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The Odisha Authority for Advance Rulings (AAR) has delivered a significant ruling concerning the eligibility of Input Tax Credit (ITC) on exempt services when GST is charged by the supplier. In the case of In Re: EFC logistics India (P.) Ltd., [ORDER NO. 08/ODISHA-AAR/2023-24 dated May 24, 2024], the AAR addressed whether the assessee can claim ITC on exempt services under the conditions specified in Section 16 of the Central Goods and Services Tax Act, 2017 (CGST Act). This article delves into the facts, issues, analysis, and implications of this ruling. The Odisha AAR held that the assessee can claim ITC on exempt services if supplier has charged GST, subject to fulfilling the conditions and restrictions specified in Section 16 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).

Facts:

M/s. EFC logistics India (P.) Ltd., (“the Applicant”), is engaged in the business of providing transport service as GTA and opted to pay GST @12% with ITC.

The Applicant intends to enter into an agreement with M/s. Govinda Transport Pvt. Ltd. (another GTA Service provider) who supplies vehicle on rent inclusive of fuel, tool, salary of driver, and other ancillary expense related to vehicle, to the Applicant.

The Applicant contended that services received by him are of hiring/renting of vehicle which is exempt under Entry No 22(b) of Notification No. 12/2017-Central Tax(Rate) dated 28.06.2017 hence the supplier is not liable to charge GST.

In such scenario, the Applicant sought advance ruling on whether the supplier, being owner of vehicle can charge GST even though the service is exempt. Further, the Applicant wanted to know whether he is eligible to claim ITC, on the basis of said supplier’s invoices.

Issue:

Whether the supplier can charge and pay GST on services which are exempted vide the notification and whether recipient can claim ITC basis such invoices?

Held:

The Odisha AAR, in ORDER NO. 08/ODISHA-AAR/2023-24 held as under:

  • Observed Section 95(a) of the CGST Act, which provides meaning of term ‘advance ruling’. The definitions states that advance ruling is the decision provided by authority or appellate authority in relation to the supply of goods or services being undertaken or proposed to be undertaken by the Applicant.
  • Stated that, in the instant cast the service of renting of vehicle is not undertaken by the Applicant therefore, no ruling can be made.
  • For the subsequent issue, noted that, as per Section 16(1) of the CGST Act every registered person is entitled to take ITC charged on any supplies of goods or services or both to him which are intended to be used in course or furtherance of business.
  • Held that, the Applicant provides transport services and pays GST at 12% under the Forward Charge Mechanism, thus, the applicant may claim ITC provided it meets the conditions and restrictions outlined in Section 16 of the CGST Act.

Our comments:

The Odisha AAR, has failed to appreciate the fact that under GST regime the exemption is not optional but absolute.

In case if supplier charges GST on invoice for goods/services which are per se exempt vide notification, the recipient should restrict from claiming ITC, and should seek clarification from supplier regarding chargeability of GST. In our view, claiming ITC in such case might invite litigation in future.

Conclusion: The Odisha AAR ruling in In Re: EFC Logistics India (P.) Ltd. provides a pathway for claiming ITC on exempt services where GST is charged by the supplier, provided the conditions of Section 16 of the CGST Act are met. However, the absolute nature of exemptions under the GST regime necessitates careful consideration and compliance to avoid potential legal issues. Recipients should ensure thorough verification and seek necessary clarifications to ensure correct tax practices. This ruling highlights the complexities within the GST framework and the need for businesses to stay informed and vigilant in their tax practices.

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(Author can be reached at info@a2ztaxcorp.com)

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