2021 (4) TMI 561 - AAR - GST

AAR: ITC cannot be used for GST liability on Castor oil seeds if no nexus with inputs.

The Authority for Advance Ruling (AAR) ruled that the applicant could not use the Input Tax Credit (ITC) balance earned on inputs/raw materials for ... Eligibility and conditions for taking input tax credit under Section 16 of the CGST Act, 2017 - nexus between inputs and outward supplies (input-output nexus) - utilisation of balance in the electronic credit ledger for payment of output tax - excluded inputs under Section 17(5) of the CGST Act, 2017Eligibility and conditions for taking input tax credit under Section 16 of the CGST Act, 2017 - nexus between inputs and outward supplies (input-output nexus) - utilisation of balance in the electronic credit ledger for payment of output tax - Whether input tax credit balance in the Electronic Credit Ledger, earned on gold and silver dores used for bullion manufacture, can be utilised to discharge GST liability on castor oil seeds procured from agriculturists and supplied by the applicant. - HELD THAT: - The Authority examined Section 16(1) which entitles a registered person to take input tax credit only where the inputs are 'used or intended to be used in the course or furtherance of business,' and Section 17(5) which lists ineligible items. The Authority found that gold and silver dores intended as inputs for manufacture of bullion are not covered by the exclusions in Section 17(5) and thus are prima facie eligible as inputs for the bullion business (para 11). However, the determinative requirement is a demonstrable nexus between the inputs on which ITC was availed and the outward supply for which credit is to be utilised. The applicant sought to apply ITC earned on bullion inputs to tax on castor oil seeds, but failed to furnish any documentary material, product literature or explanation showing how gold/silver dores are used or intended to be used in the course or furtherance of the business of supplying castor oil seeds (para 12). On plain comparison, there is no nexus between the bullion inputs and castor oil seeds. In absence of evidence establishing the required connection under Section 16(1), the basic statutory condition for entitlement to utilise that ITC for payment of tax on castor oil seeds is not satisfied. The Authority therefore concluded that the applicant is not eligible to utilise the Electronic Credit Ledger balance (earned on bullion inputs) for payment of GST on castor oil seeds (paras 11-12, ruling stated in para 13). [Paras 11, 12, 13]The applicant cannot utilise the input tax credit balance in the Electronic Credit Ledger (earned on inputs for bullion manufacture) to discharge GST liability on castor oil seeds procured from agriculturists.Final Conclusion: Advance ruling: Input tax credit accumulated on gold/silver dores used for the applicant's bullion business cannot be used to pay GST on castor oil seeds because the applicant has not established the statutory nexus between those inputs and the supply of castor oil seeds as required under Section 16(1) of the CGST Act, 2017. Issues Involved1. Eligibility to use Input Tax Credit (ITC) for GST liability on Castor oil seeds.2. Nexus between inputs (gold dores, silver dores) and the final product (Castor oil seeds).Detailed AnalysisIssue 1: Eligibility to use Input Tax Credit (ITC) for GST liability on Castor oil seedsThe applicant, M/s. Aristo Bullion Pvt. Ltd., sought an advance ruling on whether they could use the ITC balance available in their Electronic Credit Ledger, earned on inputs/raw materials meant for outward supply of bullions, to discharge GST liability on Castor oil seeds procured from agriculturists.The applicant argued that the ITC available in the Electronic Credit Ledger is a pool that can be used for any GST liability on outward supplies, as per Section 49(4) of the CGST Act, 2017. They believed that since the ITC was legitimately earned on inputs used in their business, it should be available for offsetting GST on Castor oil seeds.Issue 2: Nexus between inputs (gold dores, silver dores) and the final product (Castor oil seeds)The Authority for Advance Ruling (AAR) examined whether there was a nexus between the inputs (gold dores, silver dores) and the final product (Castor oil seeds). According to Section 16(1) of the CGST Act, 2017, ITC can be claimed only if the inputs are used or intended to be used in the course or furtherance of the business.The AAR found that the applicant did not provide any document or literature to establish a connection between the inputs (gold dores, silver dores) and the business of supplying Castor oil seeds. The AAR emphasized that the inputs must be used in the course or furtherance of the business of supplying the final product, which in this case, was not evident.ConclusionThe AAR ruled that the applicant could not use the ITC balance available in the Electronic Credit Ledger, earned on inputs/raw materials meant for outward supply of bullions, to discharge GST liability on Castor oil seeds. The ruling was based on the lack of nexus between the inputs and the final product, as required under Section 16(1) of the CGST Act, 2017.RulingQuestion: Can the applicant use Input Tax Credit Balance available in the Electronic Credit Ledger legitimately earned on the inputs/raw-materials/inward supplies (meant for outward supply of Bullions) towards the GST liability on ‘Castor Oil Seed’ which were procured from Agriculturists and subsequently meant for onward supplyRs.Answer: The applicant cannot use the Input Tax Credit Balance available in the Electronic Credit Ledger legitimately earned on the inputs/raw-materials/inward supplies (meant for outward supply of Bullions) towards the GST liability on ‘Castor Oil Seed’ which were procured from Agriculturists and subsequently meant for onward supply, for the reasons discussed hereinabove.