In re Bharatiya Reserve Bank Note Mudran Private Limited (GST AAR Karnataka)
1. Whether ITC can be claimed on common services which are utilized for both taxable as well as exempted supplies?
Ans : This question is not covered under the issues referred to in Section 97(2) of the CGST Act 2017, in respect which an applicant can seek advance ruling and hence this authority refrains from giving any ruling in this regard.
2. Whether the method followed by the applicant in connection with claiming of Input Tax Credit is in accordance with the provisions of law?
Ans : The impugned question is not covered under Section 97(2) of the CGST Act 2017, which specifies the issues on which the advance ruling can be sought by the applicant and hence this authority refrains from giving any ruling.
3. Turnover of which financial year to be considered in Rule 42 of the CGST Rules, 2017 while calculating ineligible ITC for the invoices which were accounted in the books of accounts in the FY 2019-20, however ITC was claimed during April to September of FY 2020-21 as per section 16(4) of the CGST Act, 2017 ?
Ans : The impugned question is not covered under Section 97(2) of the CGST Act 2017, and hence this authority refrains from giving any ruling.
Read AAAR Order: Question on claim of ITC on Common Services falls under Section 97(2)(d)
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KARNATAKA
M/s. Bharatiya Reserve Bank Note Mudran (P) Limited (hereinafter referred to as “the applicant”), Note Mudran Nagar, BRBNMPL Township, KRS Road, Metagalli, Mysuru-570003, having GSTIN 29AAACB8111E1Z1, have filed an application for Advance Ruling under Section 97 of CGST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of KGST Act, 2017 read with Rule 104 of KGST Rules, 2017, in form GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.
2. The Applicant is a Private Limited Company registered under the provisions of Central Goods and Services Tax Act, 2017 as well as Karnataka Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act and KGST/SGST Act respectively).The applicant produce bank notes conforming to International Standards set by Central Banking 86 Monetary Authorities of the world and makes them available in adequate quantities to the Reserve Bank of India at competitive prices.
3. The applicant has sought advance ruling in respect of the following questions:
a. Whether ITC can be claimed by the applicant on common services such as CISF 86 Township Security Services, Maintenance of Water Treatment Plant, Horticulture, Maintenance of Residential Quarters, Maintenance of Information System (Computers, Software 86 Electronic Equipment), Maintenance of Sewage Treatment Plant, etc. which are utilized for both taxable as well as exempted supply of Varnika (IMU) and printing press of rupee note located in Mysuru Unit?
b. Whether method followed by the applicant in connection with claiming of Input Tax Credit is in accordance with the provisions of law?
c. Turnover of which financial year to be considered in Rule 42 of the CGST Rules, 2017 while calculating ineligible ITC for the invoices which were accounted in the books of accounts in the FY 2019-20, however ITC was claimed during April to September of FY 2020-21 as per section 16(4) of the CGST Act, 2017?
4. Admissibility of the application: The question is about “admissibility of input tax credit of tax paid or deemed to have been paid” and hence the application is admissible under Section 97(2)(d)of the CGST Act 2017.
5. BRIEF FACTS OF THE CASE: The applicant furnishes the following facts relevant to the issue:
5.1 The applicant states that the Company was established by the Reserve Bank of India as their wholly owned subsidiary with a view to augmenting the production of bank rupee notes in India to enable the Reserve Bank of India to bridge the gap between the supply and demand for bank notes in the country. The corporate mission of the applicant is to produce bank notes conforming to International Standards set by Central Banking 86 Monetary Authorities of the world and makes them available in adequate quantities to the Reserve Bank of India at competitive prices. The applicant states that they seek to achieve this mission through its most valued asset, its people, they have also gone in for extensive automation and enterprise resource planning. The applicant states that they have already put in place an effective Quality Management System (QMS) as embodied in the ISO 9001:2015 and also Environmental Management Systems (EMS) ISO 14001:2015 in their company.
5.2 The applicant states that they are registered “Private Limited Company” incorporated under the Companies Act, 2013, having Registered and Corporate Office situated at Bengaluru, Karnataka. They manage two currency printing press units, used to print the rupee note, one at Mysuru, Karnataka having GSTIN 29AAACB8111E1Z1 (hereinafter referred as “Mysuru unit”) and the other at Salboni, West Bengal having GSTIN 19AAACB8111E1Z2 (hereinafter referred as “Salboni unit”). The present capacity for both the presses is about 16 billion note pieces per year on a two shift basis. Both the presses have installed the latest “state of the art” technology in bank note printing. The machinery at Mysuru unit has been supplied by M/s.KBANotasys SA, Switzerland and that of Salboni by M/s.Komori Corporation, Japan. Both the presses are equipped with sophisticated Security Surveillance Systems.
5.3 The practice of Reserve Bank of India (RBI) is to issue indent for printing rupee notes at the beginning of financial year, and both Mysuru Unit and Salboni Unit will make their procurement of raw materials based on printing requirement which is allotted by corporate office for the period. The applicant states that they are engaged in outward supply of sale of rupee notes which are printed in the Mysuru Unit and sent to RBI on agreed rate of cost-plus margin basis where the said supply of Rupee Notes to RBI is wholly exempted from levy of GST vide S.No. 117 of Notification No. 2/2017 of Central Tax (Rate) and S.No. 117 of Notification No. 2/2017 of Integrated Tax (Rate).
5.4 The applicant states that the Mysuru unit, in addition to the printing press unit, has an exclusive Ink Manufacturing Unit called as “Varnika” (hereinafter referred to as “Varnika (IMU)”) engaged in manufacturing of ink which is used for printing of rupee notes. The ink manufactured by the Varnika (IMU), is captively consumed by the Mysuru unit for printing of rupee note as well as the said ink is also transferred to Salboni unit, the branch of the company located in West Bengal for printing of rupee note. Further, the manufactured ink by the Varnika (IMU) is also sold to M/s. Security Printing and Minting Corporation of India Ltd (hereinafter referred to as `SPMCIL’). The ink transferred by the applicant from the Mysuru unit to Salboni unit, being a “supply of goods between distinct person” as per Entry No. 2 of Schedule I of the CGST Act, 2017, so the applicant clears the goods from the Mysuru unit to the Salboni unit being a taxable supply under GST after discharging the applicable rate of tax.
In addition to the above, the applicant is also in receipt of following other income such as renting of immovable property, being factory land, to M/s Bank Note Paper Mill India Private Limited (hereinafter referred as BNPMIPL, which is a Joint Venture Company of applicant and SPMCIL), recovery of expenses in connection with usage of sewage treatment plant by BNPMIPL paper mill, sale of scrap generated in Mysuru unit, Interest on Fixed Deposit and Profit on redemption of Mutual Fund. Further, on demand basis inventory items such as Raw Materials, spares, consumables and packing materials are transferred as stock from Mysuru ,‹ the Salboni unit. However, for the purpose of GST as per Entry No.2 of Schedule I of the CGST Act, 2017 the said transfer will be considered as “supply of goods between distinct persons”, and the applicant clears the goods from the Mysuru unit to the Salboni unit being a taxable supply under GST after discharging the applicable rate of tax.
5.5 Input Tax Credit available for the Applicant: –
The applicant is in receipt of following inward supply of goods or services which are used for manufacturing the rupee note and ink. As per the policy and decision of the company, the company maintains separate books of accounts for Varnika (IMU) and separate books of accounts for printing press in Mysuru Unit.
As per the books of accounts of Varnika (IMU) following are the raw material which are used for manufacturing ink such as varnish, solvent, pigment, additives, dryers and other chemicals including packing materials, spares, consumables, services in connection with repairs and maintenance of plant used for manufacturing ink.
The Applicant has also entered into an agreement with a UK based company, for transfer of technical know-how in connection with manufacturing of Ink. As per the said agreement, the applicant pays a minimum royalty fee plus additional or variable royalty at a specified percentage on the total quantity of ink produced multiplied by the cost of production of ink. Accordingly, the company has paid IGST on the said “Import of Services” under reverse charge mechanism (RCM) as a recipient of service and claims Input Tax Credit.
As per the books of accounts of printing press following are the inward supplies used for manufacturing of rupee note such as paper, spares, consumables, packing materials, services in connection with repairs and maintenance of printing plant and many other expenses incurred in printing press. As the inward supplies are used exclusively for manufacturing of rupee note which is an “exempted supply”, the applicant has not claimed or availed the input tax credit in the aforesaid inward supplies.
On all the inventory items such as raw materials, spares, consumables and packing materials which are transferred to Salboni unit by the applicant, the applicant has claimed input tax credit, on the relevant inward supply of goods to the extent such items which are transferred, being a taxable outward supply.
5.6 In addition to the above inward supply, following are facilities which are shared in common by the Varnika (IMU) and printing press in Mysuru Unit such as (i) CISF 86 Township Security Services, (ii) Maintenance of Water Treatment Plant (WTP), (iii) Horticulture, (iv) Maintenance of Residential Quarters, (v) Maintenance of information system (Computers, software and electronic equipment) (vi) Maintenance of Sewage Treatment Plant (STP), etc. As the above mentioned facilities are used by both manufacturing of ink and rupee note, and the residential quarters in the township are used by the employees of Varnika (IMU) and printing press in Mysuru Unit.
(i) CISF (Central Industrial Security Force): CISF is engaged by applicant for the safety and security of Mysuru unit as it is a highly sensitive place. The Mysuru unit consists of printing press, Varnika (IMU) and residential township for employees & CISF. The entire area of Printing Press, Varnika (IMU) and township are guarded by CISF for any threats. The applicant is having an MOU with Ministry of Home affairs for CISF services and applicable GST is paid under RCM by the applicant.
(ii) Township Security Services: – A private security agency is engaged to guard the day today activities inside the township residential place. They are engaged to manage and control the activities like guarding of residential area, movement of outside vehicles and persons, etc. in the township and applicable GST is paid under RCM by the applicant.
(iii) Maintenance of Water Treatment Plant: Source of water for company is from Kaveri River, which is treated further at water treatment plant and the water is used for Printing Press, Varnika (IMU) and residential area, the Operations and Maintenance of WTP including necessary manpower is outsourced by the applicant.
(iv) Horticulture: Mysuru unit is spread around in 337 acre of land, the applicant is maintaining the entire area of land including landscaping, gardening etc. through outsourced manpower.
(v) Maintenance of Residential Quarters: The applicant has provided accommodation to its employees within the township in the residential quarters. The day to day repair and maintenance like civil, electrical work of the township are managed through an outsourced agency by way of an annual maintenance contract.
(vi) Maintenance of Information System: Maintenance of information system and networking of the applicant company is carried out through an outsourced agency by way of an annual maintenance contract.
(vii) Maintenance of Sewage Treatment Plant: Waste water generated in the printing press, Varnika (IMU), residential area and BNPMIPL paper mill are treated in sewage treatment plant and used for gardening purpose, the Operations and Management of STP including necessary manpower is outsourced by the applicant.
The applicant states that they have proportionately claimed input tax credit on the above-mentioned inward supply of goods or services or both which are used in connection with manufacturing of ink and rupee note as the said common facilities are used for both taxable and exempted supply, they have reversed ITC to extent of exempted supply. They have claimed the proportionate credit to the extent of taxable supply.
5.7 Input Tax Credit availed by the Applicant:
As the ink manufactured in the Varnika (IMU) is captively consumed at Mysuru unit, plus transferred to Salboni unit, being a taxable supply under GST after discharging tax on such supply at applicable rate as per Schedule I of the CGST Act, 2017 and the said ink manufactured by Varnika (IMU) is also sold to SPMCIL, on the said inward supplies of goods or services which are used for both taxable supply and exempted supply, the applicant has proportionately reversed input tax credit on the above mentioned inward supply of goods or services which are used in connection with manufacturing of rupee note to the extent of exempted supply. In other words, to the extent of taxable supply of goods being supply of ink, scrap sale, renting of factory land to BNPMIPL paper mill, the applicant is entitled to claim ITC proportionately.
5.8 Method of Determination 86 Reversal of Proportionate ITC: –
The applicant, as per Section 17(2) 86 17(6) of the CGST Act, 2017 read along with Rule 42 of CGST Rules, 2017, has reversed common credit of ITC proportionately towards outward supply which is leviable to tax. The details of Turnover and ITC calculation for the F.Y 2019-20 of Mysuru Unit is tabulated below:
