2018 (6) TMI 431 - AAR - GST

GST Ruling: Reverse Charge on Ocean Freight, Input Tax Credit Clarifications, and Asset Classification for Tax Purposes

The SC/HC ruled on three key GST issues: (1) IGST must be paid under Reverse Charge Mechanism for ocean freight in CIF contracts, even when service ... Reverse Charge Mechanism for IGST on ocean freight under CIF contracts - Admissibility of input tax credit for IGST paid on ocean freight - Documentary requirement for claiming input tax credit (invoice/challan) - Non availability of input tax credit in respect of land, building or any other civil structure - Non availability of input tax credit for sanitary fittings as integral part of building - Availability of input tax credit for office fixtures and furniture and A.C. plant as inputs/capital goods subject to income tax depreciation conditionReverse Charge Mechanism for IGST on ocean freight under CIF contracts - Admissibility of input tax credit for IGST paid on ocean freight - Whether the importer is required to pay IGST under reverse charge on ocean freight in case of CIF contracts when both service provider and service recipient are located outside India. - HELD THAT: - The Authority noted that notifications issued by the Central Government require an importer to pay IGST on ocean freight. Accordingly, even where IGST has been paid on the CIF value of imported goods, the importer remains liable to pay IGST on ocean freight under the notifications extant as on the date of the ruling. The Authority observed that pendency of proceedings before a High Court does not render an extant notification ultra vires unless set aside by the competent court.Importer is required to pay IGST under reverse charge on ocean freight in CIF imports in terms of the existing notifications.Documentary requirement for claiming input tax credit (invoice/challan) - Admissibility of input tax credit for IGST paid on ocean freight - What supporting document is required for the importer to take input tax credit of IGST paid on ocean freight under CIF contracts. - HELD THAT: - The Authority held that credit of IGST paid on ocean freight can be availed on the basis of the invoice/challan issued in respect of the supply.Invoice/challan issued for the ocean freight is the supporting document to claim input tax credit of IGST paid under reverse charge.Non availability of input tax credit in respect of land, building or any other civil structure - Non availability of input tax credit for sanitary fittings as integral part of building - Availability of input tax credit for office fixtures and furniture and A.C. plant as inputs/capital goods subject to income tax depreciation condition - Whether input tax credit is available for office fixtures & furniture, A.C. plant and sanitary fittings installed in a newly constructed building owned by the applicant, where the accounting entry is capitalised. - HELD THAT: - Relying on the explanation to Section 17 of the CGST Act, the Authority affirmed that input tax credit is not available in respect of land, building or any other civil structure; sanitary fittings, being integral to the building or civil structure, are therefore ineligible for credit. Conversely, the Authority held that credit is available on office fixtures and furniture and on A.C. plant, treating them as goods used in relation to the business/ manufacturing activity. The Authority referred to departmental clarification and tribunal authority to support the position and qualified the availability of credit by stating it is subject to the condition that the registered person has not claimed depreciation on the tax component of such capital goods under the Income Tax Act.No credit for building/civil structure and for sanitary fittings; credit admissible for office fixtures & furniture and A.C. plant provided depreciation on the tax component has not been claimed under the Income Tax Act.Final Conclusion: The Authority ruled that (i) importers are required to pay IGST under reverse charge on ocean freight in CIF imports as per existing notifications; (ii) invoice/challan is the supporting document to claim input tax credit of such IGST; and (iii) input tax credit is not available for buildings/civil structures or sanitary fittings, but is available for office fixtures, furniture and A.C. plant subject to the condition regarding depreciation under the Income Tax Act. Issues:1. Whether IGST should be paid under Reverse Charge Mechanism on ocean freight in case of CIF basis contract when both service provider and recipient are outside India.2. What supporting document is required for importer under RCM to claim credit of IGST paid on ocean freight.3. Availability of GST credit on office fixtures, furniture, A.C. plant, and sanitary fittings in a newly constructed building for business purposes.Analysis:1. The applicant sought an advance ruling on the applicability of IGST under Reverse Charge Mechanism on ocean freight in CIF basis contracts when both the service provider and recipient are located outside India. The Authority noted that as per relevant notifications, an importer is indeed required to pay IGST on ocean freight. Even if IGST has been paid on the CIF value of imported goods, IGST on ocean freight is still mandatory. The Authority also considered a legal application filed before the High Court but emphasized that the mere filing of an application does not invalidate a government notification unless rejected by the court.2. Regarding the supporting document for an importer under RCM to claim credit of IGST paid on ocean freight, it was clarified that credit can be availed based on the invoice or challan issued for the payment of IGST.3. The issue of GST credit availability on office fixtures, furniture, A.C. plant, and sanitary fittings in a newly constructed building for business purposes was addressed. The Authority explained that as per the CGST Act, credit is not available for land, building, or civil structures. Therefore, credit for GST paid on sanitary fittings, being integral parts of buildings, is not available. However, credit for office fixtures, furniture, and A.C. plants is permissible. This decision was supported by a CBIC Board Circular and a ruling by the CESTAT, which allowed credit for goods used in an office within a factory setting. The Authority emphasized that the credit for input tax on fixtures, furniture, and A.C. plants is admissible under the CGST/SGST Act, provided depreciation on the tax component of capital goods has not been claimed under the Income-Tax Act, 1961.