GST applicable on Supply of motor vehicles as scrap after its usage in business: AAR

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 –

• The definition section 2 says that the definitions apply unless the context otherwise requires.
• Hence, here for the purpose of taxability, ‘money’ is excluded from the definition of `goods’ whereas for the purpose of input tax credits, ‘goods’ would include `money’.

The applicant has cited the case law in Printers (Mysore) Ltd. And Another V. Assistant Commercial Tax Officer And Others. (Civil Appeal No. 1550 of 1985). Indian Newspapers Society V. State of Karnataka. (Writ Petition No. 278 Of 1991). (And Other Appeals) 193 STC 951.

In the present case, money is not included in the definition of ‘goods’. However as the applicant has pointed, the GST E-Way Rules in rule 138(14) refer to an Annexure which enlists the goods in respect of which no e-way bill is required to be generated. At sr. no.6 of this Annexure in column 2 about “Description of Goods”, one finds mention of the word “currency”. Thus, “currency” is goods where the goods being transported are specified in the Annexure in rule 138(14) of the GST E-Way Rules, the transportation of which would not require the generation of e-way bill. The rule stems from section 88 of the GST Act which requires that the Government may require the person in charge of a conveyance carrying any consignment of goods of value exceeding such amount as may be specified to carry with him such documents and such devices as may be prescribed. I find entry no.117 in the Notification no.2/2017-Central/State Tax (Rate) (as amended from time to time) specifying the Schedule for goods exempted specifying the goods “Rupee notes when sold to the Reserve Bank of India”. Notes become legal tender after they are issued by the Reserve bank of India. Till that time they are mere printed papers and not ‘money’ or ‘currency’ and hence, they are held exigible to GST, though at a NIL rate. In the present case, the ITC would be available when the motor vehicles are used for transportation of goods. Here, the ITC is of the tax paid in respect of the purchase of the motor vehicles and not of the goods being transported. To restrict the ITC here to the case when only ‘goods’ as understood in GST are being transported in the motor vehicles would not be in the context of the provision.

A goods carriage under the Motor Vehicles Act would transport goods and the definition of goods therein does not exclude ‘money’.

In view of all above, I observe that I am in agreement with the claim of the applicant that the word ‘goods’ in sub-section 5(a)(ii) would not take colour from the definition of “goods” which excludes money therefrom. In consideration of the above, the impugned activity of providing cash management services involves use of the motor vehicles for transportation of ‘goods’. The motor vehicles would be covered by the exception in sub-section 5(a)(ii) of section 17. Thus, the applicant would be entitled to the ITC on the purchase of the cash carry vans i.e motor vehicles used for transportation of goods, subject to the provisions of the Rules made in this regard.

As per Sh. Pankaj Kumar, 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. I 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, 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 “farther 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 due. 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 facturers 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 Iaw 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 be 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. However, it is found that the applicant has specifically mentioned in his application that they are engaged in “cash management service” which they have specifically mentioned as under :

• Providing ATMs and installing the same at various locations across India
• Managing cash circulation through transporting cash from currency chests to bank branches
• Cash pick up and delivery from and to dedicated banks.

Thus, from the above it is very clear that the applicant is engaged in cash management services.

Further, it is very clear that section 2(52) very clearly gives definition of goods which reads as under :-

(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to he severed before supply or under a contract of supply;

Thus from the above definition of ‘goods’, it very clear that ‘money’ is specifically excluded from the definition of ‘goods’ and therefore in no way input tax credit in respect of motor vehicles and other conveyances as envisaged in Section 17(5) (a) would be available in respect of transportation of money in motor vehicles as under GST law as money is specifically excluded from the definition of ‘goods’ and therefore ‘money’ is not to be treated as ‘goods’ because of specific exclusion.

The intent of the legislature in excluding ‘money’ from the definition of ‘goods’ can also be visualized from a situation wherein if a person ‘X’ engaged in construction business has purchased a Honda City Car in the name of his firm and withdraws Rs. 50 lakh from his Bank Account for disbursing salaries to his employees. He carries money from Bank to his office. Would he be eligible for input tax credit in respect of the Honda City Car as he is transporting money in the course of his business? If this had been the case then in case of motor vehicles section 17(5) of the GST Act would not have restricted the eligibility of input tax credit in case of motor vehicles to just the four persons/entities and thus, the exclusion of money from the definition of ‘goods’ under the GST Act is with very specific intent by the Legislature. In this situation we need to have a retook at the wordings of Section 17(5) (a) of CGST Act.

We see that legislative intent to allow input tax credit in respect of vehicles is very restrictive and requires to be interpreted accordingly and credit in respect of motor vehicles shall not be available except to the four persons/entities as enumerated above when there is specific exclusion of ‘money’ from being considered as goods in GST Act and provisions. The judgement of the Hon’ble Supreme Court in the case of Printers (Mysure) Ltd Vs Asst. Commercial Tax Officer (cited supra) as referred by the applicant is in respect of very different statute i.e. the Central Sales Tax Act,1956 wherein the issue was whether purchase and use of newsprint in Manufacture of Newspaper can be treated as not being used in manufacture of ‘goods’ as newspapers were kept out of definition of ‘goods’ under the Central Sales Tax Act. The definition of ‘goods’ under Central Sales Tax Act which was under consideration in the aforesaid judgment is reproduced as under ‑

“‘goods’ includes all materials, articles, commodities and all other kinds of movable propert^y, but does not include newspapers, actionable claims, stocks, shares and securities.”

Thus the issue before the Hon’ble Supreme Court was whether newspaper manufactured from newsprint would be ‘goods’ or not as a new product ‘newspaper’ was manufactured. Thus there is no denying that newspapers are goods but were excluded from ‘goods’ under the Central Sales Tax only with a view to ensure that there is no Sales Tax liability on sale of newspapers. Thus, the context in the case law as referred is totally different and there was no intent to not to treat newspapers as ‘goods’ but the only intent was to put them out of Sales Tax liability and Hon’ble Supreme Court has rightly interpreted as per intent and context of the Central Sales Tax statute.

However when we see definition of ‘goods’ as given in the GST Act, we see that the definition of ‘goods’ is as under ‑

(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;

We see that it specifically gives the exception that under the GST Act, ‘money’ will not be considered as ‘goods’ for the provisions of GST and therefore, in respect of GST Act wherever the word ‘goods’ comes it will specifically mean that money would not be covered in the same. The intent of legislature is further confirmed from the exclusion given in respect of e-way bill provisions as claimed by the applicant in his favour in respect of eligibility of input tax credit wherein it is clearly given that no e-way bill is required to be generated in respect of transport of currency.

Thus, we see that money is ‘goods’ as per general understating but for the provisions under the GST Act it is specifically excluded from treating them as ‘goods’ and if that had not been the intention then the transport of currency would not have been excluded from the provisions as applicable in respect of transport of all other goods as per the procedure prescribed through the mechanism of e-way bills as as per general understanding money is also ‘goods’.

Thus the e-way bill provisions exclusively and clearly confirm and reaffirm that ‘money’ will not be treated as goods in the provisions under section 17(5)(a) (ii) of the GST Act which is reproduced as under ‑

(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section /8, input tax credit shall not be available in respect of the following, namely:

(a) motor vehicles and other conveyances except when the^y are used‑

(i) for making the following taxable supplies, namely:—

(A) further supply of such vehicles or conveyances . or

(B) transportation of passengers: or

(C) imparting training on driving, flying, navigating such vehicles or conveyances:

(ii)  for transportation of^–goods:

And therefore, transportation of money is not covered in section 17(5)(a) (ii) of the GST Act and the applicant is not eligible for availing input tax credit in respect of motor vehicles used in transport of money.

In view of the detailed deliberations held hereinabove, it is ordered thus under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017

Question 1 Whether supply of such motor vehicles as scrap after its usage can be 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.

Answer 1 The question is answered in the affirmative. As regards rate of GST and/or Compensation Cess, the details being inadequate, the applicant may refer to the Notification No. 1/2017-Central / State Tax (Rate) and Notification No. 1/2017-Compensation Cess (Rate), as amended from time to time.

Question 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?

Answer 2        [A] Per Sh. Borhade, Member

The question is answered in the affirmative. The input tax credit available would be subject to the provisions of the Central / State Goods and Service Tax Rules, 2017 made in this regard.

[B] Per Sh. Pankaj Kumar, Member

The question is answered in the negative. The input tax credit on purchase of motor vehicles i.e. cash carry vans would not be available.

As the Members of the Advance Ruling Authority differ in respect of Question no.2 as raised by the applicant, appropriate reference is made to the Appellate Authority for Advance Ruling for hearing and decision on this question.