2020 (6) TMI 703 - AAAR - GST

Appellate Authority affirms Ordnance Factory Bhandara as 'Central Government' under CGST Act

The Appellate Authority determined that Ordnance Factory Bhandara (OFB) qualifies as 'Central Government' under the CGST Act, 2017. Consequently, various ... Central Government or not - appellant is Ordnance Factory Bhandara - AAR observed that the Appellant cannot be construed as Central Government on the ground that the same had not been created by the Constitution of India as a legislative, executive or judicial authority of the country - HELD THAT:- Where the Appellant is charging some rent/consideration from their employees for providing accommodation facility in the residential colony maintained by it, which renders the said activity of the Appellant as supply of residential services, which is an exempt supply in itself in terms of the provisions made at Sr. 12 of the Notification No. 12/2017-C.T. (Rate) dated 28.06.2017. Further, the education services provided by the factory school to the children of the employees, renting of the recreational halls to the employees for organizing some family functions against certain considerations are exempt supply. Since, all the aforementioned supplies made by the Appellant are exempt supply, any inputs or input services viz. maintenance, upkeep, repair, providing security, garbage collection, sewage treatment, civil construction, sweeping & cleaning, etc., pertaining to the residential quarters of employees of Ordnance Factory Bhandara & other allied organisations, market area, places for worship of God, gardens, parks, playgrounds, swimming pool, footpaths, street lightings, which are used inside the residential colony will not be available to the Appellant for ITC in accordance with the provision of Section 17(2) of the CGST Act, 2017. Shops that are given on rental basis for commercial purposes - HELD THAT:- As per the provision of section 16(1) of the CGST Act, 2017, the Appellant is entitled to avail ITC in respect of expenditures incurred on the input services used in the taxable supply of the renting of immovable property for commercial purposes. Inter-connected roads between various establishments and facto premises - HELD THAT:- It is observed that the construction and maintenance of the roads in the factory estate is mandatory for the Appellant to carry out their business operation. Without the proper road, the transportation of inputs, capital goods, and the finished products of the Appellant will not be able to take place. Thus, as per section 16(1) of the CGST Act, 2017, the expenditures incurred on the construction and maintenance of the road from the factory’s main gate to the factory premises where the manufacturing activities take place is eligible for ITC, since the same is incurred on the input services, which are used in the course or furtherance of business - However, the construction and maintenance of the roads within the residential complex of the factory estate are in relation to the supply of the accommodation facility to the employees in the residential colony maintained by the Appellant, which are an exempt supply as discussed above, therefore, ITC in respect of such expenditures on the construction and maintenance of road inside the residential colony will not be available to the Appellant in accordance with the provision of section 17(2) of the CGST Act, 2017. Land that is currently not used for any purpose whatsoever - HELD THAT:- The ITC in respect of the health services are available to a registered person subject to the condition that the employer i.e. the registered person, is under obligation to provide such health services to its employees in terms of the provisions of any law for the time being in force. In the present case, it is obligatory for the Appellant to provide the health services to its employees and their dependents as per the Ordnance Factory Medical Regulation. Hence, the ruling pronounced by the AAR in this regard is erroneous, and warrants to be set aside. ITC - input services pertaining to maintenance and upkeep of guest houses maintained by them - HELD THAT:- As the Appellant is charging rent from the guests availing the guest house facilities, which may be considered as exempt supply in terms of Sr. NC. 6 of the Notification no. 12/2017- Central Tax-(Rate) dated 28.06.2017 as the Appellant, as discussed above, has been held to be the Central Government. Therefore, No ITC is available against the said exempt supply in terms of the provision of section 17(2) of the CGST Act, 2017. Therefore, the ITC in respect of the inputs and input services pertaining to the guest houses will not be available to the Appellant. Whether they were eligible to avail ITC in respect of the expenditure related to purchase of LPG cylinders used within industrial canteen? - HELD THAT:- Input Tax Credit in relation to LPG cylinders that are re-filled for use in industrial canteen should be allowed as per amended section 17(5) (b) & 16(1) of the CGST Act, 2017. Whether proportionate Input Tax Credit has to be reversed in cases where lesser payment is made to the supplier due to deduction on account of liquidated damages from supplier’s dues? - HELD THAT:- The transaction related to L.D. is being recorded in separate accounting code. Maintenance of such accounting codes by the Appellant clearly shows that the Appellant is paying the actual taxable amount and GST thereon to its suppliers, as mentioned in the tax invoices raised by its suppliers. Further, the reflection of the illustrated sample invoices in the GSTR -2A of the Appellant further substantiates the Appellant’s claim that the suppliers are also aware of their liability to pay the actual GST and not the lesser amount of GST are being paid by the suppliers, even in the cases where there is deduction of liquidation damages from the payment made to such suppliers - the Appellant was rightful in challenging the ruling pronounced by AAR in this regard, and accordingly, they are not required to reverse the ITC on account of the deduction of L.D. from the payment made to the suppliers. Issues Involved:1. Applicability of GST on various services provided by Ordnance Factory Bhandara.2. Eligibility for Input Tax Credit (ITC) on various expenditures.3. Requirement to reverse ITC on lesser payment due to liquidated damages.4. Applicability of specific GST notifications to Ordnance Factory Bhandara.Detailed Analysis:1. Applicability of GST on Various Services Provided by Ordnance Factory Bhandara:- Liquidated Damages and Security Deposit Forfeiture: The Appellate Authority concluded that Ordnance Factory Bhandara (OFB) qualifies as 'Central Government' as per Section 2(53) of the CGST Act, 2017. Therefore, services provided by OFB by way of tolerating non-performance of a contract, for which consideration in the form of fines or liquidated damages is payable, attract NIL rate of tax under Sr. No. 62 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017.- Food and Beverages in Industrial Canteen: The supply of food and beverages by OFB to its employees inside the industrial canteen is considered a service. Since OFB is 'Central Government' and the recipients (employees) are non-business entities, this service attracts NIL rate of tax under Sr. No. 6 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017.- Community Hall Rental: Renting out the community hall to employees for personal purposes is considered 'renting in relation to immovable property.' As OFB is 'Central Government' and the recipients are non-business entities, this service also attracts NIL rate of tax under Sr. No. 6 of Notification No. 12/2017-C.T. (Rate).- School Bus Facility: The transportation service provided by OFB for the children of employees is a service to non-business entities and attracts NIL rate of tax under Sr. No. 6 of Notification No. 12/2017-C.T. (Rate).- Conducting Exams for Vacancies: The service of conducting exams for various vacancies in OFB, provided to candidates (non-business entities), attracts NIL rate of tax under Sr. No. 6 of Notification No. 12/2017-C.T. (Rate).2. Eligibility for Input Tax Credit (ITC) on Various Expenditures:- Maintenance of Garden Inside Factory Premises: ITC is available as the maintenance of the garden is mandated by the Maharashtra Pollution Control Board and is essential for the business operations of OFB.- Maintenance and Upkeep of Residential Quarters and Other Facilities: ITC is not available for inputs and input services related to residential quarters, gardens, parks, playgrounds, etc., within the factory estate as these are considered exempt supplies.- Medicines and Hospital Maintenance: ITC is available for inputs like medicines and services related to hospital maintenance as providing health services to employees is obligatory under the Ordnance Factory Medical Regulations, which aligns with the amended Section 17(5)(b) of the CGST Act, 2017.- Maintenance of Guest Houses: ITC is not available for inputs and input services related to guest houses as OFB charges rent for their use, making it an exempt supply.- Purchase of LPG Cylinders for Industrial Canteen: ITC is not available as the supply of food and beverages in the canteen is an exempt supply under Sr. No. 6 of Notification No. 12/2017-C.T. (Rate).3. Requirement to Reverse ITC on Lesser Payment Due to Liquidated Damages:- The Appellate Authority concluded that OFB is not required to reverse ITC on account of liquidated damages deducted from payments to suppliers. The deduction of liquidated damages is a separate transactional event and does not affect the taxable amount or GST payable on the original supply.4. Applicability of Specific GST Notifications to Ordnance Factory Bhandara:- Notification No. 2/2018-Central Tax (Rate): Applicable to OFB for services by an arbitrator or an advocate.- Notification No. 3/2018-Central Tax (Rate): Applicable to OFB for services supplied by way of renting immovable property.- Notification No. 36/2017-Central Tax (Rate): Applicable to OFB for payment of tax on reverse charge mechanism for sale of used vehicles, seized and confiscated goods, old and used goods, waste, and scrap to a GST registered person.Conclusion:The Appellate Authority set aside the ruling of the AAR, Maharashtra, and concluded that OFB, being part of the Ministry of Defence, Government of India, qualifies as 'Central Government' for the purposes of GST. Consequently, various services provided by OFB attract NIL rate of tax, and ITC eligibility is determined based on the nature of the supply and compliance with relevant GST provisions.