2019 (2) TMI 1527 - AAAR - GST

Appeal Outcome: ITC Disallowed for Guest Houses, Upheld for Plantation Services

The appeal by M/s. National Aluminium Company Ltd. (Appellant-I) was largely dismissed, while the appeal by the Commissioner of CX & GST, Bhubaneswar ... Input tax credit - used or intended to be used in the course or furtherance of business - perquisite outside the scope of GST - integrally connected / nexus with business - blocked credit for personal consumption - non obstante clause in Section 17(5) - plantation and gardening as business necessity / environmental compliance - supply between related persons and Schedule IInput tax credit - perquisite outside the scope of GST - used or intended to be used in the course or furtherance of business - blocked credit for personal consumption - Input tax credit in respect of goods and services used for management, repair, renovation, alteration or maintenance of residential townships/colonies for employees - HELD THAT: - The Authority for Advance Ruling's denial of ITC for supplies used in relation to residential colonies is affirmed. The provision of housing to employees is a perquisite and, as admitted by the appellant and explained by CBIC clarification, perquisites fall outside the scope of GST; accordingly ITC is not available. Even assuming perquisites were taxable, expenditure for comfort, convenience or welfare of employees lacks the requisite nexus of being integrally connected with the business and therefore does not qualify as input used in the course or furtherance of business. The statutory scheme, including the non-obstante clause in Section 17(5) and the prohibition of credit where goods or services are for personal consumption, supports disallowance. The reasoning of the Bombay High Court on analogous facts is applied to hold that services rendered for employee residential colonies are welfare activities and not eligible for credit. [Paras 9]ITC disallowed for goods and services used for management, repair, renovation, alteration or maintenance of employee residential townships/colonies.Input tax credit - perquisite outside the scope of GST - integrally connected / nexus with business - Entitlement to input tax credit for supplies in relation to guest house, transit house and trainee hostel - HELD THAT: - The AAR's grant of ITC for guest house, transit house and trainee hostel is modified. Transit house and trainee hostel providing residential accommodation to employees are perquisites; ITC for inward supplies used for these cannot be allowed. The guest house, although used occasionally for non-employees, is not shown to be integrally connected with the appellant's core business such that supplies to it qualify as used in the course or furtherance of business. Consequently, tax paid on inward supplies for these establishments is not eligible for ITC. [Paras 9]ITC disallowed for supplies used in relation to guest house, transit house and trainee hostel.Input tax credit - plantation and gardening as business necessity / environmental compliance - used or intended to be used in the course or furtherance of business - Entitlement to input tax credit for services availed in relation to plantation and gardening within plant/mining/office premises - HELD THAT: - The AAR's finding that ITC is available for plantation and gardening within plant, mining and business premises is upheld. Creation and maintenance of green areas inside plant/mining/office premises are business necessities for controlling pollution, preventing soil erosion and complying with statutory environmental obligations (for example under the Forest Conservation Act and Environment Protection Act). Such activities are integrally related to and in furtherance of the appellant's business and therefore qualify as inputs/input services eligible for credit. [Paras 9]ITC allowed for supplies used for plantation and gardening within plant, mining and other business premises.Final Conclusion: The appeal filed by M/s National Aluminium Company Limited is rejected insofar as it seeks ITC for supplies relating to employee residential colonies, transit houses, trainee hostels and guest house; the appeal filed by the Commissioner is allowed in part to deny ITC for guest house/transit house/trainee hostel; the AAR ruling is modified to allow ITC only for plantation and gardening within plant/mining/office premises, and otherwise remains valid where unchallenged. Issues Involved:1. Entitlement of input tax credit (ITC) on inputs and input services used for maintenance of township, security services, and horticulture.2. Legality of allowing ITC for services utilized for maintenance of guest house, transit house, and trainee hostel.3. ITC eligibility for services utilized for plantation and gardening within the plant area and other business premises.Issue-Wise Detailed Analysis:1. Entitlement of ITC on Inputs and Input Services for Township Maintenance:The appellant argued that activities like management, maintenance, or repair of townships are integral to their business and should qualify for ITC. They claimed that these activities are carried out in furtherance of business and cited Section 16 of the CGST Act, 2017, which allows ITC on supplies used in the course or furtherance of business. However, the AAR ruled that residential accommodation is an exempt supply under Section 17(2) of the CGST/OGST Act, and hence, ITC is not available for goods and services used for township maintenance. The appellate authority upheld this ruling, stating that residential colonies are perquisites for employees and outside the scope of GST, and thus, ITC cannot be claimed.2. Legality of Allowing ITC for Services Utilized for Maintenance of Guest House, Transit House, and Trainee Hostel:The AAR had allowed ITC for maintenance services of guest houses, transit houses, and trainee hostels but excluded food and beverages. The appellant argued that these facilities are necessary for business operations and should qualify for ITC. However, the appellate authority disagreed, stating that these accommodations are also perquisites and ITC on such services cannot be allowed. The authority emphasized that activities for employee welfare do not qualify as business activities under GST law, referencing the Bombay High Court's decision in the case of Commissioner of Central Excise, Nagpur vs. M/s Manikgarh Cement.3. ITC Eligibility for Services Utilized for Plantation and Gardening:The AAR had ruled that services related to plantation and gardening within the plant area, including mining areas and other business premises, qualify for ITC. The appellant supported this, arguing that such activities are necessary for business operations and compliance with environmental laws. The appellate authority upheld this part of the AAR's ruling, recognizing that maintaining green areas is integral to business operations for pollution control and compliance with statutory requirements. Therefore, ITC on such services is justified.Conclusion:The appeal by M/s. National Aluminium Company Ltd. (Appellant-I) was largely dismissed, while the appeal by the Commissioner of CX & GST, Bhubaneswar (Appellant-II) was partially upheld. The ruling of the Odisha Authority for Advance Ruling was modified to disallow ITC for maintenance of guest houses, transit houses, and trainee hostels, but upheld ITC for plantation and gardening services within business premises. The decisions not challenged by the appellants remain valid, and both appeals were disposed of accordingly.