2018 (7) TMI 881 - AAR - GST

Seed Packaging Materials: Limited Input Tax Credit Permissible for Taxable Inter-Branch Transfers Under Section 17(2)

The SC ruled on ITC claims for packaging materials in seed supply. The court held that ITC cannot be claimed on packaging materials used for exempted seed ... Input Tax Credit restriction for exempt supplies - Entitlement to ITC on exclusively taxable outward supplies - Composite supply principal supply rule - Inter-branch transfer and multiple taxationInput Tax Credit restriction for exempt supplies - Composite supply principal supply rule - Entitlement to ITC on packing material used in packaging seeds which are supplied as an exempted principal supply. - HELD THAT: - The Authority applied the concept of composite supply and the rule that a composite supply is to be treated as supply of the principal supply. Seeds supplied in packaged form are an exempted principal supply while the packing material is a taxable component that is naturally bundled with the principal supply. Section 17(2) restricts credit where inputs are used partly for exempt supplies; accordingly ITC attributable to the taxable component embedded in an exempt principal supply cannot be claimed. The Authority therefore held that where packing material is used in packaging seeds supplied as an exempt supply, the ITC on such packing material is not admissible and must be reversed in accordance with the provisions. [Paras 5]No ITC is admissible on packing material used for packaging seeds when seeds are supplied as an exempt principal supply.Entitlement to ITC on exclusively taxable outward supplies - Inter-branch transfer and multiple taxation - Entitlement to ITC when packing material is supplied exclusively as a taxable supply to the applicant's own branches in other States. - HELD THAT: - The Authority distinguished between packing material that forms part of an exempt composite supply and packing material supplied separately as an exclusive taxable supply. Where the applicant supplies packing material alone to its own branches as a taxable outward supply, such supplies are not part of an exempt principal supply and therefore the input tax charged on purchase of that packing material is attributable to taxable supplies. In that situation the applicant may avail ITC in terms of section 17(2) as applicable to inputs used for taxable outward supplies. The Authority noted that inter-branch transfers which constitute taxable outward supplies permit utilisation of ITC for those taxable transactions, and treated the ITC entitlement accordingly. [Paras 5]ITC on purchase of packing material is admissible when the packing material is supplied exclusively as a taxable outward supply to own branches.Final Conclusion: The Authority ruled that ITC cannot be claimed for packing material when it is used in packaging seeds supplied as an exempt principal supply, but ITC is available for packing material when it is supplied separately as an exclusive taxable supply to the applicant's own branches. Issues involved:1. Whether Input Tax Credit (ITC) can be claimed on packaging material used for exempted supplies and inter-branch transfers.2. Applicability of section 17(2) of CGGST Act, 2017 on ITC claims for different types of supplies made by the applicant.Detailed Analysis:1. The applicant, a company involved in supplying seeds in packaged form using packaging materials, sought an advance ruling on claiming Input Tax Credit (ITC) on packaging material until it is in stock and on ITC for transferring goods between their own branches. The applicant highlighted concerns about paying GST for internal transfers between branches, leading to multiple taxation on the same goods, which contradicts GST principles.2. Facts of the case reveal that the applicant deals with exempted seeds but procures taxable packaging materials. They transfer taxable inputs like packaging materials between branches and processing units. The applicant's contention was to retain ITC on purchased packaging materials until they are in stock and to address the GST implications on inter-branch transfers.3. During the personal hearing, the applicant reiterated their contentions, emphasizing the need for ITC on packaging materials and the challenges posed by GST on inter-branch transfers. The principles of natural justice were adhered to by providing a hearing to the applicant.4. The legal analysis focused on the provisions of the CGGST Act, 2017 related to composite supplies, input tax credit, and tax liability determination for different types of supplies. Section 17(2) of the Act was particularly highlighted, indicating the conditions for claiming ITC based on the nature of supplies made by the applicant.5. The ruling clarified that the applicant cannot claim ITC on packaging material used for exempted seed supplies to their branches or other purchasers. However, they are eligible for ITC on the tax involved in purchasing packaging material for exclusive taxable supplies to their branches in other states, in accordance with section 17(2) of the Chhattisgarh Goods and Service Tax Act, 2017.This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the legal interpretation applied to address the applicant's concerns regarding Input Tax Credit and GST implications on different types of supplies made by the company.