In re CMS Info Systems Limited (AAR Maharashtra)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”1 by M/s. CMS Info Systems Limited, the applicant, seeking an advance ruling in respect of the applicability of GST on:
1. Whether supply of such motor vehicles as scrap after its usage can he treated as ‘supply’ in the course or furtherance of business and whether such transaction would attract GST? If yes, please provide the rate of GST and/or Compensation Cess.
2. If the answer to Question 1 is in affirmative, whether Input tax Credit is available to CMS Info Systems Ltd. (‘CMS’ or ‘the applicant’) on purchase of motor vehicles i.e. cash carry vans which are purchased, used for cash management business and supplied post usage as scrap?
Read AAAR order 1 :Input Tax Credit not available on purchase of ‘Cash carry vans’
Read AAAR order 2 after HC Judgment:ITC eligible on purchase/fabrication of motor vehicle used for carrying cash & bullion
Analysis
1. Whether supply of such motor vehicles as scrap after its usage can he treated as ‘supply’ in the course or furtherance of business and whether such transaction would attract GST? If yes, please provide the rate of GST and/or Compensation Cess.
The disposal of the scrap vehicles for consideration is a sale and section 7 explaining the expression ‘supply’ covers supply of goods such as sale or disposal made for a consideration. Section 7, further, says that the supply has to be in the course or furtherance of business. With regard to this, we see that the applicant is in the business of having a cash management network involving transportation of cash. The disposal of the cash carrying vans is a transaction in connection with or incidental or ancillary to the business of having a cash management network. As and when the vehicles become scrap, they have to be disposed off and the proceeds therefrom to be identified as income for the business which is reflected in the Profit & Loss Account of the business. Buying new assets and discarding the old and unusable assets is an activity in the course of carrying on of the business. Hence, we conclude that supply of such motor vehicles as scrap after its usage is an activity of ‘supply’ in the course or furtherance of business and such transaction would attract GST.
With regard to the above, the applicant has argued that permanent transfer or disposal of business assets is also treated as supply but such transfer or disposal will be deemed to be supply only where input tax credit has been availed on such assets. We are not agreeable to this reasoning of the applicant. Schedule I is for activities to be treated as ‘supply’ even if made without consideration. This derives colour from the fact that ‘supply’ in section 7 says that supply is one which is made or agreed to be made for a consideration. Therefore, Schedule I comes up with cases made exceptional for being treated as ‘supply’ for the reason that they lack the crucial element of ‘consideration’. As regards Schedule II, the same classifies the supplies into supplies of goods or services. Schedule II begins with the premise that the activities are ‘supply’. For the facts before us, we find that there is a supply of cash vans, which are ‘goods’, for a consideration and the transaction is in the natural course of business. The transaction and the provisions are obvious. In view thereof, we do not find merit in the argument of the applicant.
Having seen that the transaction amounts to a ‘supply’ under the GST Act, we move on to the next aspect which the applicant desires to know and which is the rate of GST and Compensation Cess. Chapter 87 of the Customs Tariff covers motor vehicles. The applicant has not informed the Customs/Excise Tariff Heading. Neither has any copy of the invoice effecting the supply been tendered. The applicant has submitted a sample agreement copy which it enters into while delivering services of cash management. However, the same throws no light on the type of the motor vehicles to be used. Further, whether the vehicles are sold as scrap and unusable OR sold as old vehicles is not found confirmed from any document. It is generally seen that there is surrender of the RTO Registration Book when the vehicles are disposed off as scrap. Hence, it needs to be ascertained as to whether the vehicles are sold as scrap. For vehicles sold as scrap which does not amount to sale of a vehicle as such, the rate of the material sold as scrap would apply. For vehicles sold as vehicles, a perusal of the notifications issued for the purposes of the GST Act reflects thus –
1. Notification No. 2/2017-Central/State Tax (Rate) – (as amended from time to time) enlisting the goods exempted from GST does not cover the impugned cash carrying
2. Notification No. 1/2017-Central / State Tax (Rate) (as amended from time to time) enlisting the goods taxable to GST at various rates ‑
a. Schedules Ito III and V to VI do not cover the impugned goods.
b. Entries in Schedule IV would cover the impugned goods.
3. Notification No. 1/2017-Compensation Cess (Rate) (as amended from time to time) enlisting the goods taxable to Compensation Cess under the Goods and Services Tax (Compensation to States) Act, 2017 at various rates ‑
a. This Notification enlists goods from the Chapter 87.
In absence of the requisite details before us, we have to ask the applicant to go through the Notification No. 1/2017-Central / State Tax (Rate) and Notification No. 1/2017-Compensation Cess (Rate), as amended from time to time. We would now turn to the next question.
Question 2
If the answer to Question I is in affirmative, whether Input tax Credit is available to CMS Info Systems Ltd. (‘CMS’ or ‘the applicant’) on purchase of motor vehicles i.e. cash carry vans which are purchased, used for cash management business and supplied post usage as scrap?
There is a difference of opinion with regard to the decision of this question. The views of each Member are as follows :
As per Sh. Borhade, Member
This question pertains to the eligibility to avail Input Tax Credit (ITC) on the purchase of cash carry vans which are used for the cash management business. We have seen above that the disposal of the cash carry vans as scrap vehicles is a ‘supply’ in the course of furtherance of business and is amenable to GST. In view thereof, the applicant queries as to whether ITC would be available on the purchase of cash carry vans which are later disposed off as scrap.
As can be seen from the above, except in certain situations as enumerated, ITC is not available in respect of motor vehicles. Hence, I see the exceptions.
As can be seen, the impugned activity of providing cash management services not being for transportation of passengers OR for imparting training on driving, flying, navigating such vehicles or conveyances, it would not be covered by the exceptions in (B) and (C) of sub-section 5(a)(i). Sub-section 5(a)(i)(A) is about making “further supply of such vehicles or conveyances”. The words “further supply” herein are in the nature of “resale”. It should be noted that it is not mentioned as being just “supply of such vehicles or conveyances”. The word “further” before the word “supply” has to be given its proper weightage. Here, the legislature intends to cover motor vehicles which are purchased for the purpose of being sold. In this category, we have the chain of the distributors/dealers of motor vehicles who purchase from the manufacturers for the downward sale to the final customer. The use of the word “further” is indicative of a further supply and not such a supply as in the present case which is the disposal as a scrap and which happens after the motor vehicle has been used till its full working life. In view thereof, the impugned activity of providing cash management services not being for making a further supply of the motor vehicles would not be covered by the exception in (A) of sub-section 5(a)(i). I find that the applicant has argued that as per well-settled principle of law at first one has to apply “literal interpretation” and only in cases of absurd results, one has to apply “purposive interpretation”. However, this argument would not apply to the instant case. Here, the word ‘further’ has to be given the meaning as is intended by the Legislation. And I am convinced that there can be no other intention than the one as had by me.
Then comes sub-section 5(a)(ii) which speaks about exception if the motor vehicles are used for transportation of goods.
I find that the applicant has also mentioned that besides ‘cash’, the cash carry vans are also used for transport of bullion. Bullion not being excluded from the definition of ‘goods’, there arises no issue. However, the applicant has raised the question in terms of ‘cash carry vans’ and hence, “cash” would be the goods which would he transported. “Cash” here is the Indian legal tender which is ‘money’ and I find that ‘money’ has been excluded from the definition of `goods’ for the purposes of the GST Act. Therefore, whether the word `goods’ as appearing in sub-section 5(a)(ii) would take colour from the definition of ‘goods’ is a question I need to ponder over. The applicant has argued that –
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