2019 (2) TMI 1527 – APPELLATE AUTHORITY FOR ADVANCE RULING, ODISHA – TMI – Input Tax credit – inputs and input services used by for maintenance of its township/residential colony, guest house/transit house/training hostel, hospital, horticulture and maintenance & security service in townships – Challenge to AAR Decision – Held that:- The ruling of the AAR that inward supplies received by the Appellant-I by way of management, repair, renovation, alteration or maintenance service or goods received for furnishing the residential colony shall not qualify for input tax credit is found to be correct. Expenditure incurred by the Appellant-I towards construction, reconstruction, renovation, additions or alterations or repairs to the residential colony is not eligible for input tax benefit if the said expenditure has been capitalized. Moreover, provision of housing to its employees by the Appellant-I is nothing but a perquisite.
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As clarified by the CBIC vide its Press Release dated 10.10
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employees cannot be treated as an activity in course or furtherance of its business – the tax paid on inward supplies of goods and services in connection with the guest house cannot be allowed the benefit of input tax credit – Decided against assessee (Appellant-1)
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Services availed in relation to plantation and gardening within the plant area including mining area and the premises of other business establishments – Held that:- Creation and maintenance of green area/zone inside plant/mining/office premises is a business necessity for controlling pollution as well as atmospheric temperature. It is also a requirement for preventing soil erosion. This is also mandated in various laws under which the Appellant-I conducts its business such as the Forest Conservation Act, the Environment Protection Act, etc. Therefore, such activities are integral to the business activity of the Appellant-I and hence can be treated as activities in course or furtherance of its business. – Credit allowed
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For Appellant-I) 4. Shri P. Suna, DGM (Taxation Cell), NALCO (For Appellant-I) 5. Shri Sribas Nath, Asstt. Commissioner, GST fit CX, Bhubaneswar-I (For Appellant-II) 6. Shri K.C. Satapathy, Dy. Commissioner, CT 8t GST, Odisha (For jurisdictional officer) M/s. National Aluminium Company Limited (Appellant-I), aggrieved by the Advance Ruling No.02/ODISHA-AAR/18-19, dated 28.09.2018, pronounced by the Odisha Authority for Advance Ruling, Bhubaneswar (AAR), has filed an appeal before AAAR, Odisha, on 05.11.2018, under Section 100 of the Odisha Goods and Services Tax Act, 2017 / CGST Act, 2017. Commissioner, CX & GST, Bhubaneswar (Appellant-II) has also filed an appeal against the said Advance Ruling No.02/ODISHA-AAR/ 18-19 dated 28.09.2018 = 2018 (10) TMI 748 – AUTHORITY FOR ADVANCE RULING, ODISHA. Since both the appeals have arisen out of the sun authority intends to dispose of both the appeals vide this common order. 2.0. M/S National Aluminium Company Limited (Appellant-I) having GS
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lowing the input tax credit of the services utilized for maintenance of Guest House, Transit House and Trainee Hostel. (ii) Allowing the input tax credit for the service utilized for plantation and gardening within the plant area including the mining area and the premises of other establishment like administrative building, guest house, transit house and training hostel. 3.0. The issue has arisen for adjudication consequent upon the Appellant-I seeking advance ruling vide application dated 05.11.2018 in respect of its entitlement of taking credit of tax paid on input & input services used for maintenance of its township/residential colony, guest house/transit house/training hostel, hospital, horticulture and maintenance & security service in townships claiming that these are used in furtherance of its business. 3.1. After examining the contract details and the service details, as said to be received by the Appellant-I, the AAR Odisha vide their aforesaid ruling has held as foll
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, transit house & training hostel but excluding the food & beverages provided in such establishment. (v) Services availed in relation to plantation and gardening within the plant area including mining area and the premises of other business establishments will qualify for input tax credit. 4.0. M/s. National Aluminium Company Limited, (Appellant-I) in its grounds of Appeal, has assailed the ruling of AAR, inter-alia, on the following grounds.- (i) The AAR has wrongly held that the appellant's activities of management, maintenance or repair of the townships are not for or in relation to its core business while denying the credit of the tax paid on the goods and services used for management, maintenance or repair of the township of its employees, and Horticulture in township. The appellant undertakes such activities for its business in the course or furtherance of business and, therefore, it is entitled to take credit of tax paid on such services. (ii) The AAR has not rebutte
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on in connection with or incidental or ancillary to sub-clause (a) of Section 2(17) of CGST Act 2017 are also covered under the scope and ambit of the definition of business. Not only the manufacturing activity but any incidental or ancillary activities thereof are also covered within the expression business in the GST laws. Maintenance of various facilities in residential townships is integrally related to the business activities of the appellant and not a welfare activity undertaken by the appellant. (v) The services received by the appellant for management, maintenance or repairs of its properties in the course of business are covered within the expression used or intended to be used in the course or furtherance of business .The AAR has not given any reasoning as to why activities of management, maintenance or repair of residential colony of the employees for serving the employees cannot be considered as activities undertaken in the course or furtherance of business. (vi) The appell
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n the present GST are more extensive than the provisions of the Cenvat Credit Rules, 2004. (viii) A comparative reading of the provisions of the erstwhile cenvat credit rules and input tax credit in the present GST regime, it can be appreciated that earlier tax provisions were restrictive as compared to present tax provision. Hence, Tax credit in terms of section 16 of CGST Act, 2017 cannot be denied when such credit were allowed in the old regime. Hence, the AAR has wrongly and deliberately ignored the various rulings without appreciating that the ration of these rulings which are squarely applicable in the present case of the appellant. (ix) The AAR has ignored appellants submissions that the credit of GST paid on garden maintenance service will also be available whether such services availed is to comply with statutory requirement or to improve the efficiency of the employee. The garden is maintained because of statutory requirement to comply with pollution laws or for increase in t
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of the manufacturing activity in the factories, the appellant has made arrangement in the residential colonies near the factories, so that the employees can easily reach the workplace and readily available in the event of emergency situation. Thus, the residential colonies have been set-up and are being maintained by the appellant in the interest of its business. Therefore, facilities of maintenance in residential colonies, is integral part of the business of the appellant. Operation and maintenance of these facilities are in the nature of in-house activities that enable the ultimate business objective of manufacturing and sale of its products. Accordingly, these activities would not constitute supply of goods and services by the appellant to those availing the facilities in the residential colonies. 5.0 The Commissioner, CX & GST, BBSR (Appellant-II) in his grounds of appeal has submitted that the residential colonies are built for the welfare and benefit of the employees of the A
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jections and counter to the appeal filed by the Appellant-II. The Appellant-I In its counter, has submitted that section 16 of CGST Act entitles a registered person to take credit of input tax charged on any supply of services, which are used or intended to be used in the course or furtherance of his business. 7.0. During the course of the hearing on 07.01.2019, Shri P.K Sahu, Advocate on behalf of the Appellant-I reiterated the points as stated in its Grounds of Appeal and submitted an extract of relevant provisions of the CGST Act, 2017 and copy of some judicial pronouncements relied upon by him. He further stated that the activities pertain to furtherance of the business activity of Appellant-1 and hence ITC should be allowed in respect of tax paid on services used for such activities. The representatives of Appellant-II & jurisdictional officer argued that since these activities did not relate directly to the business activity, credit should not be allowed. 8.0. Before proceedi
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on in connection with or incidental or ancillary thereto. 8.2. As per Section 17(5) (c) of the CGST / OGST Act, input tax credit shall not be available against works contract services when supplied for construction immovable property (other than plant and machinery) except where it is an p service for further supply of works contract service. Further, in terms of Section 17(5)(d), input tax credit shall not be available in respect of goods or service received by a taxable person for construction of immovable property (other than plant & machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation.- For the purposes of clauses (c) and (d), the expression construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property; 8.3. Section 17 of the OGST/CGST Act prescribes apportionment of credit in different situations and blo
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in value in a financial year by an employee (without consideration) shall not be treated as supply of goods or services or both. 8.5 The appellant has also brought to our notice the clarification dated 10-07-2017 issued by Ministry of Finance. Government of India. Press Information Bureau, wherein it is clarified as follows. To quote:- It is being reported that gifts and perquisites supplied by companies to their employees will be taxed under GST. Gifts upto a value of ₹ 50.000/ – per year by an employer to his employee are outside the ambit of GST However, gifts of value more than R 50.000 – made without consideration are subject to GST, when made in the course or furtherance of business. The question arises as to what constitutes a gift. Gift has not been defined m the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court o
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the aforesaid clarification is of no help to the appellant-I, as discussed subsequently in this order). 8.6. Section 17(5) opens with a non obstante clause i.e. Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax the aforesaid credit shall not be available in respect of the following, namely -……………. in view of the aforesaid non-obstante clause, what is provided in Section 16(1) and 18(1) is subject to the restrictions contained in Section 17 (5). 9.0. We have given careful consideration to the submissions made by both the appellants. We have examined the relevant provisions of the OGST/CGST Acts. we have also gone through the judicial pronouncements referred to by Appellant-I. Our findings are given below. 9.1. The ruling of the AAR that inward supplies received by the Appellant-I by way of management, repair, renovation, alteration or maintenance service or goods received for furnishing the residential colony shal
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l accommodation for its employees in township/colony. 9.2. Perquisites are generally meant for the comfort, convenience and welfare of the employees. In the previous para, it has been stated that since perquisites are outside the scope of GST, benefit of input tax credit cannot be allowed to the Appellant-I pertaining to inward tax-paid supply of goods and/or services availed for providing the perquisites to its employees. However, for academic interest, even if its is argued that perquisites do fall within the scope of GST; the benefit of input tax credit still cannot be allowed, as any activity for the comfort, convenience and welfare of its employees cannot be treated as having been done in course of furtherance of business. This has been held by the Hon'ble Bombay High Court (Nagpur Bench), in its Order dated 11.10.2010 in the Central Excise Appeal No. 22 of 2008 in the case of commissioner of Central Excise, Nagpur – Vrs- M/s Manikgarh Cement [2010 (20) S.T.R. 456 (Bom)] = 201
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VAT credit is not allowable. In the present case, in our opinion, rendering taxable services at the residential colony established by the assessee for the benefit of the employees, is not an activity integrally connected with the business of the assessee and therefore, the tribunal was not justified in holding that the services such as repairs, maintenance and civil construction rendered at the residential colony constitutes 'input service' so as to claim credit of service tax paid on such services under Rule 2(1 ) of the CENVAT Credit Rules, 2004. 9.3. In view of the above, we find that the ratio of the aforesaid judgement of Hon'ble Bombay High Court is squarely applicable to the facts of the case and hence the appeal filed by the Appellant-I is not legally sustainable and hence is liable to be rejected and we hold accordingly. 9.4. However, the ruling of the AAR that the Appellant-1 is entitled to input tax credit of the tax paid on inward supply of input and input servi
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be allowed the benefit of input tax credit . To this extent, the appeal filed by the Appellant-II is sustainable and hence allowed. 9.5. The ruling of the AAR that services availed in relation to plantation and gardening within the plant area including mining area and the premises of other business establishments will qualify for input tax credit is found to be correct. Creation and maintenance of green area/zone inside plant/mining/office premises is a business necessity for controlling pollution as well as atmospheric temperature. It is also a requirement for preventing soil erosion. This is also mandated in various laws under which the Appellant-I conducts its business such as the Forest Conservation Act, the Environment Protection Act, etc. Therefore, such activities are integral to the business activity of the Appellant-I and hence can be treated as activities in course or furtherance of its business. To this extent, the appeal filed by the Appellant-11 is not sustainable and hen
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Ultratech Cement Ltd. [2010(260) E.L.T. 369(Bom.)] = 2010 (10) TMI 13 – BOMBAY HIGH COURT, has interpreted the correct meaning of the order of the Honble High Court in the Coca Cola case. The relevant paras of the said order are extracted below:- 37. In the case of Coca Cola India Pvt. Ltd. (2009 (8) TMI 50 – BOMBAY HIGH COURT) a Division Bench of this Court has considered scope of the expression input service' as defined in rule 2(1) of 2004 Rules. In that case, the question for consideration was, whether a manufacturer of non alcoholic beverage bases (concentrates) is eligible to avail credit of service tax paid on advertisement, sales promotion, market research etc. The argument of the revenue in that case was that the advertisements are not relatable to the concentrate manufactured by Coca Cola India Pvt. Ltd. (2009 (8) TMI 50 – BOMBAY HIGH COURT) and hence, the credit in respect thereof cannot be allowed Considering the Finance Minister's Budget Speech for 2004-05, press
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y input service that forms part of value of final products would be eligible for CENVAT credit. That observation of the Division Bench is made context of a service which is held to be integrally connected with the business of manufacturing the final product. Therefore, the observation of the Division Bench in the case of Coca Cola India Pvt. Ltd. (2009 (8) TMI 50 – BOMBAY HIGH COURT) has to be construed to mean that where the input service used is integrally connected with the business of manufacturing the final product and the cost of that input service forms part of the cost of the final product, then credit of service tax paid on such input service would be allowable. 10.1. From the above, it is established that to claim input tax credit, an input service must be integrally connected with the business of manufacturing the final product Cost of an input service forming part of the cost of final product alone cannot be a condition to allow the benefit of input tax credit. Our decision
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