Banks are institutions that accept and manage deposits of money from people and also offer credit—or loans—to clients.
So, under GST regime it is very important to make specific provisions related to financial sectors.
However, Goods and services tax act 2017 has clarified that:-
“A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advance shall have the option to either comply with the provisions of sub-section (2), or avail of, every month, an amount equal to fifty percent of the eligible input tax credit on inputs, capital goods and input services in that month and rest shall lapse”
From the above definition it is clear that definition of ‘Financial Institution’ plays a very key role in determining eligibility of ITC on inputs, capital goods, input services. However, GST act didn”t define the definition of ‘Financial Instituion’.
As per AAR (Gujrat) in case of M/s. National Dairy Development Board. We will get clarity on the definition of ” Financial Instituion”
Name of the Applicant:- M/s. National Dairy Development Board Date of application:- 01/09/2017 Advance Ruling No.:- GUJ/GAAR/RULING/2019/1
Brief facts :- The applicant, NDDB, is a statutory body constituted by an Act of Parliament, namely the National Dairy Development Board Act, 1987 (NDDB Act); the objectives of NDDB include promoting dairy and other agriculture based industries; and the activities undertaken by NDDB, to fulfill its objectives, not only include technical or administration assistance but also financial assistance. The applicant further submitted that apart from above, as per sub-section (5) of section 16 of the NDDB Act, it can participate, with the prior approval of the Central Government, in any organization, financially, managerially or in any other manner.
Question Sought by Applicant:-
Whether NDDB can be considered as financial institution for the purpose of availing credit to the extent of fifty percent of input tax credit, as prescribed in Section 17 of CGST Act, 2017?
Submission By Applicant:- 1) The applicant stated that there is no provision which states or defines what could be considered as financial institution or the law is silent on this count, for the purpose of eligibility of input tax credit. The applicant stated further that Rule 2(bd) of the erstwhile Services Tax Rules,1994 defined “financial institution‟ as follows-
“financial institution’ has the meaning assigned to it in clause (c) of section 45-I of the Reserve Bank of India Act, 1934.”
2) It is further stated that the definition of financial institution has limited applicability and those institutions which are considered as financial institution as per RBI Act would only be eligible for availing defined proportion of cenvat credit as per cenvat credit Rules which has narrowed down the scope of benefit, which is against the principle of seamless credit in GST; that the applicant believes that that restriction has been removed in GST regime and the scope of financial institution has widened to include all those organization which are dealing in financing or lending of money.
3) The applicant further stated that based on the provisions in respect of “public financial institution‟ given under the Companies Act, 2013, the Government vide Notification Reference SO 219 (E) dated 23.2.2004 has prescribed NDDB as Public Financial Institution. It is further stated that by virtue of that provision, the applicant is well considered as public financial institution which needs analysis to see whether the applicant is eligible to avail benefit of lump-sum input tax credit.
Facts and Findings – As per Concerned Officer:-
1) We find that objectives of NDDB include promoting dairy and other agriculture based industries and to fulfill its objectives NDDB undertakes the activities in the form of technical or administrative assistance and financial assistance. Further, NDDB Act, 1987 is found to have specifically authorized NDDB to undertake the activity of financing including lending and borrowing money for diverse purpose.
2) The applicant is found to have stated that there is no provision which states or defines what could be considered as financial institution in GST law, for the purpose of eligibility of input tax credit. But we observe that the phrase „financial institution‟ has been defined under Section 13(8) (c) of IGST Act, 2017 as under-
“(c) „Financial institution” shall have the same meaning as assigned to it in clause (c) of section 45-I of the Reserve Bank of India Act, 1934,”
Section 20 of IGST Act provides that provisions of CGST Act shall mutatis mutandis apply to IGST Act.
It is relevant now to examine the meaning assigned to the word „financial institution‟ in clause (c) of Section 45-I of Reserve Bank of India Act, 1934. As per the said clause of RBI Act, “financial Institution‟ is defined as under-
“Financial Institution” means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:
(i) The financing, whether by way of making loans or advances or otherwise, of any activity other than its own;
It would be seen that as per the activities performed by the applicant, narrated above, NDDB can be considered as a financial institution as they seem to be satisfying the requirement as provided in Section 45-I(C) of the RBI Act. Besides, NDDB is also declared as a „public of financial institution‟ under the company Act vide Notification No. So 219 (E) dated 23.02.2004.
M/s National Dairy Development Board (GSTIN 24AADCN2029C1Z5) is to be considered as “Financial Institution‟ for the purpose of section 17(4)of the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017.