipped with all the latest technology medical lab equipments. All the equipments would be purchased by the applicant and installed at the lab in Kidwai Hospital. The responsibility of running the lab with all necessary technical staff is also on the applicant. The applicant, receives the samples from the patients and issues respective reports and charges Kidwai Hospital as per the approved prices.
  2. In view of the above, the applicant has sought advance ruling in respect of the following questions:
  3. Can the applicant avail GST Input on the equipments, furniture etc. which we are purchasing for this.
  4. Can the applicant avail GST input on the reagents/ consumables they would be purchasing for performing the tests as the reagents / consumables are taxable and not the test.
  5. Applicant’s interpretation of law :The Applicant submits their interpretation / understanding of law that the impugned services fall under medical services and hence the GST is not leviable on the said services. Further the equipments and other furniture & fixtures are fixed assets and remains in their books of accounts and hence they are of the opinion that they are eligible to claim & avail input tax credit of the GST paid on such fixed assets.

PERSONAL HEARING / PROCEEDINGS HELD ON 30.07.2020

  1. Sri S.Manjunath, General Manager of the above concern appeared for personal hearing proceedings on 30.07.2020 before this authority, reiterated the facts furnished in the application and also submitted as under:

5.1 The applicant established a full fledged laboratory in the premises of the Kidwai Memorial Institute of Oncology and provides the service of diagnostic testing on the samples sent by the hospital. They charge the hospital for the services rendered.

5.2 The applicant claims that the services being provided to the Institute, which is a hospital, are exempted from tax under the CGST / KGST / IGST Act 2017. Further a lot of fixed assets in the form of instruments, furnitures & fixtures purchased and have been capitalized in the books of accounts, thus they are capital goods & hence applicant is eligible to claim input tax credit on the inward supply of such capital goods.

  1. DISCUSSION & FINDINGS

6.1 We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made by them during the personal hearing. We have also considered the issues involved 86 relevant facts having a bearing on the questions in respect of which advance ruling is sought by the applicant.

6.1 At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act.

6.2 We proceed to examine whether the diagnostic services being supplied by the applicant to the aforesaid hospital are covered under Entry no. 74 of Notification No.12/2017- Central Tax (Rate) dated 28.06.2017, which reads as under:

Sl.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (Per cent.) Condition
 74 Heading 9993 Services by way of-

(a) Health care services by a clinical establishment, an authorised medical practitioner or para-medics;

(b) Services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above

Nil Nil

6.3 The term “health care services” is defined in clause (zg) of paragraph 2 of the Notification supra and reads as under:

“(zg) “health care services” means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma;”

In the instant case the services provided by the applicant are by way of diagnosis of an illness and hence the same are covered under “health care services”

6.4 Now we proceed to examine whether the applicant falls under “clinical establishment”, which is defined in clause (s) of paragraph 2 of the said Notification and the same reads as under:

“(s) “clinical establishment” means a hospital, nursing home, clinic, sanatorium or any other institution by whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India, or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases;”

In the instant case the applicant established a medical diagnostic laboratory to carry out diagnostic or investigative services of diseases. Thus the applicant qualities to be a clinical establishment.

6.5 It is clear, from the foregoing, that the services provided by the applicant are covered under clause (a) of Entry no. 74 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and hence is exempt from tax under the CGST Act 2017. Similarly, they are also exempted from tax under the KGST Act, 2017 and also under the Integrated Goods and Services Tax Act, 2017. The applicant is involved in taxable as well as exempted supplies.

  1. Sub-section (2) of section 17 of the CGST Act, 2017 stipulates that the amount of credit be restricted to the input tax attributable to the taxable supplies including zero rated supplies and reads as under:

“(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplied under the said Acts, 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.”

Therefore the applicant need to restrict the credit to the amount attributable to taxable supplies including zero rated supplies in the case of both capital goods as well as reagents/consumables or drugs. Further if the applicant claims depreciation on the tax component of capital goods and plant & machinery, under Income Tax Act 1961, the input tax credit on the said tax component shall not be allowed, in terms of Section 16(3) of the CGST Act 2017.

  1. Hence in view of the above, 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.

In view of the foregoing, we pass the following

RULING

  1. The applicant can avail the GST input tax credit on the equipments. Furniture, etc. which he is purchasing for the project in question, subject to the restriction of the same in terms of Section 17(2) of the CGST Act 2017.
  2. The applicant can avail GST input tax credit on the reagents/ consumables which are purchased for performing the test, subject to the restriction of the same in terms of Section 17(2) of the CGST Act 2017..

SEVK RAM SAHU, (M/S. S.R.S. ENTERPRISES)

Pure labour contract services – For construction of a civil structure or any other original works under PMAY – Applicability of N/N. 12/2017-Central Tax (Rate) dated 28.06.2017 – classification and HSN for services provided by the applicant – HELD THAT:- The scope of above said entry is not person-centric but project-centric. The entry does not speak of contractor or sub-contractor but supply of pure services by way of construction under certain projects. It clearly stipulates that whosoever is supplying the pure labour contract services for the construction of a civil structure or any other original works under PMAY is exempted from GST.

The services of pure labour contract supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works under PMAY is exempted from GST vide Entry 10 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended).

No.- RAJ/AAR/2019-20/28

Dated.- December 18, 2019

J.P. MEENA AND HEMANT JAIN MEMBER

Present for the applicant: Shri P.C. Sharma, C.A. & Shri B.S. Naruka, C.A. (Authorised Representatives)

Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.

  • At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the “GST Act”.
  • The issue raised by SEVK RAM SAHU, (M/S S.R.S. Enterprises), 172, Hasanpura C, Khatipura Road, Jaipur, Rajasthan 302006(hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97 (2)(b) given as under: –
  1. Applicability of a notification issued under the provisions of this act;
  • Further, the applicant being a registered person (GSTIN is 08EIFPS8064B1Z1 as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling.
  1. SUBMISSION AND INTERPRETATION OF THE APPLICANT:
  • Party ‘A’ (Sunrise Construction Company) entered in to an agreement with Rajasthan Government to construct 270 flats under affordable housing scheme under Pradhan mantra Awas Yojana (including material and labour). Party ‘A’ further sublets the work to Party ‘B’ (M/s. Banna Ram Choudhary) to construct above 270 flats under a separate work contract (including material and labour).
  • Party ‘B’ further entered in a sub-contract with Party ‘C’ (the applicant) for “Pure labour Service” in said project. Scope of work of the applicant will be only “Chunai and Plaster Work only” The applicant will have all the control over labour and responsible for their dues and other concerns.
  • Generally, government does the contract of housing development project including material and labour and not merely for “Pure Labour Service”. Main contractor further sublets the work to other sub-contractors for different type of works related to the project.
  • Entry No. 10 of Notification No. 12/2017-CT(R) dated 28.06.2017 provides GST exemption for pure labour contract services, as under-

Services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works pertaining to the beneficiary-led individual house construction or enhancement under the Housing for All (Urban) Mission or Pradhan Mantri Awas Yojana.

In applicant’s opinion, above notification is “activity based” and accordingly should be applicable for sub-contractors as well. The government too wants to minimize cost of such projects.

  1. QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT
  • Whether the entry number 10 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 is applicable to the applicant and accordingly will the services provided by the applicant?
  • If the Notification No. 12/2017 -Central Tax (Rate) dated 28.06.2017 is not applicable, then what will be classification and HSN for services provided by the applicant?
  1. PERSONAL HEARING

In the matter personal hearing was granted to the applicant on 28.11.2019 at Room no. 2.29 NCRB, Statue Circle, Jaipur. Shri P.C.Sharma, C.A. & Shri B.S.Naruka, C.A. (Authorised Representatives) of applicant appeared for PH. During the PH, they reiterated the submissions already made in the application. No additional submissions were presented in PH. They requested for early disposal of the application.

  1. COMMENTS OF THE JURISDICTIONAL OFFICER

The jurisdictional officer (Assistant Commissioner, State Tax, Circle-I, Jaipur Zone-III, Zonal Kar Bhavan, Jhalana Doongri, Jaipur, Rajasthan 302004) has submitted his comments vide letter dated 04.11.2019 which can be summarized as under:

As directed application has been examined with reference notification No. 12/2017 dated 28-26-2017 of Central tax rate

  1. Party B M/s. Banna Ram Chaudhary has entered into sub contract with Party C M/S SRS Enterprises for pure labour services in a project for construction of 270 flats under affordable housing scheme under Pradhan Mantri Yojna.
  2. (a) Here applicants wants to know that entry no. 10 for exempt service in notification no. 12/2017 dates 28-06-2017 of Central Tax Rate) is applicable to our firm (S.R.S. enterprises (Sub-Contractor)) as well and accordingly “pure labour service” that we will provide in said project will also be exempt from GST.

(b) If the said notification is not applicable in our case then what would be the GST rate and SAC code for the pure labour service that we will provide in above project.

  1. As per notification No. 12/2017 dated 28-26-2017 of Central tax rate-

Services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works pertaining to the beneficiary-led individual house construction or enhancement under the Housing for all (Urban) Mission or Pradhan Mantri Awas Yojana is exempt from intra-state supply of services under GST Law.

  1. Although Contractor and sub-contractor are not defined in CGST ad 2017 but as per general definition.

A sub-Contractor means a person hired by a general contractor to perform a specific task. As part of overall project or the total project at a specified price for services provided to the project by originating employer.

And when the contractor awards either wholly or partially the contractual obligation to a sub-contractor the contract remains the same and the identity of a contract doesn’t change also when the contractor awards either wholly or partially the work to the subcontractor the work to be performed by the contractor as well as subcontractor remains same and identical to what is specify in the contract between the main contractor and the employer.

From Above discussion Prima Facie it appears that Sub contract made by contractor does not change the basic nature of nature of original contract with the employer therefore it appears that exemption available by way of above notification of intra-state supply of services under PMAY should be available to sub-contractor i.e. the applicant.

  1. FINDINGS, ANALYSIS & CONCLUSION:
  • M/s. Sunrise Construction Company (hereinafter Party ‘A’) entered in to an agreement with Government of Rajasthan for construction of 270 flats under affordable housing scheme under Pradhan Mantri Awas Yojana (including material and labour). Party ‘A’ further sublets the work to M/S Banna Ram Choudhary (hereinafter party ‘B’) to construct above 270 flats under a separate work contract (including material and labour).

Party ‘B’ further entered in a sub-contract with the applicant for “Pure labour Service” in said project. A copy of agreement {between the applicant and party ‘B’} dated 12.10.2019 has been provided with the original submissions. These labour services will be used for “Chunai and Plaster Work only” in the above said project. The applicant will have all the control over labour and responsible for their dues and other concerns.

  • While going through the above facts, we find that agreement between the applicant and Party B is only for pure labour contract services supplied in construction of 270 flats under Pradhan Mantri Awas yojana (hereinafter PMAY).
  • The above said agreement dated 12.10.2019 as discussed above has mentioned the original work and contract i.e. Rameshwaram Paradise, Bikaner Bypass, Sikar (a site under PMAY). Therefore, it is clearly evident that the applicant is engaged in supplying of pure labour contract services as a sub-contractor to the Party ‘B’ for construction of 270 flats under PMAY.
  • The pure labour contract services has been exempted vide Entry 10 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended). The relevant portion of the said notification is as below-
Sl. No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition
(1) (2) (3) (4) (5)
10 Heading 9954 Services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works pertaining to the beneficiary-led individual house construction or enhancement under the Housing for All(Urban) Mission or Pradhan Mantri Awas Yojana. Nil Nil

While going through the above entry of the notification, we find following elements-

  1. Services by way of pure labour contract,
  2. Work related to construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original work;
  3. Pertaining to beneficiary-ledindividual house construction; or enhancement under the Housing for All (Urban) Mission; or Pradhan Mantri Awas Yojana.
  1. Original works has been defined under above said notifications as-

“original works” means- all new constructions;

(i) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

(ii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

In view of the above, we find that scope of above said entry is not person-centric but project-centric. The entry does not speak of contractor or sub-contractor but supply of pure services by way of construction under certain projects. It clearly stipulates that whosoever is supplying the pure labour contract services for the construction of a civil structure or any other original works under PMAY is exempted from GST.

  • Therefore, we find that the services of pure labour contract supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works under PMAY is exempted from GST vide Entry 10 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended).
  1. In view of the foregoing, we rule as follows: –

RULING

The services provided by way of pure labour contract supplied by the applicant for the construction of flats under Pradhan Mantri Awas Yojana (PMAY) is covered under Entry 10 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended).

M/S. TIRUMALA MILK PRODUCTS PVT. LTD.

Maintainability of application for advance ruling – first proviso to Section 98(2) of the CGST Act 2017 – initiation of investigation was done prior to filing of the instant application – Classification of goods – rate of tax – flavoured Milk – taxable at the rate of 5% under Schedule-IV of GST Act or not – HELD THAT:- The first proviso to Section 98(2) of the CGST Act 2017 does not specify as to with whom the issue pertaining to the question raised has to be pending, but merely specifies that it has to be pending or decided under the provisions of this Act. Hence the argument of the applicant that the issue must be pending before the jurisdictional officer is not tenable under the law.

In the instant case, the Deputy Commissioner, Office of the Principal Commissioner of Central Tax, Bangalore East Commissionerate, Bangalore have reported vide their letter dated 18.08.2020 that the Directorate of GST Intelligence, Bangalore Zonal Unit have initiated the investigation against the applicant, with regard to mis-classification of “flavoured milk”, under Incident Report No.35/2019-20, which is under progress. DGSTI has recorded the statements of the authorised representatives of the applicant and the applicant has also paid ₹ 2.97 Lacs towards pre-deposit. Further it is an admitted fact that the initiation of investigation was done prior to filing of the instant application, by issuing summons dated 18.02.2019, 15.03.2019 & 14.08.2019 – Thus all the required three conditions have been satisfied in the instant case and hence the application is liable to be treated as inadmissible.

The application is rejected as “inadmissible”, in terms of first proviso to Section 98(2) of the CGST Act 2017.

No.- KAR ADRG 43/2020

Dated.- September 2, 2020

DR. RAVI PRASAD M.P. AND SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER

Represented by: Sri. M.N. Shankare Gowda, Advocate & Authorized Representative

ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 & UNDER 98(4) OF THE KGST ACT, 2017

M/s. Tirumala Milk Products Pvt. Ltd., (called as the ‘Applicant’ hereinafter), 4 BC 301, The Summit, 3rd Floor, 3rd Main, 4th B Cross, Kasturi Nagar East, Ramamurthy Nagar, Bangalore-560016, having GSTIN 29AABCT7907M1ZR, have filed an application for Advance Ruling under Section 97 of CGST Act,2017 & KGST Act, 2017 read with Rule 104 of CGST Rules 2017 & KGST Rules 2017, in form GST ARA-01, discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act.

2. The applicant is engaged in processing and manufacturing of Milk & Milk products in the state of Andhra Pradesh. The Applicant processes various Milk and Milk products including flavored milk. The applicant is carrying on the activity of selling the above said products in the State of Karnataka.

3. The applicant sought advance ruling in respect of the following question, in relation to the classification of “flavoured milk” and the applicable GST rate thereon.

“Whether flavoured Milk is taxable at the rate of 5% under Schedule-IV of GST Act”.

PERSONAL HEARING: / PROCEEDINGS HELD ON 28.07.2020

4. Sri. M.N. Shankare Gowda, Advocate & Authorized Representative, along with the applicant appeared for personal hearing proceedings held on 28.07.2020, appraised the facts furnished in the application and furnished the written submissions with regard to admissibility of the instant application, in support of their argument, inter alia stating as under:

4.1 The authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of the Acts, in terms of the 1st proviso to Section 98(2) of the CGST / KGST Act 2017.

4.2 The Authority on receipt of an application shall preliminarily send a copy of the application to the concerned officer and if necessary direct him to produce the relevant records, in terms of Section 98(1) of CGST/KGST Act 2017. Further, this authority, in terms of Section 98(2), after examining the application and the records received from concerned officer and after hearing the applicant or his authorized representative and the concerned officer or his authorized representative, order can be passed either admitting or rejecting the application.

4.3 By careful reading of sub-section 1 & 2 of Section 98, it is categorical that at the threshold the Hon’ble Authority has not only been empowered to call for the records from the concerned officer but also duty has been cast upon to admit or reject the application after perusing the records. The legislature in these two provisions has not stated anywhere the criteria on which the application can be admitted or rejected. But the legislature is categorical that the Hon’ble authority has to call for the records from the concerned officer but for what purpose is not forthcoming in these two provisions.

4.4 However, by reading the 1st proviso to sub-section (2) one can understand that the Hon’ble Authority shall not admit the application if question raised in the application is already pending or decided in any proceedings in the case of particular applicant under any of the provisions of the CGST/KGST Acts. As per sub-section 1 & 2 the authority is empowered to call for records from the concerned authority only to know whether any proceedings are pending or decided with respect to the question raised in the application. Then only the Hon’ble Authority will come to know with respect to the pendency or decision taken under the provisions of the Act with respect to the question raised in the application. By over all reading of the proviso to sub-section 2 and sub-sections, it is unambiguous that the Hon’ble Authority has to take a preliminary decision either to admit or reject the application after perusing the records received from concerned officer under any of the provisions of the CGST/KGST Acts. The phrase “under any of the provisions of this Act” confines to the proceedings or decisions taken by the concerned officer, but not the proceedings pending or decision taken by any other officer under CGST/KGST Acts. Under sub-section 2 the Hon’ble Authority immediately after perusing the records received from concerned officer is bound to take decision to admit or reject the application. This Hon’ble authority will come to know only after perusing the records of the concerned officer with respect to the condition prescribed under 1st proviso for sub-section 2, therefore, proviso is to be read and understood keeping in the background the intention of the legislature under both sub-sections 1 & 2. The 1st proviso cannot be read independently. This Hon’ble Authority cannot traverse beyond the legislative intention which is conspicuous under sub-sections 1 & 2. It is submitted that before the concerned officer no proceedings is pending or no decision has been taken by the concerned officer in the applicant’s case. Therefore, the applicants application is maintainable.

4.5 It is submitted that the summons issued u/s 70 on various dates namely 18.02.2019, 15.03.2019 cannot be a criteria to decide whether question raised in the applications is already pending or decided in any proceedings in the case of the applicant.

4.6 The “concerned officer” as per the guidelines issued by the Director General of Tax Payer Services, Central Board of Excise and Custom means an officer who has been designated by the CGST/SGST administration in regard to application for Advance Ruling. In normal circumstances, the concerned officer will to the officer in whose jurisdiction the applicant is located. In such cases the concerned officer will be the jurisdictional CGST / SGST officer. It is submitted that this is found in Advance Ruling Mechanism in GST, a copy of which has been produced before this Hon’ble Authority by the applicant on the day the argument was addressed. So the “concerned officer” referred under Section 98 is nothing but a jurisdictional officer in normal circumstances.

4.7 Under Section 70, the “proper officer” has empowered to issue summons directing any person to appear before the authority either to give evidence or to produce documentary evidence. The proper officer has been defined u/s 2 (91) of CGST/KGST Acts. As per the definition the proper officer is the one in relation to any function to be performed under this Act, means Commissioner or the officer of the Central Tax who is assigned that function by the commissioner in the board. It is submitted that for the purpose of maintaining application for Advance Ruling, as per Section 98, before the concerned officer. Under Section 98 there is no reference to the “proper officer”. Under 1st proviso to Section 98(2), of course, it refers to, any proceedings or decision taken in the case of an applicant under any provisions of the Acts, if it is with respect to the same question raised in the application, consequently, leads to rejection of the application. The Proviso cannot be read solitarily, but it has to be read along with sub-sections 1 & 2. If that it is so, proviso operates within the scope of sub-section 1 & 2. Therefore, summons issued u/s 70 of the Acts will not come within the purview of proviso read with sub-sections 1 & 2. Hence, it is respectful submission of the applicant that the application filed for Advance Ruling is maintainable.

4.8 Without prejudice to the above contention, it is further submitted that, by careful perusal of summons referred to above, it is seen that the proper officer has summoned the applicant to be present before him for giving evidence and to produce the documents, which is general in nature. Nowhere in the summons, the question raised before this Hon’ble Authority namely, under which entry and schedule “Flavoured Milk” is taxable, has been referred/mentioned. There is no discussion in the summons that the records have been called for, to decide the rate of tax of “Flavoured Milk”, which is under dispute. The summons are absolutely silent with respect to entry and schedule of the “Flavoured Milk”. It cannot be made out by reading the summons, for what reason the presence of the applicant has been ordered and documents to be produced. In the absence of specific issue in the summons, namely under which entry and schedule the “Flavoured Milk” is falling, the applicant’s case is not hit by 1st proviso to sub-section 2 of Section 98. It is mandatory under the proviso to say that the application is not maintainable, if the proceedings or decision is taken under the provisions of the Acts. In the summons issued by the proper officer absolutely there is no reference with respect to rate of tax of “Flavoured Milk” and under which entry and schedule it is falling. Therefore, the applicant’s application is maintainable.

4.9 It is further submitted the applicant has appeared before the proper officer and given a statement, a copy of which has not been served on the applicant. Wherefore for the reason stated above the applicant prays that this Hon’ble Authority may be pleased to admit the application for consideration on merits, in the interest of justice.

5.DISCUSSION & FINDINGS:

5.1 We have considered the submissions made by the Applicant in their application for advance ruling as well as the issues involved & relevant facts having a bearing on the questions in respect of which advance ruling is sought by the applicant.

5.2 At the outset, we would like to state that the provisions of both the CGST Act, 2017 and the KGST Act, 2017 are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the corresponding similar provisions under the KGST Act.

5.3 The admissibility of the application is governed by the first proviso to Section 98(2) of the CGST Act 2017, which reads as under:

“The Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of applicant under any provisions of this Act”.

Thus the conditions to be considered before admission of application, on the basis of above proviso are as under:

i. Whether the question raised is pending or decided in any proceedings

ii. Whether the question raised is pending or decided in the case of applicant

iii. Whether the question raised is pending or decided under provisions of this Act

5.4 It is very clear from the above that the first proviso to Section 98(2) of the CGST Act 2017 does not specify as to with whom the issue pertaining to the question raised has to be pending, but merely specifies that it has to be pending or decided under the provisions of this Act. Hence the argument of the applicant that the issue must be pending before the jurisdictional officer is not tenable under the law.

5.5 In the instant case, the Deputy Commissioner, Office of the Principal Commissioner of Central Tax, Bangalore East Commissionerate, Bangalore have reported vide their letter dated 18.08.2020 that the Directorate of GST Intelligence, Bangalore Zonal Unit have initiated the investigation against the applicant, with regard to mis-classification of “flavoured milk”, under Incident Report No.35/2019-20, which is under progress. DGSTI has recorded the statements of the authorised representatives of the applicant and the applicant has also paid ₹ 2.97 Lacs towards pre-deposit. Further it is an admitted fact that the initiation of investigation was done prior to filing of the instant application, by issuing summons dated 18.02.2019, 15.03.2019 & 14.08.2019. Thus all the required three conditions have been satisfied in the instant case and hence the application is liable to be treated as inadmissible.

6. In view of the foregoing, we pass the following

RULING

The application is rejected as “inadmissible”, in terms of first proviso to Section 98(2) of the CGST Act 2017.

M/S. ADITYA INDUSTRIES

Scope of Advance Ruling application – section 97(2) of the CGST Act, 2017 – Input Tax Credit – rejection solely on the ground that the tax collected by the supplier of the raw material from the applicant is not paid to the government in cash and also on the ground that the tax collected by the supplier of the raw material from the applicant is paid to the government through utilization of ineligible input tax credit – HELD THAT:- All the cases pertain to a scenario where tax has not actually been paid. Even in cases where tax has been paid by the supplier to the government through in-eligible input tax credit it would always deemed not to have been paid as tax has not actually been paid to the government. When the applicant is sure as is evident in the application that tax has not been paid in cash or has been paid through ineligible input tax credit, it clearly implies that either tax has not been paid or deemed not to have been paid. Therefore, in all the mentioned cases, it can not be regarded as tax paid to the government by any stretch of mind.

Thus, in view of the provisions laid down in section 97(2) of the CGST Act, 2017 encompassing the specific questions, which are sought under advance ruling, it can decisively be inferred that the questions raised by the respondent before Advance Ruling Authority were beyond the scope and jurisdiction of Advance Ruling, and hence do not warrant any ruling thereon and therefore in view of the provisions of Section 97 of the CGST Act, 2017, this authority is not allowed to answer the subject question.

The subject application filed for advance ruling is rejected, as being non-maintainable as per the provisions of the CGST Act, 2017 and Rules made there thereunder.

No.- GST-ARA-HP/2020-21/20870-76

Dated.- August 28, 2020

Citations:

  1. Consolidated Coffee Ltd. Versus Coffee Board, Bangalore (and other cases) – 1980 (4) TMI 278 – Supreme Court
  1. RAKESH SHARMA, AND SH. ABHAY GUPTA, IRS, MEMBER

PROCEEDINGS

(Under Section 98 of the Central Goods and Service Tax Act, 2017 and the Himachal Pradesh Goods and Service Tax Act, 2017)

The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Himachal Pradesh Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and HPGST Act” respectively] by M/s., Aditya Industries, Trilok Pur Road Industrial road, Kala Amb, District Sirmour (H.P.) the applicant, seeking an advance ruling in respect of the following questions.

Q1: Whether the input tax credit availed by the applicant is subject to rejection solely on the ground that the tax collected by the supplier of the raw material from the applicant is not paid to the government in cash

Q2: Whether the input tax credit availed by the applicant is subject to rejection solely on the ground that the tax collected by the supplier of the raw material from the applicant is paid to the government through utilization of ineligible input tax credit.

At the outset, we would like to make it clear that the provisions of both the CGST Act and the HPGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the HPGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling. the expression `GST Act’ would mean CGST Act and HPGST Act.

  1. FACTS AND CONTENTION – AS PER THE APPLICANT

The submissions of the applicant are as under: –

2.1 That the applicant is a partnership firm running under the name and style of M/s Aditya Industries situated at Industrial Area, Trilokpur road, Kala Amb, Tehsil Nahan, Distt. Sirmour, Himachal Pardesh originally registered under the provisions of Himachal Pradesh Value Added Tax Act, 2005 (‘HP VAT Act’) and under Central Sales Tax Act, 1956 vide TIN No. 02040400174 and migrated into GST vide GS-FIN 02AAKFA1378H1ZP.

2.2 That the applicant, is engaged in the manufacture of various iron and steel items namely TMT Bars under HSN 7214, Ingots under HSN 7207 etc, all chargeable to GST © 18%, whereas the major raw materials is MS Scrap (HSN 7204), Sponge Iron (HSN 7203) and Silicomanganese (HSN 7202), all attracting GST @ 18%.

2.3 That the major raw material i.e. MS Scrap (HSN 7204) procurement is made from the registered scrap dealers, who while making the outward supply charges goods and service tax (hereinafter referred as “tax”) at prescribed rate in the Tax Invoice from the applicant in compliance with the Central Goods and Service Tax Act, 2017 (hereinafter referred as “CGST Act, 2017”)

2.4 That in order to safeguard any wrong trade practices from the scrap dealers, which is an unorganized sector, the applicant has adopted a policy where the payment in relation to tax component charged by the scrap dealer on Tax Invoice (i.e supplier of raw material) is made upon matching the details of inward supplies made by the applicant from the respective supplier with the details as appearing GSTR 2A of the applicant, which is a self-generated return on the basis of the data reported by the respective supplier in their return of outward supply i.e. GSTR 1 for the respective month.

2.5 That the applicant makes the payment in relation to tax component only after ensuring that the supplier of raw material (i.e. Scrap dealer) has filed his return of outward supply i.e. GSTR 1 and the relevant Tax Invoices against the outward supply from the supplier, is reported by the supplier is his GSTR 1 by matching the Tax Invoices with GSTR 2A appearing on the applicant’s portal against the inward supplies made by the applicant.

2.6 That the applicant makes all the remittances against consideration for raw material procured or freight charges for transportation by road through banking channel which can be linked through bank statements.

2.7 That the applicant takes all the bona fide steps and measures to ensure that all the relevant conditions as provided under Section 16(2) of the CGST Act, 2017 is fulfilled. The extract of the relevant provision is as under:

“S.16(2): Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services of both to him unless, –

(a) He is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(b) He has received the goods or services or both

(c) Subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

(d) He has furnished the return under section 39:

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his outward tax liability, along with interest thereon, in such manner as may be prescribed”

2.8 That to sum up the conditions as given in Section 16(2) read with Section 17(5) to decide the eligibility of Input tax credit and position of the applicant on fulfilment of such conditions are as follows:

S.No. Conditions as provided under S.No. Section 16(2) read with Section 17 (5) Condition fulfilled by the applicant
1. Possession of Tax Invoice issued by the registered Supplier Applicant is in possession of all the Tax Invoices in original with supporting documents namely Consignment note issued by the transporter; Copy of E Way Bill; Weighing slip (kanta parchi); Toll slips etc
2. Receipt of Goods by the Receiver Applicant has received the goods which is duly recorded in the inward register placed at the main gate of the principal place of business
3. Payment of Tax charged in respect of supply, to the Government by the Supplier Applicant ensures all the available methods provided by the department to ensure that the supplier reports the supplies in his valid returns and then makes the payment pertaining to tax
4. Furnishing of return under Section 39 Applicant has furnished all the valid returns under Section 39
5. Payment of amount towards the value of supply along with tax payable, to the supplier within 180 days from the date of issue invoice Applicant makes payment in relation to value of goods on receipt of goods and payment in relation to tax on matching the details of inward supply procured by the applicant with the details as appearing in the applicant’s GSTR 2A (which is self-generated return on the basis of data reported in the return of outward supply i.e GSTR 1 by the supplier). Nowhere the outstanding payment exceeds the timeline of 180 days on the part of the applicant.
6. Input Tax credit is not in relation to blocked credits as provided under Section 17(5) Input tax credit is not in relation to the blocked credits as provided under Section 17(5) of the CGST Ad,2A17

2.9 That the applicant has taken all the bona fide steps to ensure that all the conditions to avail Input tax credit is fulfilled and the revenue of the Government is secured at every stage.

2.10 That the applicant also verifies whether the suppliers of the applicant has filed their returns under Section 39 i.e GSTR 3B through which the payment of tax charged by the supplier is made to the Government, which is filed as per the online Goods and Service Tax portal.

2.11 That the applicant exhausts all the available mode to ensure the reporting of the outward supplies made by the supplier to the applicant but the cannot go beyond the systems to ensure actual payment made by the supplier of the tax collected from the applicant or decide the eligibility of the input tax credit availed by the supplier.

2.12 That the law empowers the department and tax authorities to ensure the matching of the returns filed by any assesse and legitimate tax payments, which at any strength of attempt not available with the applicant.

2.13 That on the basis of the facts provided, the applicant seeks this advance ruling from the Ld. authorities of Advance Ruling on the following broad Questions. (also mentioned separately in point 14 of the AAR application)

Q1: Whether the input tax credit availed by the applicant is subject to rejection solely on the ground that the tax collected by the supplier of the raw material from the applicant is not paid to the government in cash

Q2: Whether the input tax credit availed by the applicant is subject to rejection solely on the ground that the tax collected by the supplier of the raw material from the applicant is paid to the government through utilization of ineligible input tax credit.

2.14 Further, the applicant party vide their letter 5.06.2020 filed an amended application to their original application which reads as under:

That the questions on which Advance Ruling is required as mentioned in Point 14 of Form GST ARA-01 and Para 13 of Annexure A (Statement of Relevant facts) of the original application may please be read as follows:

  1. Whether the Input Tax credit is admissible to the applicant where the tax collected by the Supplier from the applicant is not paid to the Government in cash but the same is reflecting in GSTR 2A of the applicant
  2. Whether the Input Tax credit is admissible to the applicant where the tax collected by the Supplier from the applicant is paid to the Government through utilization of ineligible input tax credit but the same is reflecting in GSTR 2A of the applicant
  3. CONTENTION-AS PER THE REVENUE DEPARTMENT

From the provisions of Section 97(2) of the CGST Act 2017, it is apparent that question on determination of the place of supply has not been covered in the above set of questions on which advance ruling can be given. Hence, the application of the applicant does not merit consideration and should be rejected.

  1. RECORD OF PERSONAL HEARING

4.1 Preliminary First Hearing in the matter was held on 10.06.2020. Sh. Archit Singla, CA of M/s Naresh K Singla & associates on behalf of M/s Aditya Industries, Kala Amb, District Sirmour (H.P.) appeared on-line on web-meeting/ video conference for Personal Hearing held on 10.06.2020 on behalf of the applicant. He re-iterated his submissions made in the AAR application. He also requested to consider his amended application on the same subject. The Advance Ruling Authority informed that the applicant party was undergoing an enquiry/ investigating proceedings prior to the filing of his application for advance ruling for which Sh. Archit Singla, CA responded that he will take up the matter with the applicant firm and submit his reply accordingly. The Advance Ruling Authority intimated that they are of the view that the matter pertains to the issue of ITC taken on tax not paid by the supplier and they shall accordingly decide the matter separately before issuing the ruling and in the process the applicant was allowed to submit any further reply before the next hearing.

4.2 Second hearing was held on 03.07.2020.

4.2.1 Sh. Archit Singla, CA on behalf of M/s Aditya Industries, Kala Amb, District Sirmour (H.P.) appeared on-line on web-meeting/ video conference for Personal Hearing held on 03.07.2020. He re-iterated his submissions already made in the AAR application and the amended application submitted on 10.06.2020. He also submitted another reply dated 02.07.2020 where under he requested the authority to consider his submissions that the investigation launched by the department were general in nature and were in relation to verification of ITC availed and the department’s letter dated 11.11.2019 was not specific and did not co-relate to the question sought in the application and the applicant interpreted that there was no ongoing enquiry/ investigation on the date of filing this application of advance ruling before the authority. Hon’ble member Sh. Rakesh Sharma, Additional Commissioner, SGST Shimla (H.P.) pointed out that the issue involves two scenarios firstly when tax collected by the supplier of the raw material from the applicant is not paid to the government in cash and secondly tax collected by the supplier of the raw material from the applicant is paid to the government through utilization of ineligible input tax credit and in both the scenarios tax has not been paid or deemed not to have been paid on the goods against which credit has been taken by the applicant. The Hon’ble member was of the view that before proceeding further, it should be discussed whether the application for advance ruling falls under the purview of the advance ruling or not as the matter pertains to the question raised on non-payment of tax. He categorically pointed out that under Sub-Section 2(d) of Section 97 of CGST Act, 2017 it is very clear that only those cases come under the purview of Advance Ruling where tax has been paid or deemed to have been paid. In the present application, ruling has been sought on the issue where the tax has not been paid. As the statute is very clear, the ruling cannot be issued by this authority as the issue does not come under its purview, Hon’ble member Sh. Abhay Gupta Joint Commissioner, CGST Shimla concurred with the opinion of the Hon’ble member and opined that this should be considered as final hearing as the matter is quite clear and does not come under the purview of the advance ruling authority.

4.2.2 Sh. Archit Singla, CA of M/s Naresh K Singla & associates argued that the matter comes under the purview as tax deemed to have been paid and expressed his wish to submit some more written reply in this matter for due consideration of the Authority. He requested that no further personal hearing may be given but his submissions regarding this issue be considered before any ruling is passed by the authority for which both members agreed and asked him to file his written submissions at the earliest.

4.2.3 Both the Hon’ble members were of the view that this should be considered last and final personal hearing and ruling will be issued after due consideration of further written submissions by the applicant.

4.2.4 The applicant filed his reply vide his letter dated 13.07.2020 where under he submitted as under:

4.2.4.1 That the relevant extracts of sub Section 2 of Section 97 of the CGST Act, 2017 is reproduced below:

“S. 97(2): The question on which the advance ruling is sought under this Act, shall be in respect of-

(d) admissibility of input tax credit of tax paid or deemed to have been paid”

4.2.4.2 That the subject matter on which this advance ruling sought is on the same issue that the applicant has no mechanism to ensure whether the tax collected by his supplier has been duly paid to the Government or not;

4.2.4.3 That the applicant on ensuring that the tax collected by his supplier is appearing in the GSTR 2A of the applicant avails the Input Tax credit and believes that the Tax collected is deemed to be paid;

4.2.4.4 That as per the relevant provisions of the CGST Rules (Rule 69), the procedure to match the details between the supplier and the receiver follows the mechanism as below:

Step 1: The Supplier shall report his details of outward supplies in GSTR 1 (i.e. Statement of outward supplies under Section 37)- the details of which shall auto populate on the portal of respective receiver in GSTR 2A,

Step 2: The Receiver shall accept, reject or validate the details appearing in GSTR 2A which is based on details reported by the Supplier in his GSTR 1, and file the details of inward supplier in GSTR 2 (i.e. Statement of inward supplies under Section 38)

Step 3: Once the details of outward and inward supplies are reconciled between the supplier and the receiver, both shall furnish a return under section 39 (1) in Form GSTR 3.

4.2.4.5 That further the details of outward supplies and inward supplies reported in `GSTR 1 and GSTR 2 respectively shall electronically be generated in Part A of GSTR-3 and hence the system automatically ensured that the tax is paid through GSTR 3 on the basis of details of outward supplies as reported by the supplier in GSTR 1.

4.2.4.6 That the above prescribed mechanism was not followed since July, 2017 as the due date of filing GSTR 2 i.e. statement of inward supplies, has been extended initially by way of Notification No 30/2017 – Central Tax dated 11.09.2017 and then further extended vide Notification No 58/2017-Central Tax dated 15.11.2017 till the period not notified till date.

4.2.4.7 That in the absence of GSTR 2 i.e. statement of inward supplies, the applicant has the option to manually reconcile the. Input Tax credit on inward supplies as reported by the supplier in his GSTR 1 which shall be appearing in the GSTR 2A of the applicant;

4.2.4.8 That there is no further mechanism with the applicant except GSTR 2A, to ensure the details reported by his supplier and relying on same the applicants avails the Input tax credit assuming that tax the has been deemed to be paid by the supplier as the same is reported by him in his GSTR 1;

4.2.4.9 That the purpose of introducing the deeming fiction in the ibid provision is to reconcile such uncertain situations with the provisions of the law. The word is and its purpose is explained in the matter Consolidated Coffee Ltd. & Another v. Coffee Board, Bangalore, (1980) 3 SCC 358 = 1980 (4) TMI 278 – SUPREME COURTit was held: (Page 371, Para 11)

“… the word “deemed” is used a great deal in modem legislation in different senses and it is not that a deeming provision is every time made for the purpose of creating a fiction. A deeming provision might be made to include what is obvious or what is uncertain or to impose for the purpose of a statute an artificial construction of a word or phrase that would not otherwise prevail, but in each case it would be a question as to with what object the legislature has made such a deeming provision”

4.2.4.10 That in the ibid provision as well, when the supplier has reported the tax in his returns (which is reflected in GSTR 2A of the applicant), it should be treated as “Deemed to be paid” on the part of the applicant with respect to the online mechanism available with the applicant and this is the very purpose of introduction of deeming fiction in the ibid provisions;

OBSERVATIONS AND FINDINGS

5.1 We have gone through the facts of the case and the written submissions made by both, the applicant and the departmental authority. In the subject issue before us, we are asked to pass a ruling which would entail discussion of the “admissibility of input tax credit of tax paid or deemed to have been paid” under the CGST Act.

5.2 Before we decide the question raised in this application it is essential that it be first determined whether the said questions regarding activities undertaken by the applicant pertains to matters or questions specified in Section 97(2).

5.3 From a perusal of questions as discussed above in their submissions, we observe that to answer their question we will be required to discuss the admissibility of input tax credit to the applicant where the tax collected by the supplier from the applicant is not paid in cash or has been paid through in-eligible input tax credit but the same is reflecting in GSTR 2A of the applicant.

5.4 As per Section 97(2) of CGST Act, the questions on which advance ruling is sought under this Act, shall be in respect of, matters or issues mentioned in Section 97 (2) (a) to (g) only which is elaborated as below:

SECTION 97.

…….

(2) The question on which the advance ruling is sought under this Act, shall be in respect of, –

(a) classification of any goods or services or both;

(b) applicability of a notification issued under the provisions of this Act;

(c) determination of time and value of supply of goods or services or both;

(d) admissibility of input tax credit of tax paid or deemed to have been paid;

(e) determination of the liability to pay tax on any goods or services or both;

(f) whether applicant is required to be registered;

(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

5.5 From the reading of section 97(2)(d) of CGST Act, 2017, it is very much clear that the advance rulings can be sought regarding admissibility of input tax credit in cases where tax has been paid or deemed to have been paid which clearly implies that in cases where tax has not been paid or not deemed to have been paid advance ruling can not be sought under the provisions of CGST Act, 2017.

5.6 Now we see the questions that have been sought by the applicant for issuance of advance ruling.

Questions raised in the original application.

Q1: Whether the input tax credit availed by the applicant is subject to rejection solely on the ground that the tax collected by the supplier of the raw material from the applicant is not paid to the government in cash

Q2: Whether the input tax credit availed by the applicant is subject to rejection solely on the ground that the tax collected by the supplier of the raw material from the applicant is paid to the government through utilization of ineligible input tax credit.

Questions raised in the amended application.

  1. Whether the Input Tax credit is admissible to the applicant where the tax collected by the Supplier from the applicant is not paid to the Government in cash but the same is reflecting in GSTR 2A of the applicant
  2. Whether the Input Tax credit is admissible to the applicant where the tax collected by the Supplier from the applicant is paid to the Government through utilization of ineligible input tax credit but the same is reflecting in GSTR 2A of the applicant

5.7 From the careful reading of all the questions in the original as well as amended application, all the cases pertain to a scenario where tax has not actually been paid. Even in cases where tax has been paid by the supplier to the government through in-eligible input tax credit it would always deemed not to have been paid as tax has not actually been paid to the government. When the applicant is sure as is evident in the application that tax has not been paid in cash or has been paid through ineligible input tax credit, it clearly implies that either tax has not been paid or deemed not to have been paid. Therefore, we find that in all the mentioned cases, it can not be regarded as tax paid to the government by any stretch of mind.

5.8 Thus, in view of the provisions laid down in section 97(2) of the CGST Act, 2017 encompassing the specific questions, which are sought under advance ruling, it can decisively be inferred that the questions raised by the respondent before Advance Ruling Authority were beyond the scope and jurisdiction of Advance Ruling, and hence do not warrant any ruling thereon and therefore in view of the provisions of Section 97 of the CGST Act, 2017, we find that this authority is not allowed to answer the subject question.

5.9 As the questions before the Advance Ruling Authority are beyond the scope and jurisdiction of Advance Ruling, therefore we refrain from discussing the case laws referred by the applicant in his replies.

5.10 In view of the deliberations as held hereinabove, we pass an order as follows:

ORDER

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and HP Goods and Services Tax Act, 2017)

  1. GST-ARA-HP/2020-21/20870-76

Shimla, dated: 28-08-2020

For reasons as discussed in the body of the order, the questions are answered thus –

The subject application filed for advance ruling is rejected, as being non-maintainable as per the provisions of the CGST Act, 2017 and Rules made there thereunder.

M/S. KOLHAPUR FOUNDRY AND ENGINEERING CLUSTER

Classification of supply – Supply of Goods or Supply of Job Work Services – promotion of commercial activities relating to Foundry Industry & preservation of environment through its Sand Reclamation Plants – impact of used waste sand which is of the value ‘Nil’ , on valuation – HELD THAT:- From a combined reading of the definition of “job work” and the procedure of job work as prescribed u/s 143 of the CGST Act and Rule 45 of Rules, it is the principal who will send inputs to the job worker for undertaking any treatment or process that may or may not amount to manufacture and will bring back same after the completion of job work. Thus the person who send goods to the job worker is a principal and the person who undertakes treatment/ processing is a job worker – In the present case applicants have received waste sand, having no commercial and market value, at their plants from the different foundries under the cover of Rule 55 Challans. Further, there is no commercial use of this waste sand. The used waste sand is stored at common pool Storage Location for production activity and it is not possible to segregate the sand as per the receipt from foundries. The finished reclaimed sand is obtained by applying different processing steps which is narrated by the applicant in their written contention.

The finished product is different in character, name and use than the waste sand which is the input supplied. The emerged product has a commercial value, goods quality and is used by the specific foundry industry. The new product is manufactured from waste sand and has market value. The new product is kind of movable property. Considering the quality, composition, distinct character and use of the product emerges from the process and treatment undertaken, we find that the finished product satisfied the definition of the term ‘Goods’ mentioned u/s 2 (52) of CGST Act. We do not hesitate io treat as this new product as “Goods” – the input received is waste material which is dumped at applicant’s location due to environmental concerns. The foundries/Suppliers have supplied unusable and non-valuable material in the form of waste sand. The intention of the foundries/Suppliers is not to treat the waste sand as semi or finished goods for the purposes of further process. Actually waste sand is a raw material for the applicant and after the processing, usable sand is produced which is then sold to foundries as and when orders are received.

The concept of job work already exists in Central Excise, a principal manufacturer can send inputs or semi-finished goods to a job worker for further processing. Applicant does not satisfy the conditions mentioned for the ta rm “Job work” u/s 2(68) of CGST ACT. Hence the activity carried out by the applicant is not covered under ‘Job work services’ and is out of scope of supply of services.

The applicant cannot be considered as a job worker within the meaning of Section 2(68) and Section 143 of the GST Act and corresponding rules. The real spirit of job work as explained by the court is that where the principal sends minor input to the job worker and all other inputs and goods utilized in the final products belongs to the job worker then the said process cannot be considered as a job work. In the case at hand applicant has accepted as a matter of fact that, the value is only of the material used/ skill and labour applied by them and the value of input supplied by the customer is nil – the subject transaction undertaken is a supply of goods, i.e. sale of ready to use sand for the foundry industry and not supply of job work services.

Whether the used waste sand which is of the value ‘Nil’ (Refer separate Valuation Certificate by Engineer) will have any impact on valuation? – HELD THAT:- The value of input is considered by the applicant to be Nil is probably because they are not paying consideration for receipt of such used sand. In cases like in the subject matter, the value of inward supply will always have a bearing on the value of outward supply. In the subject case, the applicant has themselves admitted that the value of input used sand is “NIL” and the same has been accepted by the jurisdictional office also and not disputed – it appears from the applicant’s submissions that their rate of ₹ 2.50 per kg. on output supply of sand has taken into account the valuation of input sand at ‘NIL’ value. In normal situations, in the subject case, if there is a price attached to the input supply of used sand, then it may have a proportionate impact on the rate of outward supply of sand.

No.- GST-ARA-55/2019-20/B-47

Dated.- August 26, 2020

Citations:

  1. PRESTIGE ENGINEERING (INDIA) LTD. Versus COLLECTOR OF C. EXCISE, MEERUT – 1994 (9) TMI 66 – Supreme Court
  1. P. VINITHA SEKHAR, AND MR. A.A. CHAHURE, MEMBER

PROCEEDINGS

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively] by Kolhapur Foundry and Engineering Cluster, the applicant, seeking an advance ruling in respect of the following questions.

  1. Whether the activity of Applicant is Supply of Goods or Supply of Job Work Services?
  2. The used waste sand which is of the value ‘Nil’ (Refer separate Valuation Certificate by Engineer) will have any impact on valuation?

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression ‘GST Act’ would mean CGST Act and MGST Act.

  1. FACTS AND CONTENTION – AS PER THE APPLICANT

2.1 The submissions made by the Ms. Kolhapur Foundry & Engineering Cluster, the applicant is as under:-

2.2 Applicant, is involved in promotion of commercial activities relating to Foundry Industry & preservation of environment through its Sand Reclamation Plants.

2.3 Used/ waste sand of Foundry Industry is neither capable of being reused nor being capable of being dumped anywhere in open, due to environmental reasons like, contamination of fertile oil/ water pollution. Applicant processes such waste sand vide heat treatment & various other set of small procedures and sand is thus reclaimed and made re-usable.

2.4 Following are the main steps in producing the reclaimed sand:

(i) Waste Sand is received at applicant’s KFEC plants from various Foundries. As there is no commercial use of this used/waste sand, the value is treated as Zero.

(ii) The used sand received from various foundry units are stored together at one location without segregation before it is used for production activity.

(iii) The sand is processed and approximately 80% of the Input (Waste Sand) is recovered as finished material (Fresh Sand). The 20% loss includes the layer of chemicals which was affixed on the surface of the Sand during Foundry operations & clay, rubber / wooden / metal partials mixed with sand during foundry operation & other sand clots etc.

(iv) During this process the chemical properties of Sand are changed in such a manner due to heat and other processes, that the quality of the reclaimed sand is better for foundry use as compared to freshly mined sand.

2.5 The following are the applicable rate of Tax considering the HSN /SAC Codes:

HSN/SAC code & Category Rate of Tax (CGST=SGST)
2505: Natural sands of all kinds, whether or not coloured, other than metal-bearing sands of chapter 26 5%
250510: Silica sands and quartz sands 5%
25051020: Quartz sands 5%
9988: Manufacturing Services on Physical Inputs (goods) owned by others 18%

2.6 The definition of ‘job work’ under the GST as under:

Section2 (68): “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly.

2.6.1 From a combined reading of, the definition of job work as aforesaid and the procedure of job work as prescribed u/s 143 of the CGST Act and Rule 45 of GST Rules, it is the principal who will send inputs to the job work for undertaking any treatment or process that may or may not amount to manufacture and will bring back same after the completion of job work. Thus the person, who sends goods to the job worker, is a principal and the person who undertakes treatment/ processing is a job worker.

2.6.2 Applicant receives used sand, from various foundry units under the cover of Rule 55 Challan which is processed to get fresh sand which is unique and available in various categories (based on its size) after normal loss of quantity at about 20%. It is not possible to identify whether output sand is recovered from the used sand of any particular foundry.

2.6.3 The product i.e. Sand is then handed over to the recipient on completion of the production.

2.6.4 In order to appreciate whether the activity undertaken by the applicant is job work GST Flyers have been referred to, as under:-

It is mentioned that Job work sector constitutes a significant industry in Indian economy. It includes outsourced activities that may or may not culminate into manufacture. The term Job-work itself explains the meaning. It is processing of goods supplied by the principal. The concept of job work already exists in Central Excise, wherein a principal manufacturer can send inputs or semi-finished goods to a job worker for further processing. Many facilities, procedural concessions have been given to the job workers as well as the principal supplier who sends goods for job work. The whole idea is to make principal responsible for meeting compliances on behalf of the job worker on the goods processed by him (job worker), considering the fact that typically the job- workers are small persons who are unable to comply with the discrete provisions of the law. The GST Act makes special provisions with regard to removal of goods for job-work and receiving back the goods after processing from the job worker without payment of GST. The benefit of these provisions shall be available both to the principal and the job-worker.

2.7 There is no direct correlation between the exact amount of Send supplied by the Foundry Units and then taken up by the said units after processing. This basically goes against the basic principle of job work which is ‘process is undertaken on materials belonging to another registered person’. To understand this contention let’s take a hypothetical example:

There is opening stock of 50 Tons of Waste Sand at the plant on 01.10.2019, Foundry Unit A dumped 10 Tons of Waste Sand on 01.10.2019, and Foundry Unit B dumped 30 Tons of Sand on the same day. On the same day on a continuous basis, a complete lot of 50+10+30= 90 Tons was processed. Considering the normal loss of processing let’s say 90*80%=72 Tons of fresh sand was processed. The freshly processed sand was given to Foundry A: 8 Tons & Foundry B: 24 tons.

Now in this example it is impossible to segregate the quantities and understand and identify as to which sand was given to who as the processing is done for a complete lot. Also running plant separately for each lot received separately is not feasible commercially.

2.8 In the matter of M/s. Prestige Engineering (India) vs Collc. of Central Excise, Merut (1994 (73) E.L.T.497 (SC)] = 1994 (9) TMI 66 – SUPREME COURT, the Hon’ble Supreme Court has considered various examples of job work and observed that the real spirit of job work is that where the principal sends minor input to the job worker and all other inputs and goods utilized in the final products belongs to the job worker then the said process cannot be considered as a job work.

In the subject case as a matter of fact the value of final product only consists of Plant & Machinery, Operation Cost and Other overheads since the value of inputs received from customer i.e. used waste sand, is having Nil valuation in the costing of final product. The value of the material used, skills used, set up cost of plant and labor applied by the applicant is the value of final product. The value of input supplied by the customer i.e. Sand, is nowhere considered at the time of final product valuation.

2.9 Further, there are differences in the quantities of waste sand dumped by the foundry units and quantity of fresh sand picked up by them. To qualify the activity as job work, out of the quantities dumped by the foundries of waste sand after normal losses of about 20%, remaining 80% quantities should be picked up by the foundry units. But the arrangement in the case of applicant is operating more or less on convenience basis, meaning, as the waste sand is to be dumped in the specified areas only not anywhere else, the foundries may dump whatever sand is available with them at any given point in time with applicant, whereas only those quantities which are required by them at any given point in time only will be picked up which may be more or less than actually dumped waste sand after deducting normal loss. So it gives this transaction the color of supply of goods.

Hence, the said transaction based on its nature, characteristics and unique attribute does not satisfy the criteria to qualify it as Job Work and should be construed as Supply of Goods. If this is to be treated as Supply of Goods in that case we also seek the clarity regarding one of aspect pertaining to the valuation of the same.

2.10 Government of India, Ministry of Commerce & Industry, Department of Industrial Policy & Promotion approved a project for Kolhapur District viz. Kolhapur Foundry & Engineering Cluster for Up-gradation of infrastructural facilities at industrial areas, sanctioned under Recast Industrial Infrastructure Up-gradation Scheme (IIUS). The said approved project has been funded as shown in below table:

Funding Source Percentage
IIUS Grant : Central Government 73%
Maharashtra State Govt. Contribution 10%
Industry Contribution 17%
Total 100%

2.11 Industry Contribution of 17% is done by the way of contribution from 5 Trade Associations in the Kolhapur District. Also, the Board & Managing Committee constituted for applicant hereunder have the all of members of these associations who are involved in management and decision making on both sides.

2.12 Considering that, waste sand is supplied by the foundries, Section 15(4) of CGST Act becomes appropriate for determining the value of supply of flesh sand, which further talks about valuation is to be determined as per the Rules of CGST Act.

2.12.1 As per Rule 27 of CGST Rules,

Where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall,

(a) be the open market value of such supply;

(b) if the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;

(c) if the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality;

(d) if the value is not determinable under clause (a) or clause (b) or clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order.

2.12.2 In normal scenario as explained above, the value of used waste Sand is not considered anywhere in the valuation of final product fresh sand. The reason being the value as engineer is Nil (Annexure: Used Sand Valuation Certificate). Waste sand ded and has no value attached to it. So clause (a) becomes irrelevant.

2.12.3 Similarly based on above grounds clauses (b) & (c) also become redundant in this manner n needs to be done as per the provision of Rule 30 or Rule 31 in that order.

2.12.4 As per Rule 30 of CGST Rules,

Where the value of a supply of goods or services or both is not determinable by any of the preceding rules of this Chapter, the value shall be one hundred and ten percent of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provision of such services.

Even this rule does not become applicable since waste said is not usually produced/ manufactured but it is just a by-product of Foundry operations, hence there is no Cost of Production attached directly to his waste used sand.

2.12.5 Also taking into consideration point no point no 1, 2 & 3 above, as per Rule 28 of CGST Rules,

The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall

(a) be the open market value of such supply;

(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality,

(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order:

Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person:

Provided further that, where the recipient is eligible for full input tax credit, the value declared in the invoice, shall be deemed to be the open market value of the goods or services.

2.12.6 In above scenario also similar to points 6 & 7 clause (a) & (b) become not applicable or redundant. But in this scenario means when the fresh sand is supplied to related person, proviso 2 becomes crucial which talks about value declared in the invoice will be deemed to be the value of goods/ services supplied, which is Nil.

2.12.7 We seek to know whether, this will have any impact on valuation and whether our understanding to consider the ‘Nil’ value of the used waste sand in valuation (no impact) is appropriate.

2.13 Background: Sand Reclamation Plant

Major manufacturing industries in Kolhapur are foundries & Machine shops; producing ferrous & non-ferrous components for well-known OEMs throughout the country. Considering the same, Government of India, Ministry of Commerce & Industry, Department of Industrial Policy & Promotion approved the IIUS project, mentioned above.

2.13.1 Constitution of project:

Applicant Company, formed by 5 industrial associations from Kolhapur district, is registered under Section 25 of the Companies Act 1956, on the basis of NO PROFIT NO LOSS. Availability of required sand, which is the basic production factor for foundry industry is crucial for sustenance of foundry industry. The subject reclamation plant will serve all foundry and sand related industry in Kolhapur district. The said project will be a common facility coupled with social reason to cater foundry industry as well as for the benefit of common people in this region by avoiding pollution.

2.13.2 Funding of Project: The funding is already mentioned in 2.10 above.

2.13.3 Purpose – Best from Waste:

The major component of cluster is Sand Reclamation Plant, established for reclamation of used & disposable sand by the foundries for reuse. Under this project two sand reclamation plants are established, at Shiroli MIDC and at Gokul Shirgaon MIDC, Kolhapur.

2.13.4 Waste disposable sand:

Waste disposable sand are of mainly two types; Black sand (disposable green sand) and core sand. Disposable black sand is non reusable sand generated in foundry molding process. Core is a solid block of sand used in molding process. Such core becomes obsolete once it is used in moulding process. This core sand also is to be used for reclamation. This disposable black sand and core sand generation process is continuous in foundry process and it is necessary to dispose this generated sand. This disposable sand do not have any commercial value.

2.13.5 Environment impact:

Send, a natural resource for foundry unit for casting production, is becoming scarce. Consideration the present and future use of sand by foundries there may be chances of facing problems regarding availability of fresh sand as well as disposition of used waste sand, Waste sand cannot be dumped anywhere in open as it may lead to water pollution and contamination of farming land. Sand reclamation is the answer for such problems. Further, waste generated during reclamation process will be used for bricks making. Thus this plant will ensure 100% conversion of waste to reusable material.

2.13.6 Conservation of Natural Resource:

The reclamation plant will enable foundries to reuse reclaimed sand in their process which will result in reduction in the demand for fresh mining sand. This will lead to minimize excavation of land in want of foundry sand.

2.13.7 Plant Operations:

In the Sand Reclamation Plant, waste sand will be received for treatment, from the foundry units as well as from sand related manufacturing units and reclaimed sand will be given for reuse. In the treatment of waste sand there are chances of process loss. Such process loss cannot be co-related with a particular supplier of waste and disposable sand as the sand reclamation process is continues process. Hence, there will not be a fixed ratio of received sand and sand given to a particular supplier/party because a party may supply more quantity of waste or disposable sand and may take or may not take treated sand due to their technical reasons. Also there will be some units which will not be able to provide any waste or disposable sand for treatment but may be interested to use treated sand. In some cases foundry units and other sand related business units fail to provide waste or disposable sand for treatment then the plant has to procure the Sand wherever it is available from waste sand storages.

2.14 A detail of process is as given below.

  1. A) Waste sand storage:Sand reclamation plant receives waste from foundry and stores it in, Waste Core sand storage and waste raw black sand storage.
  2. B) Process flow:With the reference of schematic diagram following is the description and working of plant.
  3. 4 M.T Hopper

There are two hoppers each of 4 MT, used to feed waste material to plant. One hopper is used for crushed core sand and another one is used for waste raw black sand. Flow of sand is maintained with mechanical sliding dampers and VFD driven trolley under the hopper. This also helps to attain proper mixing of waste crushed core sand and waste raw black sand. Screens are given to hoppers for separation of big size of wastages from material e.g. plastic, glass and paper waste.

  1. Belt Conveyor No 1

Is used to transfer mixed waste material from 4 MT hoppers to Bucket elevator No 1

  1. Magnetic separator

This unit is used to separate out iron metal particles from waste sand.

  1. Bucket Elevator No 1

Bucket elevator is a machine which is only used to transfer sard from lower height to upper height. It transfer waste mixed sand from conveyor no 1 to dryer.

  1. Dryer

As name suggests the dryer does drying of mixed waste material. Removing moisture from waste material will help to reduce fuel consumption. For drying purpose hot air blower (ID fan) extract fumes and hot air from furnace top to dryer. This is very energy efficient process in which excess energy in the form of hot air and fumes reused.

  1. Bucket Elevator No 2

It is used to transfer material from dryer to crusher.

  1. Crusher

The crusher ensures that the sand obtained is of homogeneous size and smooth surface. The binder on the sand surface is also removed by crushing. mesh of crusher separates metal waste, paper waste, plastic waste and wooden waste.

  1. Reject belt conveyor

It’s a part of crusher which removes foreign waste and unwanted material from processed crushed sand. In specified frequency reject belt conveyor goes inside of the crusher, collects waste and come to its discharge position.

  1. Belt Conveyor No 2

It is used to convey crushed waste sand from crusher to bucket elevator No. 3.

  1. Bucket Elevator No 3

It is used to transfer material from belt conveyor no 2 to waste sand storage hopper.

  1. Waste sand storage hopper

Waste sand storage hopper and storage hopper capacity is 160 M.T. which is required to neutralize any surge from incoming waste sand flow. Below the hopper there are two outlets to control the flow of sand.

  1. Metering conveyor

This belt conveyor is driven by VFD, VFD helps to control the speed of sand flow towards furnace through metering conveyor which decides the per hour MT flow.

  1. Bucket Elevator No 4

It is used to transfer material from metering conveyor to augur conveyor,

  1. Augur conveyor

It’s a screw conveyor. The shaft of the rotating spiral rotates in the material tube to drive the material along. This type of conveyor is used for carry waste mixed sand in horizontal way up to furnace top.

  1. Furnace

This furnace is a type of energy-saving mobile furnace which is specially designed for foundry sand reclamation process. The main target of foundry sand reclamation process is to get rid of combustible substances such as clay. In terms of thermal energy consumption, most of heat is utilized for heating of sand. The outer coatings of waste sand particles are burned in the furnace and loosen too. Loss on ignition value and acid demand value get controlled here. Root blower is used to fluidize the sand bed inside the furnace. After burning of sand, fluidization effect separate out unburned clay from sand particles. It can fully recycle and utilize substantial accumulation of heat left in the heated sand, using it as the heat source for the newly input sand. Moreover, it also improves the quality of the reclaimed sand through all kinds of optimization. Compared with the traditional furnaces, this furnace not only reduce half of its fuel consumption, demonstrating obvious energy-saving effects, but also maintain the sand’s high quality and its own reliable and excellent operation, etc. After furnace we get thermally reclaimed sand.

  1. Vibrating Conveyor

This machine is working on the basis of forward and reverse vibration. Output of furnace i.e. thermalIy reclaimed sand gets sieved on vibrating conveyor. Clay gets separated from sand. Also spraying water helps to reduce temperature of sand.

  1. Chain bucket elevator

It is used to transfer thermally reclaimed sand from vibrating conveyor to Fluid bed cooler.

  1. Fluid bed cooler

Fluid bed cooler is used for cooling and dust cleaning. Fluid bed cooler is composed of base, perforated plate, blower system and cooling system, etc. The hot sand fall into the perforated plate from chain bucket elevator. The blower system blows in cool air to take down temperature of heated sand. Then the cooling system strays water to perform heat-exchange cooling. The air fully contacts with hot sands to take away the moisture of the hot sands. Newly-processed sands collide and rub with each other to bring forward reproducing function. During the movement, the rubbing effects between sand particles peel off the stuck micro coating and discharge them through the dust collector system. Thus, the hot sand gets cooled and de-dusted. The sand move towards the outlet by the fluidized bed and air strike, and the cooled sand is discharged through the sand outlet.

  1. Bucket elevator No. 5

It is used to transfer thermally reclaimed sand from fluid bed cooler to MMR machines (Granulators).

  1. Surge Arrestor Tank No 1

Sand flow is not constant every time so that to achieve exact output surge arrestor tank is used. When tank get full then only its pneumatic valve allow Sand to flow towards MMR.

  1. MMR 1 to 12 (Granulators)

It’s a granulator machine used for mechanical reclamation of thermally reclaimed sand. MMR centrifuge is composed of shell, base, motor, belt wheels and other devices. It raises the sands through the high-speed rotation of the shaft. Then the sands collide and rub with each other. Only particles with certain diameter can fall into the sand outlet through the gap and can be discharged, thus realizing the aim of granulation. Multiple machines are used together to obtain better result. As per requirement machines can be on/off.

  1. Bucket elevator No. 6

It is used to transfer thermally reclaimed sand from MMR machines 1 to 12 (Granulators) to MMR machines 13 to 24 (Granulators).

  1. MMR 13 to 24 (Granulators)

Same operation and principle used from MMR 1 to 12 machines. As per requirement machines can be on or kept off.

  1. Fluid bed de-duster

This machine is used for de-dusting i.e. dust removing process. During mechanical reclamation sharp corners of sand gets break and came to circular shape which is good result, but it’s also generate dust and it needs to be removed from sand. Principle of operation is same as fluid bed cooler except only cooling system not used. Forced air creates fluidization of sand and air flow conveys dust from sand to dust collector point. It also removes clay particles which reduces sand total clay percentage.

  1. Bucket elevator No 7

It is used to transfer reclaimed sand from Fluid bed de-duster to Surge arrestor tank

  1. Surge Arrestor Tank No 3

This tank absorb surge of sand flow and maintain constant flow towards sieve shaker machines with 2 no’s of outlets.

  1. Sieve shaker machine

Sieve Shaker is composed of screen mesh, frame, base, eccentric shaft, motor and other parts. The motor rotates the eccentric shaft through belt and belt wheels. The frame rotates cyclonically a circle around the fixed point driven by the eccentric sleeve. The movement direction of the frame is vertical to the central line of the eccentric shaft. Due to the cyclical rotation of the frame, the material on the screening surface move towards the discharge end at a fixed speed. Material of different sizes goes through the screen mesh so as to be sieved and separated. Selection of sieves depends upon needs and requirements of finished reclaimed sand. There are total 2 no’s of sieve shaker machines.

  1. Bucket elevator No 8 & 9

It is used to transfer reclaimed sand from sieve shaker 1 and to reclaimed sand hopper 1 & 2 respectively.

  1. Reclaimed sand hopper

Finished reclaimed sand product stored in the 2 hoppers of 100 MT each for different grades of sand. Reclaimed sand is ready to transfer from hopper to transportation vehicle.

  1. Dust collectors

There are 2 no’s of dust collector which are back filter type used for dust collection process.

2.15. Additional Submission By Applicant made on 26.12.2019;

  1. On the date of personal hearing 12.12.2019, we have received a written submission from state authorities on above subject matter.
  2. In the said submission, the learned authority has mentioned hat “The facts involved in thiscaselead to conclude that, it is not Job Work Service’, but ‘Outward Supply of Goods’ and hence may be taxed @ 18% under the HSN Code No 3824.
  3. We agree with the authority regarding first part of the sentence that ‘The facts involved in thiscaselead to conclude that, it is not ‘Job Work Service’, but Outward Supply of Goods’.
  4. Regarding the remaining part of the sentence that ‘hence it may be taxed @18% under the HSN Code No 3824’ we have a different opinion as follows:
  5. In our submission on October 09, 2019 In Annexure No 5: AAR Application (Statement of Relevant Facts), on Page No 3 of the Annexure we have given a table of applicable HSN/SAC Category with Applicable Rates. Hence we are of the opinion that the best fitment for our final product, would be 250510: Silica Sands and Quartz Sands taxable at 5%.
  6. Also HSN Code mentioned by authorities in their submission is 3824:

PREPARED BINDERS FOR FOUNDRY MOULDS OR CORES; CHEMICAL PRODUCTS AND PREPARATIONS OF THE CHEMICAL OR ALLIED INDUSTRIES (INCLUDING THOSE CONSISTING OF MIXTURES OF NATURAL PRODUCTS), NOT ELSEWHERE SPECIFI OR INCLUDED.

  1. In our opinion this above entry sounds unfit for the type of our finished goods, also the manufacturing procedure is not based on chemical processing but is mainly thermal (Heat Treatment) based. So the output which is coming out of the said manufacturing process should be treated as Silica Send, which is completely different product than the input i.e. waste sand which has zero valuation
  2. CONTENTION – AS PER THE JURISDICTIONAL OFFICER:

The submissions made by the jurisdictional officer is as under:-

3.1 As regards the first question raised by the applicant, subject activity may constitute Job Work Services only if reclaimed sand is returned back to the owner, by merely charging the cost on process activities. However, in the subject case, value of inward supply is “Zero so the material ownership is not in existence. Further, the processed sand is entirely different commodity, processed, by taking in waste sands obtained from various foundries. But, consequently cannot be correlated to the original owners. In addition to these facts, the invoice obtained from the applicant, bearing no. 19-20/SH/DEC/37 dated 7-Dec-2019 shows the rate of sand is at ₹ 2.50 per kg. The market rate of fresh sand is at ₹ 3.00 per kg. When compared these two prices, it appears that both prices are nearly one and the same. Therefore, there is reason to believe, that, this is not merely job work, but supply of goods.

3.2 As regards the second question, value of inward supply does not have direct bearing on the outward value, in this case, as the applicant has admitted, the inward supply of the waste sand is at Rs. Nil. As such, there is no impact of inward value on the outward supply.

3.3 Socio-Ecological parameters in the said case is already taken into account by the system, as 83 % of setting cost is born by Central and State governments together and hence, may not cause any impact on taxation.

3.4 Facts involved in this case lead to the conclusion that, it is not ‘Job Work Service’ but ‘Outward Supply of Goods’ and hence may be taxed @ 18% under the HSN Code No 3824.

3.5 Further submissions are made by the jurisdictional officer as under:

3.5.1 The material value of the inward of waste foundry sand is nil.

3.5.2 The assesse has claimed set-off of ITC during April-19 to Dec-19.

3.5.3 Expenses as per the balance sheet produced by the applicant for 2018-19

Direct expenses ₹ 2959644 8/-.

Indirect expenses ₹ 30358SO/-.

Purchases : 18130598/-.

These expenses are against the total Receipts of ₹ 71166825/-

3.5.4 The outward supply value includes Transportation changes and applicant has paid the GST @ 12% on this (Invoice no: 19-20/SH/DEC/37 dt: 07.12.2019).

3.5.5 Natural foundry sand can be used for casting work only after coating with certain adhesive chemicals and called as resin coating. After first use this coating gets burnt and makes the sand waste. This sand is the inward supply to the applicant who, merely removes these impurities and by again coating it, this sand becomes reusable. Such addition of adhesive material behaves as a binder and therefore, classification of this product under HSN code no. 3824 is correct and hence outward supply of reclaimed sand shall be taxed @18%.

3.5.6 Hence, it is not ‘Job Work Service’ but Outward Supply of Goods’ and taxable @ 18% under HSN Code No 3824.

  1. HEARING

Preliminary hearing in the matter was held or 12.12.2019. Sly Girish Kulkarni, C.A., Shri Raviraj Gajageshwar, Representative Appeared, and requsted for admission of the application. Jurisdictional Officer Shri Kirankumar Salokhe, Assistant Commissioner of State Tax, Kolhapur Division also appeared.

The application was admitted and called for final hearing on 11.02.2020. Shri Girish Kulkarni, C.A.“ Authorized Representative, appeared made oral and written submissions.

Jurisdictional Officer Shri Kirankumar Salokhe, Assistant Commissioner of State Tax, Kolhapur Division appeared and made submissions. We heard both the sides.

  1. DISCUSSIONS AND FINDINGS:

5.1 We have gone through the facts of the case, documents on record and submissions made by both, the applicant as well as the departmental officer.

5.2 The applicant receives waste sand which is processed with heat treatment (Thermal Plant) & various other set of small procedures and is reclaimed and made re-usable.

5.3 The first question raised by the applicant is whether the activity of Applicant is Supply of Goods or Supply of Job Work Services. To answer this question, we need to examine whether the subject activity undertaken by the applicant is covered under supply of goods or Job work, for which we will examine the definition of “Goods”, “Manufacture” and Job work” under the provisions of CGST ACT.

5.3.1 Section 2(52) of the GST Act defines ‘goods’ as:

(52) goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

5.3.2 Section 2(72) of the GST Act defines ‘manufacture’ as:

(72) “Manufacture” means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term “manufacturer” shall be construed accordingly

5.3.3 Section 2(68) of the GST Act defines ‘jobwork’ as:

Section 2 (68): “job work” means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly.

5.3.4 From a combined reading of the definition of “job work” and the procedure of job work as prescribed u/s 143 of the CGST Act and Rule 45 of Rules, it is the principal who will send inputs to the job worker for undertaking any treatment or process that may or may not amount to manufacture and will bring back same after the completion of job work. Thus the person who send goods to the job worker is a principal and the person who undertakes treatment/ processing is a job worker.

5.3.5 In the present case we find that applicants have received waste sand, having no commercial and market value, at their plants from the different foundries under the cover of Rule 55 Challans. Further, there is no commercial use of this waste sand. We find that the used waste sand is stored at common pool Storage Location for production activity and it is not possible to segregate the sand as per the receipt from foundries. The finished reclaimed sand is obtained by applying different processing steps which is narrated by the applicant in their written contention.

5.3.6 It is submitted that the quantity of finished product i.e. usable sand is approximately 80% of the input waste sand. The remaining 20% loss includes the layer of chemicals which was affixed on the surface of the Sand during Foundry operations and clay, paper / rubber / wooden/metal particles etc.

5.3.7 The chemical properties of Sand are changed in such a manner due to heat and other processes that, the quality of the sand is good for foundry use and is ready for foundry owners who are interested in buying the said fresh product.

5.3.8 It us found that, the applicant by applying different processes and treatments on the waste sand and received and using its owns consumables to bring into existence, a fresh new finished usable product, which is a distinct commodity and has commercial value. Therefore, in our view, the activity undertaken by the applicant satisfier the conditions of term manufacture” u/s 2(72) of CGST Act, Hence such activity 3V10unts to manufacture’.

5.3.9 We find, from the submission that, the finished product is different in character, name and use than the waste sand which is the input supplied. The emerged product has a commercial value, goods quality and is used by the specific foundry industry. The new product is manufactured from waste sand and has market value. The new product is kind of movable property. Considering the quality, composition, distinct character and use of the product emerges from the process and treatment undertaken, we find that the finished product satisfied the definition of the term ‘Goods’ mentioned u/s 2 (52) of CGST Act. We do not hesitate io treat as this new product as “Goods”.

5.3.10 We further find from the documents and submissions made before us that the input received is waste material which is dumped at applicant’s location due to environmental concerns. The foundries/Suppliers have supplied unusable and non-valuable material in the form of waste sand. The intention of the foundries/Suppliers is not to treat the waste sand as semi or finished goods for the purposes of further process. Actually waste sand is a raw material for the applicant and after the processing, usable sand is produced which is then sold to foundries as and when orders are received. The sand is not sold to the foundries in a fixed ratio to the waste sand received. No processing charges are collected by the applicant. In fact, the applicant, as reported by the jurisdictional officer, cells the final product to the foundries at ₹ 2.5 per kg. Whereas freshly mined sand is available at ₹ 3.00 per kg and the difference being very minor shows that the applicant is not a job worker in the subject case. It is clearly seen that the foundries have not supplied goods to the applicant for job work purpose. The supplied material is only waste of the foundry industry and not a by-product or outcome of any manufacturing process.

5.3.11 The concept of job work already exists in Central Excise, a principal manufacturer can send inputs or semi-finished goods to a job worker for further processing. In our view, applicant does not satisfy the conditions mentioned for the ta rm “Job work” u/s 2(68) of CGST ACT. Hence the activity carried out by the applicant is not covered under ‘Job work services’ and is out of scope of supply of services.

5.3.12 Applicant has referred to the decision of the Hon’ble Supreme court in the matter of M/s. Prestige Engineering (India) vs Collc. of Central Excise, Merut (1994 (73) E.L.T.497 (SC)] = 1994 (9) TMI 66 – SUPREME COURT wherein the Court has considered various examples of job work. The Hon’ble Court has observed that addition of minor items by the job worker would not detract from the nature and character of his work. For example, a tailor entrusted with a cloth piece and asked to stitch a shirt, a pant or a suit piece may add his own thread, buttons and lining cloth. However, if the additions made are not minor additions i.e they are of a substantial nature and of considerable value, then in such a case the work done cannot be characterized as a job work.

5.3.13 From the observations made by the court we find that additional application of minor items is permissible in job work. In the subject case, the applicant has categorically stated that their activity is an activity of manufacture of a new commodity by using its own raw material and skill and labour as well as the input material supplied, value of which is NIL.

5.3.14 Finally, the jurisdictional officer has submitted that, invoice bearing No. 19-20/SH/DEC/37 dated 7-Dec-2019, obtained from the applicant, shows the rate of sand is at ₹ 2.50 per kg., while the market rate of fresh sand is at ₹ 3.00 per kg and hence when compared, it appears that both prices are nearly one and the same. Hence the jurisdictional officer has opined that, subject activity is not merely job work, but supply of goods.

5.3.14 We find that, the applicant cannot be considered as a job worker within the meaning of Section 2(68) and Section 143 of the GST Act and corresponding rules. The real spirit of job work as explained by the court is that where the principal sends minor input to the job worker and all other inputs and goods utilized in the final products belongs to the job worker then the said process cannot be considered as a job work. In the case at hand applicant has accepted as a matter of fact that, the value is only of the material used/ skill and labour applied by them and the value of input supplied by the customer is nil. Therefore in our opinion, the subject transaction undertaken is a supply of goods, i.e. sale of ready to use sand for the foundry industry and not supply of job work services.

5.4 The second question raised by the applicant is “The used waste sand which is of the value ‘Nil’ (Refer separate Valuation Certificate by Engineer) will have any impact on valuation?.”

5.4.1 The jurisdictional officer has submitted that, as regards the second question, value of inward supply does not have direct bearing on the outward value in this case, since the applicant has admitted that the inward supply of the waste sand is at Rs. Nil. As such, there is no impact of inward value on the outward supply. The jurisdictional officer has also submitted that Socio-Ecological parameters in the said case is already taken into account by the system, as 83% of setting cost is born by Central ana State governments together and hence, may not cause any impact on taxation.

5.4.2 The applicant seeks to know whether the consideration of ‘NIL’ value for the input i.e. used sand, will have any impact on valuation and whether their understanding to consider the ‘Nil’ value of the used waste sand in valuation (no impact) is appropriate. It appears, from the submissions made by the applicant that, the value of input is considered by the applicant to be Nil is probably because they are not paying consideration for receipt of such used sand. We are of the opinion that in cases like in the subject matter, the value of inward supply will always have a bearing on the value of outward supply. In the subject case, the applicant has themselves admitted that the value of input used sand is “NIL” and the same has been accepted by the jurisdictional office also and not disputed.

5.4.3 To surmise, it appears from the applicant’s submissions that their rate of ₹ 2.50 per kg. on output supply of sand has taken into account the valuation of input sand at ‘NIL’ value. In normal situations, in the subject case, if there is a price attached to the input supply of used sand, then it may have a proportionate impact on the rate of outward supply of sand.

  1. 06. In view of the discussions held above, we pass an order as follows:

ORDER

(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

NO.GST-ARA-55/2019-20/B-47

Mumbai, dt. 26.08.2020

For reasons as discussed in the body of the order, the questions are answered thus –

Question 1. Whether the activity of KFEC is Supply of Goods or Supply of Job Work services?

Answer: – The activity of KFEC, the applicant, is a Supply of Goods.

Question 2. The used waste sand which is of the value ‘Nil’ (Refer separate Valuation Certificate by Engineer) will have any impact on valuation?

Answer: Answered in the affirmative.

M/S. TATA MOTORS LIMITED

Input Tax Credit – GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than thirteen person for transportation of employees to & from workplace – levy of GST – nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus – restriction to the extent of cost borne by the Applicant (employer).

HELD THAT:- In the subject case, the supply of services received by the applicant is used in the course or furtherance of their business and therefore prima facie. they are eligible to take credit of GST charged by their suppliers – while we find that the applicant is eligible to take ITC under the provisions of the CGST Act, it is to be seen whether Section 17 (5) of the said Act debars the applicant from taking credit. As rightly pointed out by the jurisdictional officer, Section 17 (5) has been amended by CGST (Amendment) Act. 2018 (No. 31 of 2018) dated 29.08.2018 made effective from 01.02.2019 vide Notification No. 02/2019 – C.T.- 2019 dated 29.01.2019.

It is clear and apparent that Section 17 (5) had clearly debarred Input Tax Credit on motor vehicles or conveyances used in transport of passengers till the date of the amendment i.e. 01.12.2019. However with effect from 01.12.2019, Input Tax Credit has been allowed on leasing, renting or hiring of motor vehicles, for transportation of persons, having approved seating capacity of more than thirteen persons (including the driver) – in the subject case, since the applicant has specifically submitted and as agreed by the jurisdictional officer, that they are using motor vehicles having approved seating capacity of more than thirteen persons (including the driver), the applicant shall be eligible for Input Tax Credit in this case.

Whether GST is applicable on nominal amount recovered by Applicants from their employees for usage of employee bus transportation facility in non-air conditioned bus? – HELD THAT:- Schedule III to the CGST Act which lists activities which shall be treated neither as a supply of goods nor a supply of services As per clause 1 of the said Schedule-III, Services by an employee to the employer in the course of or in relation to his employment shall he treated neither as a supply of goods nor a supply of services – Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, we are of the opinion that GST is not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.

If ITC is available to them, whether it will be restricted to the extent of cost borne by the Applicant? – HELD THAT:- Reliance placed in Hon’ble High court of Bombay in the case of CCE, NAGPUR VERSUS ULTRATECH CEMENT LTD. [2010 (10) TMI 13 – BOMBAY HIGH COURT] has submitted that ITC is not admissible to Applicant on part of cost borne by employee and thus ITC will be restricted to the extent of cost borne by the Applicant.

No.- GST-ARA-23/2019-20/B-46

Dated.- August 25, 2020

Citations:

  1. Commissioner of Central Excise Versus M/s Federal Mogul Goetze (India) Ltd. – 2011 (9) TMI 120 – PUNJAB AND HARYANA HIGH COURT
  2. Commissioner of Central Excise, Bangalore-III, Commissionerate Versus Stanzen Toyotetsu India (P.) Ltd. – 2011 (4) TMI 201 – KARNATAKA HIGH COURT
  3. CCE, Nagpur Versus Ultratech Cement Ltd., – 2010 (10) TMI 13 – BOMBAY HIGH COURT

MS. P. VINITHA SEKHAR, AND MR. A.A. CHAHURE, MEMBER

PROCEEDINGS

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively J by M/s. Tata Motors Limited, the applicant, seeking an advance ruling in respect of the following questions.

1. Whether input tax credit (ITC) available to Applicant on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than thirteen person for transportation of employees to & from workplace?

2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus?

3. If ITC is available as per question no. (1) Above, whether it will be restricted to the extent of cost borne by the Applicant (employer)?

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purpose of this advance Ruling, the expression ‘GST Act’ would mean CGST Act and MGST Act.

FACTS AND CONTENTION – AS PER THE APPLICANT

The submissions made by the applicant are as follows:-

Applicant has engaged service providers to provide transportation facility to its employees, in non-air conditioned buses having seating capacity of more than 13 person. Sr. No. 15 (b) of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 exempts service provided for “transport of passengers, with or without accompanied belongings, by non-air-conditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire”. Service providers are having contract carriage permit issued by the relevant regulator) authorities in respect of buses deployed for employee transportation service.

2.2 Section 17(5)(b)(i) of the CGST Act, 2017 has been amended, w. c.f. 01.02.2019, to block ITC on leasing, renting or hiring of motor vehicles having approved seating capacity of not more than 13 persons. Hence ITC is allowed on leasing, renting or hiring of motor vehicles having seating capacity of more than 13 person.

2.3 To ensure use of transportation facility only by authorized persons/employees, Applicant is issuing pass to employees and nominal amount is recovered on monthly basis. In other words, difference between amount paid to service provider and amount recovered from employees is cost to company as salary cost.

2.4 By Press release dated 10.07.2017, it was clarified that supply by employer to the employees in terms of contractual agreement of employment entered into between employer and employee (which are treated as a part of salary/cost to company), will not be subject to UST and expenditure on employee bus transportation service borne by Applicant are part and parcel of cost to company. The employee transportation facility is open to all the employees desirous of availing the facility.

2.5 The applicant has submitted that, in similar transactions carried out in pre-GST regime, it was held by various courts that credit is not admissible to manufacturer on part of cost of borne by worker and thus ITC will be restricted to the extent of cost borne by the employer.

2.6 Section 17(5)(b)(i) of the CGST Act as amended w.e.f. 01.02.2019. inter-alia specifies the supply of goods and service which is blocked for credit. Relevant abstract of the same is reproduces as under:

“food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicle vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purpose specified therein, life insurance & health insurance.”

Clause (a) of Section 17(5) of CGST Act restricts ITC on ‘motor vehicles for transportation of persons having approved seating capacity of not more than thirteen person (including driver), except when used for specified purpose.

2.7 From the reading of Clause (a) & Clause (b) of Section 17 (5) of the CGST Act, it is clear that, leasing, renting or hiring of motor vehicle having approved seating capacity of more than thirteen person is admissible for ITC. Hence Applicant would be entitled to avail ITC in the subject case.

2.9 As per para 2(t) of the exemption Notification No. 12/2017-C.T. (Rate) dated 28.06.2017, “contract carriage” has the same meaning as assigned to it in clause (7) of Section 2 of the Motor Vehicles Act, 1988 (59 of 1988) wherein “contract carriage” means a motor vehicle which carries a passenger or passengers for hire or reward and is engaged under a contract, whether express or implied, for the use of such vehicle as a whole for the carriage of passengers mentioned therein and entered into by a person with a holder of a permit in relation to such vehicle or any person authorized by him in this behalf on a fixed or an agreed rate or sum

(a) On a time basis, whether or not with reference to any route or distance, or

(b) from one point to another;

And in either case, without stopping to pick up or set down passengers not included in the contract anywhere during the journey,

And includes

(i) a Maxicab; and

(ii) a motor cab notwithstanding that separate fares are charged for its passengers”

2.11 Thus, in order to take benefit of SI. 15 (b) of the exemption Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

a) Service is provided for transportation of passengers;

b) By a non-air-conditioned contract carriage

c) The vehicle should have a contract carriage permit under the Motor Vehicle Act;

d) Requirements under Section 2(7) of the Motor Vehicles Act should be fulfilled and

e) The transportation should not be for the purpose of tourism, conducted tours, charter or hire; and

f) It should not be a radio taxi.

2.12 In subject case even though Applicant recovers nominal amount from its employees, it cannot be said that particular employee has obtained the bus on hire or charter from the Applicants. It is the Applicant who would be eligible for the aforesaid exemption provided to transport of passengers in a non-air conditioned contract carriage.

2.13 Citing the Order passed by Hon’ble High court of Bombay in the case of CCE Nagpur vs Ultratech Cements Ltd as reported in 2010 (260) ELT 369 (Bom) = 2010 (10) TMI 13 – BOMBAY HIGH COURT wherein it was held that, credit is not admissible to manufacturer on part of cost borne by worker and proportionate credit embedded in cost of food recovered from employees, needs to be reversed, Applicant has submitted that credit is not admissible to them on part of cost borne by worker and thus ITC will be restricted to the extent of cost borne by the Applicant (employer).

03. CONTENTION – AS PER THE CONCERNED OFFICER:

The comments of the jurisdictional officer are as under:-

3.1 Prior to its amendment made vide the Central Goods and Services Tax (Amendment) Act. 2018 (No. 31 of 2018) dated 29.08.2018 made effective from 01.02.2019 vide Notification No. 02/2019-C.T., dated 29.01.2019. Section 17 (5) of the CGST Act. 2017. did not allow availment of input tax credit of the supply of goods or services as the same was allowed only to the supplier/provider under conditional circumstances and not to the service recipient like the applicants who are only recipient of the employee bus transportation service and not a provider.

3.2 After the abovementioned amendment, inference can be made that the applicant, being a recipient of bus transportation service for their employees from service providers deploying buses with seating capacity of more than thirteen persons arc eligible for the ITC of the GST paid on the services of bus transportation received [as hirers of motor vehicles – highlighted in clause (b) (i) of Section 17 (5) of the CGST Act, 2017]. The earlier blanket restriction on availment of credits under Section 17 (5) has been relaxed in case of large capacity motor vehicles (more than 13 persons carrying capacity) used mainly for commercial non-public transportation like used by industrial/commercial concerns for their employees and the applicant’s case is similar.

3.3 The following requirements should be met for availment of input tax credit.

a) The vehicle has approved seating capacity of more than 13 persons (including driver).

b) The service of leasing, renting or hiring is used for furtherance of business as per Section 16(1) of the CGST Act, 217.

c) The service provider furnishes invoice as per Section 31 and Rule 46 of the CGST Act & the CGST Rules, respectively.

d) All other conditions as prescribed under Section 16(2) are complied.

3.4 The jurisdictional officer has cited various judicial decisions along with the decision made by the Hon’ble Court in Commr. Or. Ex., Chandigarh-II v. Federal Mogul Goetze (India) Ltd, 2015 (39) S.T.R. 735 (P&H) = 2011 (9) TMI 120 – PUNJAB AND HARYANA HIGH COURT, as well as the Karnataka High Court decision in Commr. of C. Ex., Bangalore-II v. Stanzen Toyotetsu India (P) Ltd. 2011 (23) S.T.R. 444 (Kar.) = 2011 (4) TMI 201 – KARNATAKA HIGH COURT and submitted that input tax credit is available to the applicant in the instant case.

3.7 In subject case of transaction between Applicant and its employees, where Applicant recovers nominal amount from its employees, it cannot be said that particular employee has obtained the bus on hire or charter from the Applicants. The applicant’s contentions that they are eligible for exemption from GST under SI. No. 15 (b) of Notification. No. 12/2017-Central Tax (Rate) dated 28.06.2017 in respect of nominal amounts of recoveries made by the applicant (as employer) From their employees towards bus transportation service. is not correct for the following reasons:

(a) The transaction between the applicant & their employees due to “Employer-Employee” relation does not amount to supply of either goods or services and therefore GST cannot be applied on the same. In view of Schedule-III to CGST Act 2017. Services by an employee to the employer in the course of or in relation to his employment shall be treated neither as a supply of goods nor a supply of services.

(b) The applicant is not acting as a provider of bus transportation service to their employees but as  recipient of such service provided by the bus transporters and the employees are users of the said receipted service. The restriction or allowance of credit in clause (b) of Section 17(5) is in relation to the motor vehicles of not more than 13 passenger capacity and the applicant uses motor vehicles (Buses) of higher capacities. Hence GST is not applicable on nominal amounts recovered by Applicants from their employees for usage of employee bus transportation facility in non-air conditioned bus.

3.8 On the question whether ITC, if allowable will be restricted to the extent of cost borne by the Applicant (employer), the jurisdictional officer citing the decision of Hon’ble High court of Bombay in the case of CCE Nagpur vs Ultratech Cements Ltd as reported in 2010 (260) ELT 369 (Bom) = 2010 (10) TMI 13 – BOMBAY HIGH COURT submitted that in view of settled position of law in pre-GST regime in similar set of transaction. credit is not admissible to Applicants on part of cost borne by the employees of the applicants and the ITC will be restricted to the extent of cost borne by the Applicant (employer).

04. HEARING

4.1 Preliminary hearing in the matter was held on 26.11.2019. Shri Rajesh Shukla, Head, Indirect Tax, appeared along with Shri Mukesh Dokania. Dy. General Manager (Indirect Taxation) and requested for admission of their application. Jurisdictional Officer was not present.

4.2 The application was admitted and called for final hearing on 17.12.2019. Shri Rajesh Shukla, Head, Indirect Tax, appeared along with Shri Mukesh Dokania, Dy. General Manager (Indirect Taxation). Authorized Representative, made oral and written submissions. Jurisdictional Officer was not present but made written submissions. We heard both the sides.

05. DISCUSSIONS AND FINDINGS:

5.1 We have gone through the facts of the case. documents on record and submissions made by both, the applicant as well as the jurisdictional office.

5.2 Applicant had submitted that they have engaged a service provider to provide bus transportation facility to its employees in non-air conditioned bus having seating capacity of more than 13 person. The first question raised by them is whether they are entitled to avail ITC of the GST paid to such service providers.

5.2.1 To answer the question whether applicant is entitled to avail Input tax credit (ITC) of GST charged on such inward supply as in the subject case. we refer to the provisions of Chapter V of the CGST Act, 2017 comprising of Sections 16 to 21.

5.2.2 Section 16 of the CGST Act. 2017, contains provisions with respect to eligibility and conditions for taking ITC. As per Section 16 (1), every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49, be entitled to take credit of input tax charged on any 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. Hence, ITC in respect of receipt of services is available and can be taken. However, the credit is available subject to such conditions and restrictions and in the manner specified in Section 49 of the CGST Act.

5.2.3 We have no doubt that in the subject case, the supply of services received by the applicant is used in the course or furtherance of their business and therefore prima facie. they are eligible to take credit of GST charged by their suppliers.

5.2.4 However, while we find that the applicant is eligible to take ITC under the provisions of the CGST Act, it is to be seen whether Section 17 (5) of the said Act debars the applicant from taking credit. We find that, as rightly pointed out by the jurisdictional officer, Section 17 (5) has been amended by CGST (Amendment) Act. 2018 (No. 31 of 2018) dated 29.08.2018 made effective from 01.02.2019 vide Notification No. 02/2019 – C.T.- 2019 dated 29.01.2019. Prior to this date Section 17 of CGST Act, 2017 read as under:-

Section 17: (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not he available in respect of the following, namely: —

(a) motor vehicles and other conveyances except when they are used

(i) for making the following taxable supplies, namely:–

(A) further supply of such vehicles or conveyances ; or

(B) transportation of passengers; or

(C) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) transportation of goods;

(b) the following supply of goods or services or both–

(i) food and beverages, outdoor catering, beauty treatment, healty services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as element of a taxable composite or mixed supply;

(ii) membership of a club. health and fitness centre;

(iii) rent-a-cab, life insurance and health insurance except where

(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or

(B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply.

5.2.5 Vide the aforesaid amendment, Clauses (a) and (b) have been replaced with Clauses (a), (aa), (ab) and (b) and the amended Section 17 (5) (d) reads as under:-

17 (5) 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:-

(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;

(aa) vessels and aircraft except when they are used––

(i) for making the following taxable supplies, namely:-

(A) further supply of such vessels or aircraft; or

(B) transportation of passengers; or

(C) imparting training on navigating such vessels; or

(D) imparting training on flying such aircraft;

(ii) for transportation of goods;

(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):

Provided that the input tax credit in respect of such services shall be available-

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

(ii) where received by a taxable person engaged-

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

(b) the following supply of goods or services or both-

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(i) membership of a club, health and fitness centre; and

(ii) (iii) travel benefits extended to employees on vacation such as leave or home travel concession:

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

5.2.6 From the above, it is clear and apparent that Section 17 (5) had clearly debarred Input Tax Credit on motor vehicles or conveyances used in transport of passengers till the date of the amendment i.e. 01.12.2019. However with effect from 01.12.2019, Input Tax Credit has been allowed on leasing, renting or hiring of motor vehicles, for transportation of persons, having approved seating capacity of more than thirteen persons (including the driver),

5.2.7 Therefore in the subject case, since the applicant has specifically submitted and as agreed by the jurisdictional officer, that they are using motor vehicles having approved seating capacity of more than thirteen persons (including the driver), the applicant shall be eligible for Input Tax Credit in this case. However we would like to make it very clear that if the motor vehicle hired by them does not have an approved seating capacity of more than thirteen persons (including the driver), then in that case the applicant will not be eligible for Input Tax Credit.

5.3 The second question raised by the applicant is whether GST is applicable on nominal amount recovered by Applicants from their employees for usage of employee bus transportation facility in non-air conditioned bus.

5.3.1 Applicant has submitted that they issue pass only to their employees, so that the transportation facility can be used by such employees, for which nominal amount is recovered on monthly basis. They have also submitted that once, employee ceases to be in employment with Applicant, he/she is not authorized to use the transportation facility. In other words, employer-employee relationship is must to avail this facility.

5.3.2 In the subject case we find that the applicant is not providing transportation facility to its employees, in fact the applicant is a receiver of such services in the instant case. The applicant’s contentions that they are eligible for exemption from GST under SI. No. 15 (b) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 in respect of nominal amounts of recoveries made from their employees to wards bus transportation service, is not correct. The exemption under the said notification is available only when the supply is taxable in the first place. In the subject case, the transaction between the applicant & their employees, due to “Employer-Employee” relation as stated by the applicant in their submissions, is not a supply under GST Act.

5.3.3 To answer the second question we now refer to Schedule III to the CGST Act which lists activities which shall be treated neither as a supply of goods nor a supply of services As per clause 1 of the said Schedule-III, Services by an employee to the employer in the course of or in relation to his employment shall he treated neither as a supply of goods nor a supply of services.

5.3.4 Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, we are of the opinion that GST is not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.

5.4 The last question raised by the applicant is if ITC is available to them, whether it will be restricted to the extent of cost borne by the Applicant.

5.4.1 The applicant, citing the decision of the Hon’ble High court of Bombay in the case of CCE Nagpur vs Ultratech Cements Ltd as reported in 2010 (260) ELT 369 (Bom) = 2010 (10) TMI 13 – BOMBAY HIGH COURT has submitted that ITC is not admissible to Applicant on part of cost borne by employee and thus ITC will be restricted to the extent of cost borne by the Applicant.

5.4.2 The jurisdictional officer has also endorsed the view of the applicant and we have no reason to deviate from the view expressed by both, the applicant as well as the jurisdictional officer.

06. In vie w of the extensive deliberations as held hereinabove, we pass an order as follows:

ORDER

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

NO.GST-ARA-23/2019-20/B-46

Mumbai, dt. 25-08-2020

For reasons as discussed in the body of the order, the questions are answered thus —

Question: -1. Whether input tax credit (ITC) is available to Applicant on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than thirteen person for transportation of employees to & from workplace?

Answer: – ITC is available to the applicant but only after 01.02.2019.

Question:-2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus?

Answer: – Answered in the negative.

Question: -3. If ITC is available as per question no. (1) above, whether it will be restricted to the extent of cost borne by the Applicant (employer)?

Answer: – Answered in the affirmative.

M/S. MARKETING COMMUNICATION AND ADVERTISING LIMITED

Classification of goods – applicable rate of tax – Printing and supply of Security Excise Adhesive Labels – whether classifiable under HSN Code 4821 attracting GST @ 18% or under HSN Code 4911attracting 12%? – HELD THAT:- Hon’ble Supreme Court in the case of M/S. HOLOSTICK INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NOIDA [2015 (4) TMI 357 – SUPREME COURT] dealt with an identical issue. In that case, the question was whether a coated metallised film (classified under Central Excise Tariff 39.20.36) undergoing embossing and applied with an adhesive coating resulting in a hologram would be classified under Heading 4901 or 3919. It was held by Apex Court that the primary use of the product is security and not the quality of being adhesive. The primary use of such tape is by virtue of its adhesiveness to bind and package containers in which goods are to be stored and transported. Obviously, in such an example, the printed monogram of such adhesive tape would be incidental to the primary use of the said goods – the adhesive tape.

In the present case also, the primary use of the Security Excise labels is for security.

Akin to Note No.2 to entry 49 in Central Excise Tariff, a similar Note No. 12 is existing in Chapter 48 of GST Tariff – Also, the sixth edition of volume III of Explanatory Notes of World Customs Organisation in relation to Chapter Heading 4911 also includes at item No. 10, “Self-adhesive printed stickers designed to be used, for example, for publicity, advertising or mere decoration, e.g., “comic stickers” and “window stickers”.

Thus, the judgment of the Hon’ble Supreme Court in the case of M/S. HOLOSTICK INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NOIDA [2015 (4) TMI 357 – SUPREME COURT] wholly applies to the instant case and therefore the product in question is classified under the Heading 4911 and rate of tax is 12% as per Sr. No. 132 of schedule Il of Notification No. 01/2017-CT (R) dated 28.06.2017.

No.- KAR ADRG 42/2020

Dated.- August 18, 2020

Citations:

  1. M/s. Holostick India Ltd. Versus Commissioner of Central Excise, Noida – 2015 (4) TMI 357 – Supreme Court
  2. COLLECTOR OF CENTRAL EXCISE, SHILLONG Versus WOOD CRAFT PRODUCTS LTD. – 1995 (3) TMI 93 – Supreme Court
  3. Holostik India Ltd., U.K. Gupta, S.K. Garg, Manoranjan Mahapatra Versus Commissioner of Central Excise, Chennai-II – 2015 (10) TMI 42 – CESTAT CHENNAI
  1. RAVI PRASAD M.P. AND SRI MASHHOOD UR REHMAN FAROOQUI, MEMBER

Represented by: Sri. Girish K.

ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 & UNDER 98(4) OF THE KGST ACT, 2017

  1. M/s. Marketing Communication & Advertising Limited, 42, MCA House, 4thor, Millers Road, Vasanth Nagar, Karnataka, Bangalore-560052, having GSTIN number 29AAACM7139D1ZI, have filed an application for Advance Ruling under Section 97 of CGST Act,2017 & KGST Act, 2017 read with Rule 104 of CGST Rules 2017 & KGST Rules 2017, in form GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act.
  2. The applicant, M/s. Marketing Communication & Advertising Limited (MCAL) is a State Public Sector Enterprise owned by the Government of Karnataka. MCAL is into the activity of printing of security excise labels for supply to various distilleries as per the directions of the Government of Karnataka. The Commissioner of State Excise, Government of Karnataka has issued Order for procurement of security excise labels. The rate for printing and supply of security excise labels is approved by the Department of Excise, Government of Karnataka every year.
  3. The applicant (MCAL), for the purpose of printing and supply of labels as per the requirement of Department of Excise, Government of Karnataka, has entered into an agreement dated 13th September 2017 with M/s. Manipal Technologies Ltd., for carrying out printing of labels in the premises of MCAL for further supply to various distilleries. In terms of this agreement, M/s. Manipal Technologies Ltd. has installed the required machinery in the premises of MCAL for printing of security excise labels. The labels are printed by using 80 GSM Maplitho paper with 60 GSM Silicon Paper and 20 GSM of hot melt gum using web offset printing withIntaglio and Hologram security features. The activity of printing of labels is carried out by Manipal Technologies Ltd., under the strict control and supervision of MCAL & also the Department of Excise, Government of Karnataka and delivered to the designated place, get acknowledgement therefrom & submit the same to MCAL for getting payment. A copy of the Invoice No. KAA9118914 dated 25.11.2019, issued by M/s. Manipal Technologies Limited towards printing and supply of labels, reveals that they have charged GST @ 12% (CGST 6% and SGST 6%) and classified the said activity under SAC Code 9989. Further the applicant have enclosed a copy of the Invoice No. 1820126 dated 27.12.2019, issued by them to M/s. Khoday RCA Industries, Bangalore, which reveals that they have charged GST @ 18% (CGST 9% and SGST 9%), on classifying the activity under HSN Code 4821.
  4. The applicant have sought advance ruling on the following queries, in relation to the supply by the applicant to various distilleries:

1) The correct classification of Security Excise Adhesive Labels i.e., HSN Code applicable

2) The rate of tax applicable on supply of Security Excise Adhesive Labels

PERSONAL HEARING: / PROCEEDINGS HELD ON 30.07.2020

  1. Sri. Girish, Cost Accountant and duly authorised representative of the applicant appeared for personal hearing proceedings on 30.07.2020 before this authority and reiterated the submissions already made along with the application.

DISCUSSION & FINDINGS

  1. We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made during the personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts.

6.1 At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act.

6.2 The applicant gets the printing of security excise labels on job work basis by M/s. Manipal Technologies Limited and supplies the same to various distilleries as per the directions of Government of Karnataka. The applicant seeks classification and rate of tax on these security excise labels. The applicant at present is classifying the product under HSN Code 4821 attracting CGST @ 9% and SGST @ 9%. However, they are of the opinion that the product is rightly classifiable under HSN Code 4911 attracting CGST @ 6% and SGST @ 6%. They have relied upon Supreme Court judgment in the case of M/s. Holostick India Ltd [2015-TIOL-2236- CESTAT-MAD] = 2015 (10) TMI 42 – CESTAT CHENNAI.

6.3 HSN Code 4821 & 4911 in GST Tariff- Goods, reads as below:

4821 Paper or Paperboard labels of all kinds, whether or not printed
4911 Other printed matter, including printed pictures and photographs; such as Trade advertising material, Commercial Catalogues and the like, printed posters, Commercial Catalogues, Printed inlay cards, Pictures, designs and photographs, plan and drawings for architectural engineering, Industrial, Commercial, topographical or similar purposes reproduced with the aid of computer or any other devices.

6.4 We observe that the Hon’ble Supreme Court in the case of M/s. Holostick India Ltd. 2015 (4) TMI 357 – SUPREME COURT dealt with an identical issue. In that case, the question was whether a coated metallised film (classified under Central Excise Tariff 39.20.36) undergoing embossing and applied with an adhesive coating resulting in a hologram would be classified under Heading 4901 or 3919. The judgment was given keeping Note No.2 to entry 49, which is given below:

“Except for the goods of Heading No. 39.18 or 39.19, plastics, rubber and articles thereof, printed with motifs, characters of pictorial representations, which are not merely incidental to the primary use of the goods, fall in Chapter 49”

The relevant paras from the judgment are quoted below:

“17. It is clear therefore, that the question resolves itself into whether printing is only incidental to the primary use of the goods or is something more than something merely incidental. We have already referred to the process hereinabove and the final product which emerges is a product which is used for security purposes. It is important to remember therefore, that the primary use of the product is security and not the quality of being adhesive. Here again, a simple example will suffice. Take an adhesive tape with a monogram printed upon it. The primary use of such tape is by virtue of its adhesiveness to bind and package containers in which goods are to be stored and transported. Obviously, in such an example, the printed monogram of such adhesive tape would be incidental to the primary use of the said goods – the adhesive tape. By way of contrast, in the present case, the factor of adhesiveness is incidental to the primary use to which the goods are put, namely, that they are to be used for security purposes. Also, the HSN Explanatory Notes are relevant, which according to the judgment of this Court reported in ‘Collector of Central Excise, Shillong v. Wood craft Products Ltd.’ [1995 (77) E.L.T. 23 (S.C.)] = 1995 (3) TMI 93 – SUPREME COURT in para 12 are a safe guide in case of doubt :-

It is significant, as expressly stated, in the Statement of “12. Objects and Reasons, that the Central Excise Tariffs are based on the HSN and the internationally accepted nomenclature was taken into account to “reduce disputes on account of tariff classification”. Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Central Excise Tariffin the Act and the tariff classification made therein, in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act. The ISI Glossary of Terns has a different purpose and, therefore, the specific purpose of tariff classification for which the internationally accepted nomenclature in FISN has been adopted, for enacting the Central Excise Tariff Act, 1985, must be preferred, in case of any difference between the meaning of the expression given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI.”

  1. When one goes to the HSN Explanatory Notes to ‘other printed matter’, Item No. 10 which has already been referred to hereinabove sates that ‘self-adhesive printed stickers designed to be used, for example, for publicity, advertising or mere decoration, e.g. “comic stickers” and “window stickers” would be included.”

6.5 We observe that the primary use of the Security Excise labels is for security. We also observe that akin to Note No.2 to entry 49 in Central Excise Tariff, a similar Note No. 12 is existing in Chapter 48 of GST Tariff which reads as below:

“Except for the goods of Heading 4814 or 4821, paper, paperboard, cellulose wadding and articles thereof, printed with motifs, characters or pictorial representations, which are not merely incidental to the primary use of the goods, fall in Chapter 49.”

We further observe that that the sixth edition of volume III of Explanatory Notes of World Customs Organisation in relation to Chapter Heading 4911 also includes at item No. 10, “Self-adhesive printed stickers designed to be used, for example, for publicity, advertising or mere decoration, e.g., “comic stickers” and “window stickers”.

6.6 We therefore conclude that the judgment of the Hon’ble Supreme Court in the case of M/s. Holostick India Ltd. = 2015 (4) TMI 357 – SUPREME COURT wholly applies to the instant case and therefore the product in question is classified under the Heading 4911 and rate of tax is 12% as per Sr. No. 132 of schedule Il of Notification No. 01/2017-CT (R) dated 28.06.2017.

  1. In view of the foregoing, we rule as follows

RULING

1) The HSN Code of Security Excise Labels is 4911.

2) The rate of tax applicable is 6% under the CGST Act and 6% under the KGST Act and 12% under the IGST Act.

M/S. S.K. PROPERTIES

Permission for withdrawal of Advance Ruling application – levy of GST – rate of GST – Land owners share of constructed residential flats, since joint development agreement entered between Land owner and Builder entered before the commencement of construction of the building and constructed residential fiats handed over before Completion – Land owner’s share of constructed residential flats, since Joint development agreement entered between Land owner and Building and Constructed residential flats hand over after completion.

HELD THAT:- The Application filed by the Applicant for advance ruling is disposed off as withdrawn.

No.- KAR ADRG 41/2020

Dated.- August 10, 2020

DR. RAVI PRASAD M.P. AND SRI MASHHOOD UR REHAMN FAROOQUI MEMBER

Represented by: Not Applicable

ORDER UNDER SECTION 98(4) OF THE CGST TAX ACT, 2017 & UNDER 98(4) OF THE KGST ACT, 2017

1. M/s. S.K. Properties, Flat, No. 100, Annai Residency, Ground Floor, 4th Main, Hoysala Nagar, Ramamurthy Nagar, Bangalore-560016, Karnataka, having GSTIN number 29ACNFS98921ZD, have filed an application for Advance Ruling under Section 97 of CGST Act,2017 & KGST Act, 2017 read with Rule 104 of CGST Rules 2017 & KGST Rules 2017, in form GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act.

2. The applicant is a partnership firm, engaged in construction of residential apartments, The Applicant entered into an agreement with land lord M/s. Panchajanya builders & developers to construct 32 residential apartment which consists of Total Super built up area is 41096 SFT out of which land owner share built up area is to the extent of 16,415 SFT, as per agreement. In this regard, the applicant sought advance ruling in respect of the following questions.

i. Applicability of GST on Land owners share of constructed residential flats, since joint development agreement entered between Land owner and Builder entered before the commencement of construction of the building and constructed residential fiats handed over before Completion.

ii. If GST applicable on point I, what will be the rate of GST and the value on which GST is applicable.

iii. Applicability of GST on Land owner’s share of constructed residential flats, since Joint development agreement entered between Land owner and Building and Constructed residential flats hand over after completion.

iv. If GST applicable on point 3, what will be the rate of GST and the value on which GST is applicable.

3. The applicant had filed application through online ARA-01 portal on 11-09-2018. However, the applicant has filed physical copy of the application along with a letter dated 24.07.2020, requesting this authority to permit them to withdraw their application for advance ruling.

4. In view of the above, we pass the following

RULING

The Application filed by the Applicant for advance ruling is disposed off as

M/S. ENFIELD APPARELS LTD

Input tax credit – Levy of GST on Transfer Fee – Assignment of leasehold rights on land – HELD THAT:- The applicant, apart from the conditional possession of the Demised Premises, enjoys no title or ownership, which is central to sale of any immovable property within the meaning of section 54 of the Transfer of Property Act, 1882. The applicant’s interest in the benefits arising out of the Demised Premises is limited to sub-leasing in terms of the Deed, and he is capable of transferring the benefits only to that extent. The assignment, therefore, does not amount to transfer of any benefit other than leasehold rights in terms of the Deed for the unexpired period of the lease and is no transfer of any immovable property in the context of the GST Act.

The activity of assignment is in the nature of agreeing to transfer one’s leasehold rights. It does not amount to further sub-leasing, as the applicant’s rights as per the Deed stands extinguished. Neither does it create fresh benefit from land other than the leasehold right. It is like a compensation for agreeing to do the transfer of the applicant’s rights in favour of the assignee. It is a service classifiable under ‘Other miscellaneous service’ (SAC 999792) and taxable @ 18% under Sl No. 35 of Notification No. 11/2017 – CT (Rate) dated 28/06/2017 (State Notification No. 1135-FT dated 28/06/2017), as amended from time to time (hereinafter collectively called the Rate Notification).

Similarly, the transfer fee charged by the Sub-lessor is in the nature of a consideration for tolerating an act that the applicant is otherwise refrained from doing in terms of clause 12.28 of the Deed. It is also a service classifiable under ‘Other miscellaneous service’ (SAC 999794) and taxable @ 18% under Sl No. 35 of the Rate Notification. It is the consideration payable to the Sub-lessor for providing a service in the course or furtherance of business, more specifically because business includes supply or acquisition of goods or services in connection with the closure of a business in terms of section 2 (17) (d) of the GST Act. The GST to be paid on such transfer fee is, therefore, admissible as input tax credit.

No.- Case Number 06 of 2020, Order number 05/WBAAR/2020-21

Dated.- August 10, 2020

Citations:

  1. Girnar Traders & Digambar Motiram Jhadhav Versus State of Maharashtra & Ors. & The Commissioner & Ors. – 2011 (1) TMI 1343 – Supreme Court
  2. Builders Association of Navi Mumbai, Neelsidhi Realties Versus Union of India Through the Secretary, Ministry of Finance, The Commissioner of Goods and Service Tax, Thane & Others – 2018 (4) TMI 461 – BOMBAY HIGH COURT
  3. Greater Noida Industrial Dev. Authority Versus Commr. of Cus., C. Ex. – 2015 (4) TMI 1231 – ALLAHABAD HIGH COURT
  4. Chheda Housing Development Corporation Versus Bibijan Shaikh Farid – 2007 (2) TMI 664 – BOMBAY HIGH COURT
  5. Mati Lal Daga and Ors. Versus (Sri) Iswar Radha Damodar Chandra Jew Thakur – 1936 (5) TMI 35 – CALCUTTA HIGH COURT
  6. In Re: Greentech Mega Food Park Pvt. Ltd. – 2019 (7) TMI 814 – AUTHORITY FOR ADVANCE RULING, RAJASTHAN
  7. In Re: M/s. Goa Tourism Development Corporation Ltd – 2018 (11) TMI 1347 – AUTHORITY FOR ADVANCE RULING, GOA
  8. Bank of India Versus Enfield Apparels Limited – 2018 (8) TMI 1971 – NATIONAL COMPANY LAW TRIBUNAL, KOLKATA

MR. SUSMITA BHATTACHARYA, JOINT COMMISSIONER, CGST & CX (MEMBER) AND MR. PARTHASARATHI DEY, ADDITIONAL COMMISSIONER, SGST (MEMBER)

Applicant’s representative heard : Arup Dasgupta, FCA

Preamble

A person within the ambit of Section 100 (1) of the Central Goods and Services Act, 2017 or West Bengal Goods and Services Act, 2017 (hereinafter collectively called ‘the GST Act’), if aggrieved by this Ruling, may appeal against it before the West Bengal Appellate Authority for Advance Ruling, constituted under Section 99 of the West Bengal Goods and Services Act, 2017, within thirty days from the date of communication of this Ruling, or within such further time as mentioned in the proviso to Section 100 (2) of the GST Act.

Every such appeal shall be filed in accordance with Section 100 (3) of the GST Act and the Rules prescribed thereunder, and the Regulations prescribed by the West Bengal Authority for Advance Ruling Regulations, 2018.

1. Admissibility of the Application

1.1 The National Company Law Tribunal (hereinafter NCLT), Kolkata Bench, passed an order on 06/08/2018, initiating the corporate insolvency resolution process (hereinafter CIRP), admitting the applicant as the corporate debtor, and appointed Sri Kanchan Duatta as Interim Resolution Professional (IRP). The Committee of Creditors (hereinafter CoC) subsequently confirmed Sri Dutta as the Resolution Professional (RP). During the CIRP, the RP and the CoC did not receive any resolution plan. The NCLT, therefore, passed another order on 04/04/2019 under section 33 of the Insolvency & Bankruptcy Code, 2016 (hereinafter the IBC) to start the process of liquidating the corporate debtor and appointed Sri Dutta as the Liquidator. He has obtained separate registration as a distinct person (GSTIN 19AABCE8762F4ZC) in terms of Notification No. 11/2020 – Central Tax dated 21/03/2020).

1.2 One of the assets under liquidation is the leasehold factory unit along with car parking space situated at Paridhan Garment Park at 19 Canal South Road, Kolkata – 700015 (hereinafter the Demised Premises). The West Bengal Industrial Development Corporation Ltd (hereafter the Sub-lessor) granted the applicant possession of the Demised Premises for ninety-nine years under a registered deed of sub-lease dated 06/08/2010 (hereinafter the Deed) on payment of an up-front premium of ₹ 5.07 crore and monthly lease rental of ₹ 21,000/-. According to clause 12.28 of the Deed, the applicant, after the expiry of at least five years from the date of the Deed coming into force, is entitled to assign to another person the unexpired residual period of the sub-lease after taking written approval of the Sub-lessor and on payment of transfer fee, being 10% of the prevailing market value of the property as assessed by the Registering Authority of the State Government.

1.3 The Liquidator wants to know whether GST is payable on the consideration receivable on such assignment. If so, what should be the SAC and the rate applicable? He also seeks clarity on whether he can claim input tax credit for the GST paid on the transfer fee. Both the questions are admissible under section 97 (2) (a), (b), (d) & (e) of the GST Act.

1.4 The applicant declares that the questions raised are not pending before or disposed of by any authority in any proceedings under the GST Act. The concerned officer from the revenue does not object to the admission of the application. The application is, therefore, admitted.

2. Submissions of the Applicant

2.1The applicant submits that leasehold right to immovable property is an immovable property. He refers to section 3 (26) of the General Clauses Act, 1897, which defines immovable property to include land, benefits to arise out of the land and things attached to the earth, or permanently fastened to anything attached to the earth. The phrase ‘benefits to arise out of land’ is relevant. According to the applicant, it means the interest in land. Even the transfer of development rights in the land through joint development is treated as the sale of land. The applicant refers to several case laws in support of his argument [Mati Lal Daga and Ors vs (Sri Sri) Iswar Radha Damodar, AIR 1936 Cal 727 = 1936 (5) TMI 35 – CALCUTTA HIGH COURTGirnar Traders vs State of Maharashtra, (2011) 3 SCC 1 = 2011 (1) TMI 1343 – SUPREME COURTChheda Housing Development vs Bibijan Shaikh Farid and Ors, (2007) 3 MhLJ 402] = 2007 (2) TMI 664 – BOMBAY HIGH COURT.

2.2 The applicant, therefore, concludes that lease simpliciter alone should attract levy of GST. Assignment of leasehold rights on land, on the other hand, is nothing but the transfer of immovable property akin to the sale of land and buildings, and no GST is leviable on such assignments. ‘Sale’ means the transfer of property or title for a price. Assignment of the leasehold rights effectively transfers possession and title to the assignee for a price. It is nothing but a sale of the building.

2.3 At this point the applicant tries to distinguish his case from the judgments in Builders Association of Navi Mumbai [(2018) 12 GSTL 232 (Bom)] = 2018 (4) TMI 461 – BOMBAY HIGH COURT and Greater Noida Industrial Development Authority [(2015) 40 STR 95] = 2015 (4) TMI 1231 – ALLAHABAD HIGH COURT. He contends that the High Courts in the above cases have dealt with leasing, which is different from the assignment of leasehold rights. The rulings pronounced based on those two judgments [Greentech Mega Food Park Pvt Ltd, (2019) 27 GSTL 143 (AAR, Rajasthan) = 2019 (7) TMI 814 – AUTHORITY FOR ADVANCE RULING, RAJASTHAN and Goa Tourism Development Corporation Ltd, (2018) 19 GSTL 700 (AAR, Goa)] = 2018 (11) TMI 1347 – AUTHORITY FOR ADVANCE RULING, GOA, therefore, are not tenable.

2.4 The applicant now draws attention to the question of admissibility of the input tax credit, being the GST to be paid on the transfer fee. According to the applicant, such transfer fee is the consideration payable to the Sub-lessor for rendering service in the course or furtherance of business, more specifically because business includes in terms of section 2 (17) (d) of the GST Act supply or acquisition of goods or services in connection with the closure of a business. The applicant, therefore, argues that GST to be paid on such transfer fee is admissible as input tax credit in the event it is ruled that the assignment of leasehold right is a supply of taxable service.

3. Submissions of the concerned officer from the revenue

3.1 The applicant’s argument described in paragraphs 2.1 to 2.3 above is not discussed in the submissions of the concerned officer from the revenue. He submits that the assigning of the sub-lease is a service classifiable under the heading ‘Other Miscellaneous Services’ (SAC 99979) and taxed accordingly.

4. Observations and findings of the Authority

4.1 Section 3(26) of the General Clauses Act, 1897 defines “immovable property” as to include land, benefits to arise out of the land, and things attached to the earth, or permanently fastened to anything attached to the earth. Applicability of the General Clauses Act, 1897 in the context of a Special Act like the CGST Act, 2017, however, is limited to areas where no express provisions are made under the said Special Act.

4.2 Scope of supply under section 7 (1) of the GST Act includes all forms of supply of goods and services, including a sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made. Section 7 (1A) read with Schedule II under the GST Act provides which of such supplies shall be treated as supply of goods or services. Paragraph 2 of Schedule II provides that with respect to transactions relating to land and buildings, any lease, tenancy, easement, license to occupy the land, letting out of a building including a commercial, industrial or residential complex for business or commerce is the supply of services. In other words, benefits arising from land in the forms specified in paragraph 2 of Schedule II are not to be treated as transactions in immovable property but as the supply of service for the purpose of the GST Act. The Deed, therefore, confers upon the applicant no better title to the Demised Premises other than a service contract of lease. He can, therefore, transfer to the assignee only his right to receive the service of the lease for the unexpired period after obtaining prior approval of the Sub-lessor on payment of the transfer fee.

4.3 Clause 11 of the Deed provides the rights of the Sub-lessee. They include the right to have peaceful possession of the Demised Premises on regular payment of the lease rental and compliance to the conditions and restrictions enumerated under clause 12 of the Deed. A conjoint reading of the two clauses makes it clear that the Sub-lessor allows the applicant possession of the Demised Premises for the manufacture of garments and textiles. The Demised Premises shall not be used for residential use or any unlawful activity, nor shall be structurally altered in any way. The sub-lease may be terminated if the Sub-lessee fails to pay the lease rental or maintenance charges, fails or delays in commencing commercial operation, discontinues the business, fails to maintain good labour practice or breaches any terms of the Deed.

4.4 It is evident from the above discussion that the applicant, apart from the conditional possession of the Demised Premises, enjoys no title or ownership, which is central to sale of any immovable property within the meaning of section 54 of the Transfer of Property Act, 1882. The applicant’s interest in the benefits arising out of the Demised Premises is limited to sub-leasing in terms of the Deed, and he is capable of transferring the benefits only to that extent. The assignment, therefore, does not amount to transfer of any benefit other than leasehold rights in terms of the Deed for the unexpired period of the lease and is no transfer of any immovable property in the context of the GST Act.

4.5 The applicant’s reference to the case laws where joint development right is treated as the sale of an immovable property (refer to para 2.1 above) needs to be distinguished. None of those cases is decided in the context of the GST Act, where the provisions of paragraph 2 of Schedule II curve out certain benefits arising out of the land from the realm of immovable property and treat them as ‘service’ for the purpose of the GST Act. The reference to the above case laws is, therefore, not relevant.

4.6 The activity of assignment is in the nature of agreeing to transfer one’s leasehold rights. It does not amount to further sub-leasing, as the applicant’s rights as per the Deed stands extinguished. Neither does it create fresh benefit from land other than the leasehold right. It is like a compensation for agreeing to do the transfer of the applicant’s rights in favour of the assignee. It is a service classifiable under ‘Other miscellaneous service’ (SAC 999792) and taxable @ 18% under Sl No. 35 of Notification No. 11/2017 – CT (Rate) dated 28/06/2017 (State Notification No. 1135-FT dated 28/06/2017), as amended from time to time (hereinafter collectively called the Rate Notification).

4.7 Similarly, the transfer fee charged by the Sub-lessor is in the nature of a consideration for tolerating an act that the applicant is otherwise refrained from doing in terms of clause 12.28 of the Deed. It is also a service classifiable under ‘Other miscellaneous service’ (SAC 999794) and taxable @ 18% under Sl No. 35 of the Rate Notification. It is the consideration payable to the Sub-lessor for providing a service in the course or furtherance of business, more specifically because business includes supply or acquisition of goods or services in connection with the closure of a business in terms of section 2 (17) (d) of the GST Act. The GST to be paid on such transfer fee is, therefore, admissible as input tax credit.

Based on the above discussion, we rule as under,

RULING

The activity of assignment is in the nature of agreeing to transfer one’s leasehold rights. It does not amount to further sub-leasing, as the applicant’s rights as per the Deed of sub-lease stands extinguished after assignment. Neither does it create fresh benefit from the land. It is in the nature of compensation for agreeing to do the transfer of the applicant’s rights in favour of the assignee. It is a service classifiable under ‘Other miscellaneous service’ (SAC 999792) and taxable @ 18% under Sl No. 35 of Notification No. 11/2017 – CT (Rate) dated 28/06/2017 (State Notification No. 1135-FT dated 28/06/2017), as amended from time to time.

The transfer fee charged by the Sub-lessor is the consideration payable to the Sub-lessor for providing a service in the course or furtherance of business, more specifically because business includes supply or acquisition of goods or services in connection with the closure of a business in terms of section 2 (17) (d) of the GST Act. The GST to be paid on such transfer fee is, therefore, admissible as input tax credit.

This Ruling is valid subject to the provisions under Section 103 until and unless declared void under Section 104(1) of the GST Act.