Advance rulings under GST w.r.t. Input Tax Credit (ITC) (Brief Insight)

If a Registered person or person desirous of obtaining registration lacks certainty over some of the provisions of the GST act. He shall make application to get his question resolved to the Authority constituted namely the Authority for advance rulings and such decision given by the authority shall be binding on the applicant as well as on government authorities.

Questions on which advance rulings can be sought are :

1. Classification of any goods or services or both
2. applicability of notification issued under the provisions of this act
3. determination of time and value of supply of goods or services or both
4. admissibility of ITC of tax paid or deemed to have been paid
5. determination of liability to pay tax on any goods or services under the act
6. whether applicant is required to be registered under the act
7. whether activity done by applicant constitute supply

In this article we shall look briefly upon some rulings passed in order to determine admissibility of ITC of tax paid or deemed to have been paid :

AR (Chhattisgarh) – VNR SEEDS LTD. Relevant section: 17(2)

Facts: VNR seeds ltd has business of supplying sowing seeds which are exempt from tax. For supplying “packaged” seed packs, they procure packing material from registered suppliers.

Further, since company has different branches across India, packing materials are also transferred from one branch to another located in different states.

Applicant wants to know whether ITC can be available on those packing material?

Ruling: a. supplying sowing seeds to customers or transferring to branch (final product) is exempted supply. Even if packing material is taxable product since the final packaged product is a composite supply and seed being principal supply the whole final product is considered an exempt product. Thus, with reference to sec 17(2) tax paid on packing material used for packing goods shall not be allowed as ITC

b. If co. supplies only packing material to its branches, they constitute a taxable supply. Thus, credit of tax paid on packing material shall be available to the branch to which supply is made.

AR (West Bengal) – MANALI ENTERPRISES Relevant section: 17(2)

Fact: In the following case, manali enterprises was providing services by way of printing question papers for the various examinations conducted by the council of higher secondary education of various states

Ruling: Referring to the notification 12/2017 – CR(R) services provided to educational institution “related to” conduct of examination is exempt. This would encompass services of printing question papers.

Looking at the provisions of Sec 17(2) tax paid by manali enterprises on the services which are exempt shall not be allowed as ITC to the entity.

AR (Kerala) – A.M. MOTORS Relevant section: 17(5)

Fact: Motor car dealer has to put up cars for demonstration purpose at his place of business in interests of his customers. Dealers has to compulsorily purchase such assets (demonstration cars) from the principal supplier only. Dealers capitalize such assets in their books and after a certain period prescribed sell the cars to prospective buyers.

Rulings: Applicant wanted to sought out whether ITC of the tax paid on these demonstration cars are allowed?

It was held that there is an exemption to section 17(5)(a) which is Section 17(5)(a)(i)(A) which states that section 17(5)(a) blocks credit of tax paid w.r.t. motor vehicles and other conveyances but if they are for further supply of such vehicles and conveyances same shall be allowed as ITC.

Firstly, such demo cars are used as for promotion, they are acquired w.r.t. furtherance of business. Secondly, these cars will be eventually sold out to prospective buyers in near future and then that would supply therein. Considering, this fact provisions of section 17(5)(a) should not apply. Therefore, ITC of tax paid on cars used for demonstration purpose should be allowed.

AR (Andra Pradesh) – INDIAN COTTON SOLUTIONS.COM PVT LTD Relevant section 17(5)

Fact: Company provides “Mobile” laboratory services to test the quality of cotton for providing such services entity has to purchase motor vehicles.

Ruling: AAR held that since this is not covered under any exemption to section 17(5) . ITC of such vehicles shall not be allowed.

AR (Maharashtra) – CMS INFO SYSTEMS LIMITED Relevant section 17(5)

The company had purchased cash carry vans (special purpose vehicles) used for transporting money (cash) as its business was to provide services of transporting of cash. ITC of tax paid on purchase of vehicles – whether available or not?

Ruling : After mixed judgments done by advance ruling authority the case had went to appellate tribunal where following things were discussed. It was held that “item” which CMS infra Ltd were transporting were not “goods” by the definition specified in section 2(52). CMS info systems Ltd contended that the currency was goods for him as his service was of that nature, which was rejected by the tribunal as what things definition of “goods” excluded meant for general perception was same for company too.

Thus exemption u/s 17(5)(a)(ii) would not be available & no credit of tax paid on purchase of vehicles shall be allowed.

Also Read AAAR Ruling in this case-Input Tax Credit not available on purchase of ‘Cash carry vans’

AR (Madhya Pradesh) – JABALPUR ENTERTAINMENT Relevant section 17(5)(d)

Fact: Applicant is running a business of operating a mall with multiplex. For maintenance, applicant purchases goods such as vitrified tiles, marbles, granite etc. Applicant wants to know whether ITC on tax paid goods for maintenance or restoration of mall or multiplex is allowed?

Ruling: Section 17(5)(d) reads that ITC w.r.t. goods or services or both received by taxable person for construction of an immovable property on his own account including when such goods or services or both are used in course of furtherance of business.

Thus repairing to this section this can be held that ITC shall not be available to the entity since the same is covered under blocked credit.

AR (Maharashtra) – BASF LTD. Reference – High sea sales

Fact: BASF ltd. Are purchasing goods from overseas party to fulfill purchase orders which its customers have raised upon it. While the goods are on high seas towards India, and before the goods would cross the custom frontiers of India and is entered for custom clearance, the goods in question will be sold by the applicant to its customers who are known to them. This transaction is thus high sea sales. In short, sale to third party before goods crosses custom frontiers of India.

Ruling: In the goods sold on high sea sales there is no levy till the time of their custom clearance. Reading section 2(78) non-taxable supply and section 2(47) exempt supply, it can be inferred that high sea sales comes under the shadow of “exempt supply”. Thus considering 17(2) tax paid on goods or services procured for effecting high sea sales shall not be allowed to applicant BASF ltd.

AR (Maharashtra) – NIPRO INDIA CORPORATION PRIVATE LIMITED 

Company intends to extend its manufacturing facility for which civil, mechanical and electrical works shall be undertaken. Applicant wants to know on which services ITC shall be admissible

Rulings : Authority in its rulings have provided a list of supplies determining eligibility of ITC on the queried supplies.