2018 (10) TMI 748 – AUTHORITY FOR ADVANCE RULING, ODISHA – 2018 (18) G. S. T. L. 508 (A. A. R. – GST) – Input tax credit – scope of blocked credit – various goods and services used for maintenance of applicant’s township, guesthouse, hospital, horticulture in its ordinary course of business – section 17(5) of CGST Act.
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Whether the applicant is entitled to take input credit of tax paid on various goods and services used for maintenance of applicants’s township, quest houses hospitals and horticulture for paying output tax?
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Held that:- Some of the services are exclusively in relation to the residential colony, some are in relation to the plant, some are in relation to the guest house and transit house, some are for use in residential colony as well as in the plant while some of the services like urban plantation, provision of drinking water at picnic spot, raising of seedling, and general plantation are neither for the plant nor for the residential colony. The applicant migh
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ntial accommodation in the colony, temporary accommodation in the guest houses and is dispensing health services to its employees and others.
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The services which are being availed clearly in relation to the residential colony shall not qualify for input tax credit. On the other hand services received partly in relation to the residential colony and partly in relation to the plant, proportionate ITC to the extent relatable to the plant are available whereas services availed in relation to the residential colony shall not qualify for input tax credit in terms of Sub-section 2 of Section 17.
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Establishment of hospitals and maintenance thereof may be for discharging the statutory obligation under the ESI Act by the employer, but dispensing medical service to the employees and others is a supply of service by the employer (the applicant in this case). Such service being nil rated will fall under exempt supplies. Consequently, the inputs and input services received by the applicant
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ect: GST Act, 2017-Advance Ruling in respect of entitlement to take credit of input tax paid on various goods and services used for maintenance of applicant s township, guesthouse, hospital, horticulture in its ordinary course of business. 1.0 M/S National Aluminium Company Ltd., Nalco Bhawan, PO. Nayapajli, Bhubaneswar- 751013 (hereinafter referred to as Applicant ) assigned with GSTIN number 21AAACN7449M1Z9 have filed an application on 19.07.2018 under Section 97 of CGST Act, 2017, OGST Act, 2017 read with Rule 104 of CGST Rules 2017 & OGST Rules,2017 in Form GST ARA-01 seeking an advance ruling in respect of its entitlement to take credit of input tax paid on various goods and services used for maintenance of applicant s township, guest house, hospital, horticulture in its ordinary course of business. They enclosed copy of challan as proof of payment of ₹ 10,000/bearing CIN No. 18072100016691 dated 10 07.2018 towards the fee for Advance Ruling. After due verification of th
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townships, guest houses, hospitals and horticulture which are received as part of its business operations. The suppliers of such services are charging GST in their invoices. 2.1 That services of management, maintenance and repair in its townships, guest houses, hospitals and horticulture are being used in the course or furtherance of the applicant s business and, therefore. it is entitled to take credit of tax paid on such services as per the provisions of central Goods and Service Tax Act, 2017. 2.2 That it serves the business interest of the applicant having its employees residing in townships and colonies near its factories and offices. It operates guest houses for temporary stay of employees and guests. It runs hospitals for its employees. The management, maintenance and repair service obtained from the service providers for running of these establishments has direct benefit to the business operations of the applicant. Since the services are used in the course of and, also, in fur
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i P.Suna, DGM, Nalco) and the jurisdictional officer of State GST & jurisdictional officer of Central GST appeared in person. Sri P. K. Sahu, Advocate re-iterated the submissions already furnished in the annexures to the application. During personal hearing, the applicant was asked to state a) whether the applicant is into the supply of Health Service, Dwelling/Accommodation service etc b) whether maintenance of township, Guest house, Hospital for the welfare of the employees would be a supply between related parties. Since the said issues were not clarified/explained properly by the applicant the case was adjourned and next date of hearing was fixed on 19 09 2018. The applicant through its Advocate and representatives were heard on the said date in the matter and the contentions advanced were also examined, Sri Sahu, Advocate submitted a fresh written submission pursuant to hearing on 29 08.2018, wherein he inter-alia explained that the applicant was not into the business of provi
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t be held as the supplier of dwelling service or health service to its employees through the residential colonies, guest houses and hospitals since the facilities so provided are without any consideration receivable from the employees (beneficiaries). The facilities so provided are rather part of the CTC (Cost to the Company). It was also averred that the hospital infrastructure has been created in lieu of EIC contribution. It is thus a statutory obligation under the EIC Act discharged by establishing the hospital and maintaining the same. Thus, the services provided through establishment and maintenance of the residential colony, guest house and hospitals are not supply taxable under GST in terms of section 7 of the OGST/CGST Act. 4.0 We have considered the submissions made by the applicant in their application for advance ruling as well as the submissions made by the representatives during personal hearings. We also considered the questions and issues on which advance ruling is sough
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ce of the townships, guest houses, hospitals and horticulture established by the applicant. In fact, ruling on entitlement of input tax credit should be transaction specific and it should not be generalized of course, the applicant has submitted a list of contracts (56 in number as listed in Annexure-A) entered into with different suppliers of goods and services for supply in relation to maintenance of the townships, guest houses, hospitals including horticultural maintenance- At the time of hearing, it was given to understand by the applicant that the list is merely illustrative and not exhaustive meaning thereby the applicant might be entering into similar contracts with other suppliers for similar other supplies, The present ruling is, however, awarded on the supplies as listed in Annexure-A and shall not cover other similar supplies not included in the list. 4.3 Supplies availed by the applicant as per the list in Annexure-A are classified as follows. i) Support Services- These ser
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the equipments in Shaiia Niwas is used partly for residential accommodation for trainee engineers and partly for the general guest house. Services listed at SI.No.52, 53,56, 43, 44, 45, and 46 are clear non-business activities. In fact the aforesaid services relate to plantation in different areas outside the business area of the applicant. This includes urban plantation in Koraput and other similar plantation activities in other areas. These are certainly not in the course of nor in furtherance of the core business of the applicant i.e. mining of bauxite, refining or manufacturing aluminum ingot. Some of the activities seem to be in the course of discharging corporate social responsibilities (CSR), but certainly not in the course of business or furtherance of business. The services listed at Sr No. 54 and 55 i.e. mass plantation at M&R Complex, Nalco, Damanjodi can be held as in the course of business since the applicant is receiving forestry service for plantation within the refi
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of the plant and plant area. The service listed at Si No .08 i.e fogging operation seems to be for the residential colony. Thus, the services classified under this category are found to have been availed partly for residential colony maintenance, partly for hospital maintenance and partly for plant maintenance. iii) Sweeping and snow removal services- Road sweeping work in Nalco Township, Sector i, ii & iii and Saheed Laksman Nayak colony, sweeping work at plant administration building, surakshya vihar, Dr Ambedkar colony. The services listed at SI No.05 is clearly for sweeping work in Nalco township i.e. for maintenance of the residential colony. Conversely the service listed at Sl No.06 seems to be for sweeping of the road in plant administrative building. iv) Security Services/Guard Services- Security Services at Nalco Township, M&R Complex, Demanjodi. The service listed at Sl No. 10 of Annexure-A is found to be for security of the residential colony in Damanjodi. v) Service
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ina Plant. The services listed at SI No.17, 18, 19, 21 and 22 are in relation to the Nalco township end residential colony. The service listed at Sl No.20 is in relation to the Alumina Plant. The service listed at Sl No.23 i.e. provision of drinking water at picnic spot is not at all in the course of or for the furtherance of business. The service listed at Sl No.29 is in relation to the residential colony whereas the service listed at S' No.30 i.e. lighting maintenance of Alumina Plant township at Damnajodi is partly in relation to the plant and partly in relation to the residential colony. The service listed at Si No 31 i e AMC of Power Fencing System is definitely in relation to the security of the plant and hence part of business operation. The services listed at Sl No. 32 arid 33 are in relation to the electrical maintenance of the township and the service listed at Sl. No, 35 is in relation to both the residential colony as well as the plant. The service listed at Sl. No.34 i
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ees. This is a clear case of supply of medicine and other allied pharmaceutical items free of charge or, in other words, frees distribution of medicines. viii) Maintenance and repair services of machinery and equipments-Maintenance of LPG system of Shaila Niwas, Transit House, Damanjodi. The said service is listed at Si No,39. As the heading suggests it is for use in the transit house and GET Hostel. Such establishments are essentially business establishment and not created for use only by the employees. 4.4. The contention of the applicant is that they are having township at Angul, Damanjodi and Bhubaneswar. They run hospitals for their employees. They have also guest houses for accommodating touring employees and guests. They maintain parks and green area in the factories and townships. These infrastructures are necessary for the applicant to run its large-scale business of manufacturing where thousands of employees are working, They are receiving services of management, maintenance
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neither relating to business nor relating to manufacture of final product and its supply. The said activities may be welfare activities undertaken while carrying on the business but to qualify as input service; the activity must have nexus with the business of the applicant. The expression in course or furtherance of business appearing in Section 16(1) of the GST Act refers to activities which are integrally related to the business activity and not welfare activities. b) The activity of maintenance and repair of applicant's residential township / colony, guest house, hospitals including the horticultural activity are broadly used by the employees. The services, availed by the applicant are awarded on contractual basis which ere in the nature of repairs and maintenance of its assets, contained in such township, guest house or hospitals. The residential township or colonies are located outside any factory: The services for maintenance and repairs of these assets includes various acti
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g machines, electrical cocking appliances, electrical fittings and lawns and gardens. The prime purpose of maintenance of guest house for touring employees is welfare. The services for repair and maintenance of building and land of any guest house are primarily done by service providers to whom jobs are awarded under works contract terms. The assets contained in any hospital or dispensary generally covers building, lawns, gardens, parking place, medical instruments, hospital beds and fittings, vehicle and ambulance, furniture, electrical appliances like refrigerator, air conditioning machines, electrical fittings etc. The hospital or dispensary generally renders welfare in the form of health care services of employees in particular and the surrounding society at large. The services for repairs and maintenance of building and land and other assets are primarily done by service providers, to whom jobs are awarded under works contract terms. With reference to the above discussion having g
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by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business is blocked. From a plain reading of the provisions of the above referred sub-clauses along with the Explanations, it reveals that the tax credit on input and/or input services received by the applicant for the referred activities are in the form of works contract service, for repairs and maintenance of various immovable property and assets, the input tax credit of which are directly restricted or blocked under specific provision under section 17 of the OGST / CGST Act. c) The hospital / dispensary maintained by the applicant for its employees and society come within the definition of Clinical establishments whose supply is tax exempted under serial 74, heading 9993 of the notification No. 12/2017- Central Tax (Rate) dt. 28th June, 2017. The services rendered by the guest house mai
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some of the services are exclusively in relation to the residential colony, some are in relation to the plant, some are in relation to the guest house and transit house, some are for use in residential colony as well as in the plant while some of the services like urban plantation, provision of drinking water at picnic spot, raising of seedling, and general plantation are neither for the plant nor for the residential colony. The applicant might be doing those activities while discharging some obligation but such activities are not for or in relation to the core business. Some other activities like contract for running a pharmacy outlet simply for dispensing medicine and other allied product free of charge. This is a clear case of supply without consideration mainly to the employees of the applicant. Still some other services like maintaining the power grid is predominantly for use in the plant and maintaining the solid waste treatment plant seems to be for treating the solid waste of t
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made clear that service by an employee to the employer in the course of or in relation to his employment is neither a supply of goods nor a supply of service. There is no converse provision i.e. services provided by an employer to the employees in Schedule III implying thereby services provided by an employer to its employees are supply of services. Possibly, for this confusion, the clarification dated 10th July, 2017 was warranted to clarify that perquisite provided by an employer to an employee in terms of the employment contracts are not chargeable to GST. On the other hand, as per the provisions in Schedule I Para 2 read with the Explanation to Section 15 of the CGST/OGST Act supply of services by an employer to the employees is a supply between related persons. On the other hand, service by way of residential accommodation in the colonies or otherwise is a perquisite which has been clarified as not chargeable to GST implying thereby any perquisite including residential accommodat
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the employer, but dispensing medical service to the employees and others is a supply of service by the employer (the applicant in this case). Such service being nil rated will fall under exempt supplies. Consequently, the inputs and input services received by the applicant for dispensing the exempt service will not qualify for input tax credit in terms of Section 17 (2) of the OGST/CGST Act. It is made clear that the ruling to be issued is based on the current provisions of law. For the sake of further clarification we consider it appropriate to discuss the amendment of Section 17 (5) as brought in the CGST (Amendment) Act, 201 8(yet to be made effective) wherein clause (a) and (b) of sub-section (5) of Section 17 have been substituted with a Proviso in the substituted clause (b) providing for input tax credit in respect of such goods or services or both, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. In the provis
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ard supply of input and input services for maintenance of the guest house, transit house, and training hostels, but excluding the food and beverages provided in such establishments. Credit of such input services are as such blocked in clause b of Sub section 5 of section 17 of the OGST and CGST Act. In the case of the applicant, the listed services do not contain any catering service, but the application seeks for a ruling even on such service, It is further clarified that, the applicant might not be charging anything from the guest or the trainees for providing food and beverages in the guest houses and training hostels and in such case the inputs used for preparing the food and beverages or input catering services shall not qualify for input tax credit. 5.3 On scrutiny of the services listed in Annexure-A against which the current ruling is being issued, it was found that the applicant is availing services for plantation both inside the plant area as well as outside the plant area. S
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shments like administrative building and guest houses. Services availed in relation to plantation and gardening within the plant area including mining area and the premises of other business establishment as mentioned above will qualify for input service credit Observations on specific contracts as listed in Annexure-A have been made in Para 4.3, 5.4 We have gone through the various judicial pronouncements cited by the applicant in support of his claim. With great respect to the principles of law laid down in those decisions rendered in peculiar facts and circumstances of each case. we have no hesitation to say that the facts of the instant case are different and distinguishable. Some of these decisions are rendered under the Income Tax Act and cannot be inferred in the context of the provisions of the OGST Act / CGST Act. Accordingly, the present ruling is issued by examining the nature and purpose of each of the services listed in Annexure-A with reference to the relent provisions in
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