Ordnance Factory qualifies as Central Government, gets e-way bill exemption but denied ITC for canteen operations

The AAR Maharashtra ruled that an Ordnance Factory under the Ministry of Defence qualifies as Central Government under CGST Act provisions. The factory was exempted from generating e-way bills for goods movement and from GST on transport of military equipment. However, Input Tax Credit was denied for expenses related to industrial canteen operations (food, beverages, manpower services, LPG cylinders) as these constitute exempt supplies under relevant notifications. ITC was also unavailable for immovable property rental activities. The authority allowed ITC for factory hospital medicines and related inputs/services effective from February 1, 2019, following amended provisions.

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Issues Involved:
1. Applicability of audit by a Chartered Accountant or Cost Accountant under section 35(5) of the CGST Act, 2017.
2. Exemption for preparation and generation of E-way bills for Ordnance factories and other Central Government & Public Sector Undertakings (PSUs) under the Ministry of Defence.
3. Exemption on payment of GST on transport of military or defence equipment through a goods transport agency.
4. Eligibility of Input Tax Credit (ITC) on inputs and input services related to manufacturing against GST liability on renting of immovable property.
5. Allowability of ITC in respect of food and beverages consumed in the industrial canteen.
6. Allowability of ITC in respect of manpower services hired for the industrial canteen and LPG cylinders refilled for use in the industrial canteen.
7. Allowability of ITC in respect of medicines purchased for the factory hospital and other inputs and input services used in the factory hospital.

Detailed Analysis:

Issue 1: Applicability of Audit
Question Withdrawn: The applicant withdrew the question regarding the applicability of audit by a Chartered Accountant or Cost Accountant under section 35(5) of the CGST Act, 2017.

Issue 2: Exemption for E-way Bills
Affirmative Ruling: The exemption under Rule 138(14)(k) of the CGST Rules, 2018, which states that no e-way bill is required for any movement of goods caused by a defence formation under the Ministry of Defence, is applicable to the applicant. The applicant, functioning under the Ordnance Factory Board (OFB) and the Ministry of Defence, qualifies for this exemption.

Issue 3: Exemption on GST for Transport
Affirmative Ruling: The exemption from GST on the transport of military or defence equipment through a goods transport agency, as per Notification No. 12/2017-Central Tax (Rate), is applicable to the applicant. The applicant's transportation of goods like propellant and explosives used in ammunition manufacturing qualifies for this exemption.

Issue 4: ITC on Inputs and Input Services for Renting Immovable Property
Negative Ruling: The applicant is not entitled to avail ITC on inputs and input services related to the main business activity of manufacturing against the GST liability on renting immovable property. Since the applicant is considered a "Central Government" entity, the GST on renting immovable property is payable under reverse charge mechanism by the recipient of the service, not by the applicant.

Issue 5: ITC for Food and Beverages in Industrial Canteen
Negative Ruling: ITC is not allowable for food and beverages consumed in the industrial canteen. The supply of food and beverages to employees is considered an exempt supply, attracting a NIL rate of tax as per Notification No. 12/2017-Central Tax (Rate). Consequently, ITC is not available under Section 17(2) of the CGST Act, 2017.

Issue 6: ITC for Manpower Services and LPG Cylinders in Industrial Canteen
Negative Ruling: ITC is not allowable for manpower services hired for the industrial canteen and LPG cylinders refilled for use in the industrial canteen. The supply of food and beverages to employees is exempt from tax, and thus ITC on inputs and input services used for this exempt supply is not available under Section 17(2) of the CGST Act, 2017.

Issue 7: ITC for Medicines and Other Inputs in Factory Hospital
Affirmative Ruling (Post 01.02.2019): ITC is allowable for medicines purchased for the factory hospital and other inputs and input services used in the factory hospital from 01.02.2019 onwards. This is due to the amendment in Section 17(5)(b) of the CGST Act, 2017, which allows ITC where the provision of health services is obligatory for the employer under any law. However, ITC is not available for the period prior to 01.02.2019.

Conclusion:
The judgment provided clear rulings on each issue, affirming exemptions and ITC eligibility where applicable and denying ITC in cases of exempt supplies. The detailed analysis ensures compliance with the CGST Act and relevant notifications.

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