Aristo bullion pvt. Ltd. is in business of supply of Gold (including Gold Plated with Platinum) unwrought or in semi-manufactured forms or in powder form, based metal clad with silver, not further worked than semi-manufactured, coin etc; that it involves some manufacturing process also and in the said activities various inputs viz. Gold Dore, silver Dore are required; that the said inputs will be procured domestically on payment of GST at appropriate rate; that sometimes the applicant may import raw materials/inputs from overseas market and will be discharging applicable duty and tax including IGST; that the input tax credit has to be availed in terms of Section 16 of the CGST Act, 2017 and Rules made thereunder; that they will also avail input tax credit of GST paid on the goods procured domestically as well as from overseas market and the applicant will have to discharge GST on their outward supplies at applicable rate.
Assesse is also in business of supply of castor oil seeds. They purchase castor seeds from “agriculturist” and according to section 23 “agriculturist” are not required obtain registration .
There are many goods and service on which RCM is to be paid by recipients . However castor seeds oil do not fall in the category . So aristo bullions pvt. Ltd. do not need to pay RCM on castor seeds oil when it is purchase from ” agricultarist” . However rate of tax on castor oil seed is 5% and assesse has to pay 5% tax when castor seeds oil is supplied . ‘Castor oil seeds’ is not covered in the Notification No.4/2017-Central Tax issued under Section 9(4) of the CGST Act, 2017
Question raised by assesse before AAR is “Can the applicant use Input Tax Credit Balance available in the Electronic Credit Ledger legimately earned on the inputs/raw-materials/inward supplies(meant for outward supply of Bullions) towards the GST liability on ‘Castor Oil Seed’ which were procured from Agriculturists and subsequently meant for onward supply?
Answer to this question was give in NEGATIVE .
Reason for accumulation of input credit :
The physical bullion is hedged on MCX and is highly volatile in nature. There can be sudden upward or downward movement in prices which may exceed the percentage of value additions on physical trades, thereby leading to accumulation of ITC on physical trades. For eg; They buy gold from market at Rs.50000 on 01-01-21 and hedge the same on MCX by selling the future contract worth the same amount at Rs.50500 on the same date. Now they may sell the gold on 01-02-21 at Rs.48000 simultaneously they will buy the future contract Page 4 of 9 on MCX at Rs 48000. Thereby in the above mentioned example they incur loss of Rs.2000 on sale of bullion hence they will have an accumulated ITC and a profit of Rs.2500 in MCX. 2. At times they may opt for stocking of bullion beyond a month in anticipation of better prices which may lead to deferment of sales beyond a month, this may lead to ITC being unutilized beyond a month. In nutshell, on account of the reason explained above there may be accumulation in the Input Tax Credit due to price fluctuation on downward side which will lead to reduction in price, and increase in inventories due to decrease in volume of sale .
After analysis of section 16(1) and section 17(5) member of AAR reached to the conclusion that the applicant cannot use the Input Tax Credit Balance available in the Electronic Credit Ledger legitimately earned on the inputs/raw materials/inward supplies(meant for outward supply of Bullion) towards the GST liability on ‘Castor Oil Seed’ which were procured from Agriculturists and subsequently meant for onward supply
Members of AAR considered transactions of gold & silver and trasactions of castor oil seeds as different business and as per members of AAR input of goods should be used during the course of or furtherance of business and castor seeds oil being different business input of goods purchased for gold & silver business cannot be used for business of castor oil seeds.
Transactions of different kind of goods cannot be considered as different business. Number of different transactions makes one business.
When Accounting of different goods in done in same books of accounts. There are no separate employees or same administrative offices is maintained. Same bank accounts is maintained for all kinds of goods is a indication that it is single business.
If word “ goods” had been used instead of “ business” in that case input of gold silver used or intended for use of gold & silver supply would not have been available for tax payable when castor oil seed is supplied
Considering tax statue being more of technical act it should be read and interpreted on basis of words and context in which sections are drafted. Conclusion on basis of logic has no place while interpreting tax statues. Unlike criminal and civil act there is no scope for circumstances and liberty to judge considering special situation of person, entity or transactions. Words in tax statue should be interpreted in their true sense and each word in act is important and has been included for reasons and it cannot be ignored even if it has no logic, impractical or it is unjust to any party.