In Re: Posco India Pune Processing Center Private Limited
GST
2019 (2) TMI 63 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2019 (21) G. S. T. L. 351 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 7-9-2018
GST-ARA-36/2018-19/B-110
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR 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”] by POSCO INDIA PUNE PROCESSING CENTER PRIVATE LIMITED, the applicant, seeking an advance ruling in respect of the following ISSUE..
1) Whether Input Tax Credit is admissible in respect of GST paid for hotel stay in case of rent free hotel accommodation provided to General Manager and Managing Director of the App
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ch a similar provision under the CGST Act / MGST Act would be mentioned as being under the “GST ACT' ,
02. FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen thus-
Statement of relevant facts having a bearing on the question(s) raised
QUESTION 1:
Whether Input Tax Credit is admissible in respect of GST paid for hotel stay in case of rent free hotel accommodation provided to General Manager and Managing Director of the company?
FACTS OF THE CASE
1. We, M/s. POSCO-India Pune Processing Center Pvt. Ltd, (hereinafter referred to as the Applicant”) are South Korea based company. The Applicant is situated at Talegaon, MIDC, Taluka Maval, village Navlakh Umbhre. District Pune. The Applicant is primarily engaged in distribution of steel coils. In certain cases, the Applicant also performs low value-added processing function in respect of some of the traded goods based on customer's requirements. The Applicant has two plants at
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MD and the GM are a part of cost to the Applicant (i.e. CTC) and is included as perquisites in the salary as per the provisions of Income Tax Act, 1961.
6. The Applicant would like to know whether it can claim input tax credit in respect of the GST charged by hotel on the stay expenses of the MD and the GM as per the provisions of the Central Goods and Service Tax Act, 2017 (CGST Act 2017) and Rules made thereunder.
QUESTION – 2
Whether invoice for quality claim raised by the Applicant on POSCO Daewoo Corporation located in Korea will be treated as “export of service”?
FACTS OF THE CASE
1. The Applicant had imported goods from POSCO Daewoo Corporation, Korea. Upon receipt of the said goods, the Applicant availed input tax credit of IGST. Subsequent to the import of goods, the Applicant sold the said goods to the customer under the cover of Tax Invoice on payment of applicable GST. (Copy of Bill of Entry is enclosed and marked as “Annexure – B”)
2. Subsequent to the sale, it was
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Tax Act, 2017.
QUESTION – 3
1. Whether recovery of Parents Health Insurance expenses from employee in respect of the insurance provided by the Applicant amounts to “supply of services” under Sec. 7 of the Central Goods & Service Tax Act, 2017(CGST Act,2017) ?
2. If the said recovery amounts to “supply”, what will be the time of supply and value of the said supply?
3. Whether the Applicant can claim input tax credit of GST charged by the insurance company?
FACTS OF THE CASE
1. It is the practice of the Applicant to provide mediclaim cover to the employees as well as to their parents.
2. In case of Parent Insurance facility, the Applicant initially pays the entire premium along with taxes and then 50% of the premium is recovered from the respective employees on a monthly basis. (Copy of the Company Policy is enclosed and marked as “Annexure – D”)
3. The Applicant would like to know whether GST is payable on recovery of 50% of the insurance premium from the salary of the employe
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“.
The word 'business' has been defined in the GST law. Broadly it means any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity whether or not it is for pecuniary benefits. Any activity ancillary or incidental to these activities are also covered as business. It has also been provided that any activity or transaction falling in above categories would be business whether or not there is volume, frequency, continuity or regularity in transactions.
However, the terms in the course of business' has not been defined under the GST Law and therefore, the Applicant has to rely on the dictionary meaning.
As per Oxford Dictionary, “in the course” means during and as a part of the specified activity, Accordingly, any expenses incurred during and as a part of carrying out the business activity will be considered as incurred in the course of business”.
In the present case, as per POSCO group policy, the MD and the GM are deputed to Ind
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ring on the business activities for which they have been deputed to India. Accordingly, considering the cost of the hotel accommodation vis-a-vis the benefit that would arise if the MD and the GM concentrate on only business activities, the Applicant has itself arranged one-bedroom apartment in the hotel and all the cost and related compliances with respect to the same are taken care by the Applicant so that the MD and the GM can concentrate mainly on business activities.
4. Providing rent-free accommodation to the expatriate employees is generally accepted business practice across most of the businesses in India.
5. The said expenditure is included as a part of salary of the MD and the GM as per the Income Tax Act, 1961. It is worth important to submit here that the Income Tax Department has also allowed the said salary expenditure as a business expenditure while computing the profit Of the Applicant under the Income Tax Act, 1961.
6. If the MD and the GM would have come on busines
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usiness smoothly without having to spend their productive time on travelling. Considering this aspect, it is worth important to submit here that deputed key personnel of other POSCO group companies in India stay in the same hotel.
Separately, since the hotel is also used by executives of other business enterprises as well, it aids in developing new business connections and thereby contributes to the growth of the business.
Considering the above submissions, the Applicant is of the view that the primary objective of providing hotel accommodation is purely business growth. Therefore, GST paid on Such hotel expenses should be allowed as input tax credit under Section 16(1) of the CGST Act, 2017.
APPLICANT'S SUBMISSION FOR QUESTION – 2
In respect of the transaction mentioned above, the Applicant incurred losses where the goods imported from POSCO Daewoo Corporation, Korea did not meet the customer expectation or were defective. The Applicant had paid to POSCO Daewoo Corporation, K
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ds or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed.
The term “registered person is defined u/s 2 (94) of the CGST Act, 2017. AS defined, “registered person” means a person who is registered under section 25 but does not include a person having a Unique Identity Number.
In the present case, the foreign supplier had supplied the goods to the Applicant and therefore, legally and technically speaking, such foreign supplier cannot be considered as a “registered person” for the purpose of GST law and therefore, provisions of Section 34 (1) of the CGST Act, 2017 cannot be applicable. Further, as per the contract, the Applicant was required to recover the loss by raising Tax Invoice. Accordingly, the Applicant raised a Tax Invoice and has also received payment in foreign currency against the said Tax Invoice.
Further, in the present case, it is very clear that there is no supply of goods by the Applicant to the foreign supplier
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low for your ready reference:
“Export of services” means the supply of any service when,
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;
The Applicant is of the view that the above service classified under agreeing to the obligation to tolerate an act or a situation will qualify as 'export of service since,
i) The Supplier of service i.e. the Applicant is located in India;
ii) The recipient of service i.e. POSCO Daewoo Corpn/POSCO Asia Company Ltd is located in Korea i.e. outside India;
iii) As per the provisions of Section 13 of the IGST Act, 2017, this service is not covered under any of the
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7, services by an employee to employer in the course of or in relation to his employment are not treated as a supply of service. However, if employer provides any services, we are of the view that the same will be considered as supply of service by employer. Since the Applicant recovers certain amount from its employees against the insurance premium, doubt is raised whether the same will result in supply of service under Section 7 of the CGST Act, 2017 and GST will be required to be paid on the same.
Further, since the Applicant is recovering the insurance premium amount from its employees on the monthly basis, the Applicant is of the view that GST, if payable, should be paid on the same amount monthly in terms of Section of the CGST Act, 2017.
Since the Applicant is of the view that GST will be payable on the said recovery, the value on which GST is to be paid needs to be determined in terms of Section 15 of the CGST Act, read with Central Goods and Services Tax Rules, 2017 (CGST Ru
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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.
Based on the above Rule, the Applicant is of the view that GST should be levied on the entire amount of premium paid by the Applicant and not just on the premium amount recovered from its employees.
Further, as per Section of the CGST Act, 2017, input tax credit is allowed in respect of health insurance only when 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.
Since, the Applicant may be liable to pay GST on the recovery from its employees, the Applicant is of the view that the insuranc
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estion No. 1: Whether Input Tax Credit is admissible in respect of GST paid for hotel stay in case of rent free accommodation provided to General Manger (GM) and Managing Director (MD) of the company? Question No. 2: Whether invoice for quality claim raised by the applicant on POSCO Daewoo Corporation located in Korea will be treated as “export of service”? Question No. 3: Whether recovery of Parents health Insurance expenses from employees in respect of the insurance provided by the applicant amounts to “supply of service” under Section 7 of the Central Goods and Services Act, 2017? If the said recovery amounts to “supply”, what will be the time of supply and value of the said supply? Whether the applicant can claim input tax credit of GST charged by the insurance company?
The question wise comments are submitted as under:
Question No. 1 : Whether Input Tax Credit is admissible in respect of GST paid for hotel stay in case of rent free accommodation provided to General Manager (GM)
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re fulfilled, the supply of service would be treated as “export of service”
Question No. 3: Whether recovery of Parents health Insurance expenses from employees in respect of the insurance provided by the applicant amounts to “supply of service” under Section 7 of the Central Goods and Services Act, 2017? If the said recovery amounts to “supply”, what will be the time of supply and value of the said supply? Whether the applicant can claim input tax credit of GST charged by the insurance company?
Comments on Question No. 3:
(i) As per Section 2(102) of the Central Goods and Services Act, 2017, “services” means anything other than goods. Accordingly, the applicant's act of recovery of 50% of insurance premium from its employees would be treated as consideration against supply of service. As such, GST is applicable on the amount recovered from the employees on accounts of recovery of 50% insurance premium.
(ii) For time of supply, as per the Section 13(2) of Central Goods and Ser
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both used for personal consumption”,
04. HEARING
The case was taken up for Preliminary hearing on dt. 18.07.2018 when Sh. Manoj Joshi and Sh. Kedar Joshi, consultants along with Sh. Suraj Maske, A.G.M., appeared and requested for admission of application as per contentions in their ARA and made written submissions. Jurisdictional Officer, Sh. Rishi Prakash, Inspector, Pune -I Commissionerate appeared and made written submissions.
The application was admitted and called for final hearing on 21.08.2018, Sh. Manoj Joshi, consultants along with Sh. Suraj Maske, A.G.M., appeared and made oral and written submissions. Jurisdictional Officer, Sh. V. V. Sonar, Supdt., Pune-I Commissionerate appeared and stated that they have already made written submissions.
05. OBSERVATIONS
We have gone through the facts of the case, documents on record and submissions made by both, the applicant and the department. The applicant has raised four question in the subject application. We shall deal with e
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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 of furtherance of his business and……..”. Hence it is clear as per this Section that ITC is available on the tax charged on any supply of goods or services or, both to the applicant which are used or intended to be used in the course of furtherance of their business.
Now we discuss the provisions of Section 17 of the said Act, which deals with Apportionment of credit and blocked Credits and which will be applicable in the present case. Accordingly, the said Section 17 of the Act is reproduced as under:-
Section 17 Apportionment of credit and blocked Credits
(1) Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.
(2) ………………………
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ch implies that the same is used for the personal consumption of the MD/GM.
We find that providing residential accommodation in a Hotel is not in furtherance of their business. The MD/GM could have been provided with any other residential accommodation and still would have performed their duties for the applicant. In the case of a residential accommodation, as per the provision of the GST laws, GST is not liable to be paid on the rent received. It is the intention of the Govt. not to tax the rent paid by any person, when the rent is paid for any place of residence. In this case if the MD/GM were staying at any residential place or society, the applicant would have paid only rent without GST.
It is seen that the applicant has made various submissions supporting their contention that Input Tax Credit is admissible in respect of GST paid for hotel stay in case of rent free hotel accommodation provided to GM/ MD of the company. However in view of the above discussions we find that the Ho
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tract with POSCO Daewoo Corporation, Korea, the Applicant was required to charge back the loss incurred in the above said transaction by raising Tax Invoice and the said payment was received in foreign currency. The applicant has made detailed representation in the additional submissions dated 10.072018 and stated that in the present case, there is no supply of goods by the Applicant to the foreign supplier and therefore, in terms of Section 2 (102) of the CGST Act, 2017, any amount recovered for anything other than for goods is to be treated as “service”. They have submitted that they had tolerated the act of loss on defective goods and as per point 5(e) of Schedule – II to the CGST Act, 2017, tolerance of act or situation is considered as a service and accordingly, GST is leviable on the same. In the present case, therefore they have rendered services and since the act of tolerance, etc is with respect to a company located outside India and also because all the conditions of Section
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ective goods. It is also seen that the applicant has availed credit of IGST paid on such imported goods. They have not stated what is the status of such credit availed. It has also been submitted by them in Annexure -I to their application that they are primarily engaged in distribution of steel coils. In certain cases, they also perform low value-added processing function in respect of some of the traded goods based on customer's requirements. In the present case in respect of the so called defective goods they have not stated whether the goods were sold as such to their clients or whether the goods were sold to their customers after they have carried out “low value-added processing function in respect of some of the traded goods based on customer's requirements”
In view of the above we find that complete details regarding the transaction have not been submitted by them and therefore we refrain from answering this Question No 2 of theirs.
3) Whether recovery of Parents Heal
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liable to pay GST and the value on which GST is to be paid needs to be determined in terms of Section 15 of the CGST Act, read with Central Goods and Services Tax Rules, 2017 (CGST Rules 2017) and based on the same they are Of the view that GST should be levied on the entire amount of premium paid by them and not just on the premium amount recovered from its employees. They have stated that as per Section 17(5)(b)(iii) of the CGST Act, 2017, input tax credit is allowed in respect of health insurance only when 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 and since, they may be liable to pay GST on the recovery from its employees, they are of the view that the insurance premium is paid by the Applicant to the insurance company to provide output insurance service to its employees. Accordingly, t
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led to 100% input tax credit on the insurance premium paid to the insurance company in terms of Section 17(5)(b)(iii) of the CGST Act, 2017, mentioned above. They have already submitted that they are primarily engaged in distribution of steel coils and also perform low value-added processing function in respect of some of the traded goods based on customer's requirements. The applicant has brought nothing on records to show that they are an Insurance Company and registered with such authorities. Hence it appears that the applicant is creating this fiction of providing health insurance to their employees only to avail 100% ITC of payments made to the insurance companies.
Hence we find that they are not rendering any services of health insurance to their employees and hence there is no supply of services in the instant case. Since there is no supply, we do not find the need to answer the second part of this question. In view of detailed discussions above, we find that the Applicant
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