Since last two months we have witnessed some advance rulings which have created panic in the trade and industry. We have already expressed our reservations on few rulings with a detailed write up earlier. Here we attempt to summarize few of such rulings along with our comments in brief.
Advance Ruling Authority (“AAR”) has held that supply of UPS and battery shall be regarded as a mixed supply and not a composite supply. It was held that goods can be considered as “naturally bundled” only if the supply contract is indivisible. We submit that definition of composite supply u/s 2(30) of the CGST Act, 2017 does not talk about whether the contract is divisible or not. It only says that two or more taxable supplies shall be regarded as composite supply if they are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
AAR has held that GST is payable on the cost of food recovered from the employees. Readers may refer our detailed article in the past on the said issue wherein we have expressed reservations on the said ruling.
AAR has held that supply of goods by retail outlets located in the security hold area after crossing the immigration shall not be regarded as zero-rated supply and hence GST shall be payable by such duty free shops. We submit that the said ruling has not appreciated the context in which “India” has been defined u/s 2(56) of the CGST Act, 2017 read with section 2(11) of the Customs Act, 1962.
AAR has held that under transitional provisions registered person is not entitled to carry forward the balance of KKC lying in the last return filed under the earlier regime. We submit that the said ruling has not considered the express provisions of Sec. 140(1) of the CGST Act, 2017 and has also not correctly applied the decision of Hon. Delhi High Court in the case of Cellular Operators Association of India.
AAR has held that such contracts will be regarded as works contract since the same results in immovable property and hence will be taxed at 18% and not at a concessional rate of 5% provided for Solar power generating system. We submit that the definition of “immovable property” has not been rightly appreciated in the said ruling. Anything attached to Earth for the enjoyment of the thing which is attached cannot be regarded as immovable property. Said ruling also defeats the purpose of the Government in giving incentive to the solar power sector.
AAR has held that such supply of food/beverages in trains do not have any element of service and hence shall be regarded as supply of goods and accordingly tax at the rate applicable on goods in question is to be determined. We submit that the said ruling has not considered the expression “supply, by way of or as part of any service or in any other manner whatsoever” properly.
AAR has held that said supply of services shall be regarded as intra-state supply. We submit that the ruling has not at all considered Sec. 7(5) of the IGST Act, 2017 which clearly provides that any supply to SEZ/units shall be an inter-state supply.
AAR has held that rate of tax on food supplied by such canteen contractor shall be 18%. Readers may peruse our detailed article on the subject in the past. AAR has not correctly appreciated applicability of Entry 7(i) vis-à-vis Entry 7(v).
We can conclude by observing that the above referred rulings have clearly shaken the faith one would have reposed in the Advance Ruling Authority. Such rulings will also open flood gates of litigation. Hence it is requested to the Government to rethink on the current mechanism or else no one would like to approach the authority and get a binding adverse decision (till it is reversed in future, but that takes time). Such eventuality will clearly defeat the purpose for which authority has been set-up. No one really likes litigation and uncertainty.