2018 (10) TMI 748 - AAR - GST

Applicant Denied Tax Credit for Non-Business Expenses

The ruling concluded that the applicant is not entitled to Input Tax Credit (ITC) on goods and services used for the maintenance of residential colonies, ... Input tax credit - in the course or furtherance of business - blocked credit under section 17(5) - blocked credit on inputs for exempt supplies under section 17(2) - proportionate input tax credit for mixed use - works contract services for construction/repair of immovable propertyInput tax credit - blocked credit under section 17(5) - works contract services for construction/repair of immovable property - Entitlement to input tax credit for services in relation to maintenance, repair and works-contract type services supplied for residential township / colony - HELD THAT: - The Authority examined the list of contracts and found that a number of services claimed relate exclusively to repair, maintenance and works-contract activities for residential quarters and public buildings in the township. Such services are in the nature of works contract or construction/repair of immovable property (other than plant and machinery). The provisions of sub-section (5) of Section 17 (clauses (c) and (d) and the Explanation thereto) block input tax credit on works contract services and on goods or services received for construction of immovable property (other than plant and machinery). Applying these provisions to the listed transactions, tax credit on inputs/input services used for maintenance and repair of the residential township/colony is not allowable. [Paras 4, 5]Input tax credit on services for repair and maintenance of residential township/colony is not available as such credits are blocked under section 17(5).Input tax credit - in the course or furtherance of business - proportionate input tax credit for mixed use - Entitlement to input tax credit for services partly used for plant/business operations and partly for non-business or residential purposes - HELD THAT: - The Authority found that many listed services are mixed in nature-used partly for plant, plant area or plant buildings (business use) and partly for residential colony or other non-business uses. Where a service is partly in relation to the plant (business use), proportionate input tax credit relatable to the plant use is allowable. Conversely, the portion attributable to residential or other non-business use is not available as input tax credit under Section 17. [Paras 4, 5]Proportionate ITC is admissible to the extent the services are relatable to plant/business; ITC is disallowed to the extent attributable to residential/non-business use.Input tax credit - blocked credit on inputs for exempt supplies under section 17(2) - Entitlement to input tax credit for services and goods procured for operation of hospitals, dispensaries and pharmacy outlets maintained by the applicant - HELD THAT: - The Authority held that hospitals/dispensaries and pharmacy services provided by the applicant for employees and others fall within exempt or nil-rated supplies (clinical establishments/medical services and free distribution of medicines). Under sub-section (2) of Section 17, input tax credit attributable to exempt supplies is not available. The Authority noted that, under law as it stood at the time, there was no provision allowing ITC for goods/services procured by an employer to discharge statutory obligations to employees; therefore inputs for hospitals and pharmacy outlets do not qualify for ITC. [Paras 4, 5]ITC on inputs/input services used for dispensing exempt health services (including pharmacy for free medicines) is not admissible under section 17(2).Input tax credit - in the course or furtherance of business - Entitlement to input tax credit for services relating to guest houses, transit houses and training hostels - HELD THAT: - The Authority observed that establishment, maintenance and furnishing of guest houses, transit houses and training hostels are business requirements for accommodating touring employees and guests. Such services availed for maintenance of these business establishments qualify as input services and ITC is allowable. However, inputs and input services used for catering, food and beverages-if provided free or not charged-are blocked under clause (b) of sub-section (5) of Section 17 and therefore not eligible for credit. [Paras 4, 5]ITC is available for inward supplies for maintenance of guest houses/transit/training hostels (business use) but not for inputs/input services relatable to food and beverages/catering which are blocked.Input tax credit - in the course or furtherance of business - Entitlement to input tax credit for plantation, urban plantation and similar activities undertaken outside the plant area (CSR/non business activities) - HELD THAT: - The Authority found that several contracts relate to plantation, mass plantation and development of parks outside the plant or business area and are not in the course of or for the furtherance of the applicant's core manufacturing business. Some of these activities may be CSR or statutory/other obligations but are not business requirements. Accordingly, such plantation and gardening outside plant area constitute non-business use and do not qualify for input tax credit under Section 17. [Paras 4, 5]ITC is not available for plantation and similar activities conducted outside the plant/business area as these are non business/CSR in nature.Final Conclusion: The Authority issued a ruling applying Sections 16 and 17: ITC is disallowed for services used for residential township/colonies, for inputs attributable to exempt health services and for plantation/CSR activities outside the plant; ITC is allowable to the extent services are attributable to plant/business (proportionate credit); ITC for guest house maintenance is allowable except for catering/food inputs which are blocked. The ruling is confined to the supplies listed in Annexure A. Issues Involved:1. Entitlement to input tax credit (ITC) on goods and services used for maintenance of townships, guest houses, hospitals, and horticulture.2. Classification of services and their eligibility for ITC.3. Application of Section 17(5) of the CGST Act, 2017.4. Determination of services as business-related or non-business-related.5. Impact of exempt supplies on ITC eligibility.Detailed Analysis:1. Entitlement to Input Tax Credit:The applicant sought an advance ruling on whether they are entitled to take ITC on various goods and services used for the maintenance of their townships, guest houses, hospitals, and horticulture as part of their business operations. They argued that these services are used in the course or furtherance of their business, thus entitling them to ITC under Section 16 of the CGST Act, 2017. They also claimed that these supplies are not blocked under Section 17(5) of the CGST Act.2. Classification of Services and Their Eligibility for ITC:The services listed by the applicant were classified into categories such as support services, waste collection, sanitation services, sweeping and snow removal services, security services, repair and maintenance services, painting services, human health services, and maintenance and repair of machinery and equipment. Each category was analyzed to determine whether the services were used for business purposes or for non-business-related activities.3. Application of Section 17(5) of the CGST Act, 2017:The ruling emphasized that ITC eligibility should be transaction-specific. Section 17(5) restricts ITC on works contract services for construction of immovable property (other than plant and machinery) and on goods or services used for construction of immovable property on the taxpayer's own account. Services related to the maintenance of residential colonies, guest houses, and hospitals were found to be blocked under this section.4. Determination of Services as Business-Related or Non-Business-Related:The ruling differentiated between services used for business purposes and those used for non-business-related activities. Services exclusively for residential colonies, guest houses, and hospitals were deemed non-business-related and thus ineligible for ITC. Conversely, services related to the plant and plant area were considered business-related and eligible for ITC.5. Impact of Exempt Supplies on ITC Eligibility:The ruling noted that services provided through hospitals and guest houses are exempt supplies under GST. Consequently, ITC on inputs and input services used for these exempt supplies is restricted under Section 17(2) of the CGST Act.Conclusion:The ruling concluded that the applicant is not entitled to ITC on goods and services used for the maintenance of residential colonies, guest houses, and hospitals as these are not in the course or furtherance of business. However, ITC is allowed for services used directly for the plant and plant area. The ruling also clarified that services for non-business activities, such as urban plantation and provision of drinking water at picnic spots, do not qualify for ITC.Ruling:The application for advance ruling was disposed of accordingly. The applicant or the jurisdictional officer may appeal to the Odisha State Appellate Authority for Advance Ruling under Section 100 of the OGST/CGST Act, 2017 within 30 days from the date of receipt of the Advance Ruling.