In re Sun Knowledge Private Limited (GST AAR West Bengal)
The Goods and Services Tax (GST) has a significant impact on the hiring of electrical equipment, air conditioning systems, sprinkler systems, and emergency power supply units. In a ruling by the Authority for Advance Ruling, West Bengal, in the case of Sun Knowledge Private Limited, it was determined that such supplies would attract a GST rate of 18%. This article examines the implications of this ruling, focusing on the tax rate applicable to the hiring of these facilities and the eligibility of the applicant to claim input tax credit.
Detailed Analysis:
Tax Implications on Hiring of Facilities:
The application filed by Sun Knowledge Private Limited under section 97 of the GST Act sought clarity on the GST rate applicable to the hiring of specific facilities, including electrical equipment, air conditioning systems, and fire safety installations. The Authority for Advance Ruling, West Bengal, analyzed the provisions under the CGST and the WBGST Acts, concluding that the hiring of such equipment and services would attract a GST rate of 18%. This ruling clarifies the tax treatment of such services, deviating from the supplier’s initial charge of 28% under SAC 997314, considering it as a mixed supply.
Eligibility for Input Tax Credit:
A significant aspect of this ruling is the eligibility of the applicant to claim input tax credit on the tax charged by the supplier. The ruling emphasized that despite the supply being considered a mixed supply, the applicable rate of tax for hiring services concerning office machinery and equipment, excluding computers, is 18%. It further outlined that the applicant is eligible to claim input tax credit for the tax paid on these services, provided all conditions under section 16 of the GST Act are met. This aspect of the ruling offers clarity and relief to businesses availing such hiring services, ensuring that they can offset the tax paid against their output tax liability.
Conclusion:
The Authority for Advance Ruling, West Bengal’s decision on the GST rate applicable to the hiring of electrical equipment, air conditioning systems, and fire safety installations has significant implications for businesses. By setting the tax rate at 18% and affirming the eligibility for input tax credit, the ruling provides a clear and favorable tax treatment for such services. Businesses engaged in hiring these facilities can now accurately assess their tax liabilities and input tax credit eligibility, ensuring compliance with the GST framework while optimizing their tax positions. This ruling not only resolves the specific query raised by Sun Knowledge Private Limited but also serves as a guiding precedent for similar cases, promoting uniformity in the tax treatment of hiring services under the GST regime.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, WEST BENGAL
1.1 At the outset, we would like to make it clear that the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression ‘GST Act’ would mean the CGST Act and the WBGST Act both.
1.2 The applicant submits that being a 100% Export Oriented Unit registered with Software Technology Park of India, Kolkata, it provides ITes services to its clients located in USA. The applicant, as a sub lessee, has entered into a „Sub Lease Deed‟ with M/s Bengal Intelligent Parks Private Limited (hereinafter referred to as, BIPPL) whereby the sub lessor grants the applicant to use a specified area on the 11th floor in the Building Omega of Bengal Intelligent Park, Block EP & GP, Sector V, Salt lake to conduct business activities from the said premises.
1.3 The applicant submits further that BIPPL has made arrangements with M/s TCG Urban Infrastructure Holding Pvt Ltd (hereinafter referred to as, TCGUIH) to provide assets and fit outs on hire to the licensees and sub lessees of the said building. Accordingly, the applicant has entered into an agreement with TCGUIH to avail facilities and services installed in the building which includes inter alia central air conditioning system, DG set, electrical equipment, sprinkler system etc.
1.4 The applicant clarifies that it has no control or transfer of title over the said fit outs and assets. The applicant enjoys only the right to use facilities and services of such fit outs, fixed assets and services on payment of agreed rate as per the agreement between the applicant and TCGUIH. As per second schedule of the agreement dated 09.11.2022, there are two types of hiring, viz:
(i) Hiring of electrical equipment, sprinkler system, Air Conditioning system and DG set emergency power supply for sub leased space
(ii) Hiring of electrical equipment, DG set with accessories, sprinkler system and fit outs for common area.
1.5 TCGUIH issues tax invoices to the applicant for such supply of services charging tax @ 28% [Central Tax @ 14% + State Tax @ 14%] under SAC 997314. The applicant submits that tax is charged @ 28% by TCGUIH due to the reason that the supplier considers it as a mixed supply which shall be treated as a supply of air conditioner thereby attracting tax @ 28%.
1.6 In light of aforesaid circumstances, the applicant has filed this application under sub section (1) of section 97 of the GST Act and the rules made there under raising following issue vide serial number 14 of the application in FORM GST ARA-01:
Rate at which CGST &SGST is to be charged under SAC Code 997314 as appeared in the invoices submitted by the service provider TCG Urban Infrastructure Holdings Private Limited having GSTIN No. 19AADCS8821M1ZS.
1.7 The applicant contends that in spite of the fact that different types of goods are given together on hire to the applicant by TCGUIH, it cannot be classified as a composite or as a mixed supply. According to the applicant, in the instant case, goods supplied on hire are not naturally bundled in normal course of business and therefore such supply cannot be termed as a composite supply. Further, it shall not be treated as a mixed supply on the ground that “there is purely supply of services and no supply of goods”. The applicant argues that the instant supply would be classified as “leasing or rental services concerning office machinery and equipment (except computers) with or without operator” under SAC 997314 and therefore would attract tax @ 18%.
1.8 In terms of clause (a) of section 95 of the GST Act, an advance ruling means a decision provided by this authority or the appellate authority, as the case may be, on matters or any questions specified in sub section (2) of section 97 or sub-section (1) of section 100 of the GST Act in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. In the instant case, the question on which the applicant seeks an advance ruling is not in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant rather it is found to be in relation to supply being received by the applicant.
1.9 Further, sub-section (1) of section 103 of the GST Act categorically speaks that the ruling pronounced is binding only on the applicant and on the concerned officer or the jurisdictional officer in respect of the applicant. Therefore, if an application is filed by the recipient of goods or services or both on the taxability of his inward supply of goods or services and ruling is pronounced accordingly, such ruling shall be binding only on him and on the concerned officer or the jurisdictional officer of him. In no way, the ruling shall be binding on the supplier of such goods or services. In the instant case, the applicant has sought an advance ruling on the applicable rate of tax to be charged by its supplier namely TCGUIH. However, as discussed earlier, ruling on this question is binding only on the applicant and on the concerned officer or the jurisdictional officer in respect of the applicant. The supplier TCGUIH cannot be directed to follow the ruling.
1.10 During the course of personal hearing, the aforesaid observation was brought to the notice of the applicant. The applicant submits that as an Export Oriented Unit, the applicant is eligible for claiming refund of unutilized input tax credit on export of services. Any wrong credit of input tax may be disallowed in future by the revenue department. The applicant, thus, has made prayer to consider the instant application as a subject matter of admissibility of input tax credit. The authorised representative of the applicant draws our attention to the submission uploaded by the applicant on the common portal in support of the application for advance ruling which reads as follows:
‘It is imperative that we get refund of ITC because we are 100% EOU and any wrong ITC credit is not desirable under any circumstances as per the provisions of the GST Act. Moreover, we are always careful to get the refund of ITC because any wrong ITC shall be disallowed at any time in future by the GST Audit authority. We are apprehensive that TCGUIH are unknowingly charging GST @ 28% which seems to be unjust and wrong and may invite lot of complications in future’.
1.11 On due consideration of the aforesaid prayer, we have decided to admit the instant case and to express our view upon analyzing the issues involved. The applicant, as it has been stated, has entered into a sub-lease agreement with BIPPL for their new office space at the 11th Floor, Building Omega, Bengal Intelligent Park, Block-EP & GP, Sector-V, Salt Lake, Kolkata-700091 for their business operations. It has also been stated that BIPPL has made arrangements with TCGUIH to provide assets and fit outs on hire to the licensees and sub-lessees of the building including the said sub-leased space.
1.12 The applicant has also entered into an agreement with TCGUIH to avail facilities and services installed in the building as well as sub-leased space. It has been informed that inside the building, there is a central air conditioning plant in order to provide air conditioning facilities and supply of cooling air to each floor through installed Air Handling Unit (AHU) Duct systems. Also, there is common DG set in order to provide emergency power back up for each floor. There are also fit outs, assets like electrical equipment, fire extinguishing sprinkler system etc. installed to provide required facilities and services through such assets to the said sub-leased space. The applicants have no control/title over the said fit outs and assets, but have the right to use the facilities and services of such fit outs, fixed assets and services on payment of agreed rate as hire charges.
1.13 As per the agreement between TCGUIH and the applicant, the legal possession of the assets shall be with TCGUIH at all times. The applicant only has right to use the said fit outs and assets, facilities/ services till the period of the agreement. Hence, nature of agreement between TCGUIH and the applicant is not that of hire purchase but only operational service lease.
1.14 The applicant has furnished copies of few invoices wherefrom it is noticed that tax has been charged @ 28% by TCGUIH declaring the same under SAC 997314. However, the applicant contends that the instant supply of services would attract tax @ 18% for the following reason:
