2018 (10) TMI 748 - AAR - GST

Applicant Denied Tax Credit for Non-Business Expenses

In Re: M/s. National Aluminium Company Ltd., (NALCO)

In Re: M/s. National Aluminium Company Ltd., (NALCO) - 2018 (18) G.S.T.L. 508 (A. A. R. - GST) 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.