In Re: M/s. National Aluminium Company Limited
GST
2019 (2) TMI 1527 – APPELLATE AUTHORITY FOR ADVANCE RULING, ODISHA – 2019 (22) G. S. T. L. 526 (App. A. A. R. – GST)
APPELLATE AUTHORITY FOR ADVANCE RULING, ODISHA – AAAR
Dated:- 21-1-2019
ORDER 02-03/ODlSHA-AAAR/Appeal/2018-19
GST
SHRI RAKESH KUMAR SHARMA AND SHRI SASWAT MISHRA, MEMBER
Present For the Appellants
1. Shri P.K. Sahu, Advocate (For Appellant-I)
2. Dr. Kedarnath Tripathy, Advocate (For Appellant-I)
3. Shri M.M. Mishra, Sr. Manager (Finance), NALCO (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 (A
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al petition, it has requested to set aside / modify the impugned Advance Ruling No.02/ODISHA-AAR/ 18-19 dated 28.09.2018 = 2018 (10) TMI 748 – AUTHORITY FOR ADVANCE RULING, ODISHA and allow input tax credit on inputs and input services used by them for maintenance of their township, security services and horticulture meant for township.
2.1. On the other hand, Commissioner, CX & GST, Bhubaneswar (Appellant-II) in his appeal petition, has submitted that the order passed by the AAR is not legal & proper to the extent of:-
(i) Allowing 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
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ch services, being nil rated, fall under exempt supplies.
(iii) Plantation and maintenance of such plantation outside the plant area, being for non-business use, will not qualify for input tax credit in terms of Section 17(1) of the CGST/OGST Act, 2017. Similarly, the service availed in relation to plant & garden in the residential colony will not qualify for input tax credit.
(iv) The Appellant-1 is entitled to input tax credit of the tax paid on inward supply of input and input service for maintenance of the guest house, 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 wron
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un large scale business of manufacturing, where thousands of employees are working. The fact that business plan for establishment plant included setting of the township as well, which show that township are integral part of smooth and effective functioning of the manufacturing activities.
(iv) the provisions under Section 16 of the CGST Act, 2017 prescribing eligible condition for taking input tax credit read with Section 2(17) of CGST Act, 2017 where the word 'business' has been defined, an activity or transaction 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 a
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paid on all the supplies received by the applicant in the course or furtherance of business is admissible without any whisper of doubt.
(vii) The AAR has ignored various rulings under the erstwhile Cenvat Credit Rules, 2004, wherein the credit of the tax paid on various services or duty paid on the goods has been allowed even if such services or goods are not directly used for providing taxable service or manufacturing of goods. The ratio of these rulings is squarely applicable in the present GST regime as provisions of tax credit in 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,
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th smooth & effective running of its business of the appellant. The main purpose of appellant in providing such facilities is for the benefit of its own business.
(xi) The appellant's activities cannot be roped in as taxable supply for residential service by invoking paragraph 2 of Schedule I for the various reasons. The appellant has contended that there is no supply of goods or services to the employees. The appellant runs factories for manufacturing purposes, which are to be manned 24 hours every day. For efficient operation 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
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of service provide through plantation & gardening within the plant area including mining area and the premises of other business establishment will qualify for input service credit appears to be incorrect. These services do not pass the legal test i.e. used or intended to be used in course or furtherance of business. The plantation and gardening within the plant area or the mines area of the applicant have no nexus with the manufacturing of Aluminium sheets and coils.
6.0. Appellant-I was given an opportunity to submit its objections 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 o
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of his business subject to such conditions and restrictions. “Input tax”, as defined in section 2(62) of the said Act, inter-alia, means the Central tax, State tax, Integrated tax or Union territory tax charged on any supply of goods or services of both made to him. In terms of clause 17 of section 2 of the OGST/CGST Act, 2017, “Business” inter-alia includes any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit and activity or transaction 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
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(1) (c) that the expression supply includes the activities specified in Schedule-I, made or agreed to be made without a consideration. Supply of goods or services or both between related persons, when made without a consideration and in the course or furtherance of business is listed at SI.No.2 of the said Schedule-I. Explanation to Section 15 of the OGST/CGST Act specifies that employer and employees are deemed to be “related persons”. Proviso to SI. No. 2 of the said Schedule- I says that gifts not exceeding fifty thousand rupees 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
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ST. Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (xi)] It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procurer! by the employer The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and cost-to-company (C2C).”
(However 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
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ge 25 of his appeal petition. As clarified by the CBIC vide its Press Release dated 10.10.2017, referred to by the Appellant-I, perquisites are not subjected to GST. Therefore, since the perquisites are outside the scope of GST, input tax credit shall not be available to the Appellant-I in respect of tax paid on goods and services procured by it for management, repair, renovation, alteration or maintenance services (including watch and ward services, security services, Plantation/Gardening/Landscaping services, etc.) pertaining to residential accommodation for its employees in township/colony.
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 int
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The expression 'relating to business' in Rule 2 (l) of CENVAT Credit Rules, 2004 refers to activities which are integrally related to the business activity of the assessee and not welfare activities undertaken by the assessee.
9. Applying the ratio laid down by the Hon'ble Apex Court in the case of Maruti Suzuki Limited V. Commissioner of Central Excise, Delhi (2009 (8) TMI 14 – SUPREME COURT), we hold that unless the nexux is established between the services rendered and the business carried on by the assessee, the benefit of CENVAT 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
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I is used for temporary accommodation of its employees as well as non employees. Thought the provision of guest house may not be treated as a perquisite, it cannot also be treated as an activity integrally related to the business of the Appellant-I. That means, the guest house service provided by the Appellant-I to its employees as well as non-employees cannot be treated as an activity in course or furtherance of its business. Hence, we are of the view that tax paid on inward supplies of goods and services in connection with the guest house cannot 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 p
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nt-I has thus argued that the tax paid on expenditure incurred by him for the input/input services (which are held by us as not eligible for input tax credit) are taken into consideration for calculation of the cost of its final products and hence benefit of input tax credit should be available on such input/input services. In this regard, we just want to place on record the fact that the Hon'ble Bombay High Court, vide a subsequent order dated 25.10.2010 in in Central Excise Appeal No 7 of 2010 in the case of Commissioner Central Excise Vs M/s. 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)
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rvices enumerated in the definition of input service itself. The Court rejected the contention of the revenue that a service to qualify as an input service must be used in or in relation to the manufacture of the final products and held that any service used in relation to the business of manufacturing the final product would be an eligible input service.
38. We concur with the above decision of this Court in the case of Coca Cola India Pvt. Ltd. (2009 (8) TMI 50 – BOMBAY HIGH COURT). However, in that case, this Court has also held that the coat of any 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 servic
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