AAR Karnataka denies advance ruling on ITC eligibility for common services under Section 97(2) CGST Act

The AAR Karnataka ruled that an applicant engaged in both taxable supply of ink and exempted supply of rupee notes to RBI cannot seek advance ruling on ITC eligibility for common services under Section 97(2) of CGST Act, 2017. The authority held that ITC on common services used for both taxable and exempted supplies is governed by Section 17(2) read with Rule 42 of CGST Rules, 2017, requiring proportionate credit based on taxable turnover. For invoices accounted in FY 2019-20 but ITC claimed in FY 2020-21, the turnover of FY 2019-20 should be considered for calculating ineligible ITC under Rule 42.

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Issues Involved:
1. Eligibility of ITC on common services used for both taxable and exempted supplies.
2. Method of claiming ITC in accordance with law.
3. Financial year turnover to be considered for calculating ineligible ITC under Rule 42 of the CGST Rules, 2017.

Analysis of the Judgment:

1. Eligibility of ITC on Common Services:
The applicant sought clarity on whether ITC can be claimed on common services utilized for both taxable and exempted supplies. The relevant services include CISF & Township Security Services, Maintenance of Water Treatment Plant, Horticulture, Maintenance of Residential Quarters, Maintenance of Information System, and Maintenance of Sewage Treatment Plant.

Findings:
- CISF Services: ITC is restricted to the extent attributable to taxable supplies as the services are used for both taxable (Varnika IMU) and exempted (Printing Press & Residential Township) supplies.
- Township Security Services: ITC is not available as these services are related to guarding the residential area, which is not related to the business.
- Maintenance of Water Treatment Plant: ITC is restricted to the extent attributable to taxable supplies as the treated water is used for both taxable and exempted supplies.
- Horticulture: ITC is not available as these services are not related to the business.
- Maintenance of Residential Quarters: ITC is not available as these services are not related to the business.
- Maintenance of Information System: ITC is available if the services are used exclusively for Varnika (IMU). If used for both, ITC is restricted to taxable supplies.
- Maintenance of Sewage Treatment Plant: ITC is not available as these services are not related to any outward supply and hence not related to the business.

2. Method of Claiming ITC:
The applicant inquired whether their method of claiming ITC was in accordance with the provisions of law. This question is not covered under Section 97(2) of the CGST Act, 2017, and hence the authority refrains from giving any ruling.

Observations:
- The applicant is involved in both taxable and exempted supplies and must avail ITC proportionately as per Section 16, 17 of the CGST Act, 2017 read with Rule 42 of the CGST Rules, 2017.
- The applicant maintains separate books for Varnika (IMU) and Printing Press but needs to combine credits for both verticals to determine ITC claims under a single registration.

3. Financial Year Turnover for Calculating Ineligible ITC:
The applicant asked which financial year’s turnover should be considered for calculating ineligible ITC for invoices accounted in FY 2019-20 but claimed during April to September of FY 2020-21.

Findings:
- This issue is not covered under Section 97(2) of the CGST Act, 2017, and hence the authority refrains from giving any ruling.
- However, it is observed that the turnover of FY 2019-20 should be considered as Rule 42 of the CGST Rules, 2017 applies to a particular tax period.

Ruling:
1. Eligibility of ITC on Common Services: The question is not covered under Section 97(2) of the CGST Act, 2017, and hence no ruling is provided.
2. Method of Claiming ITC: The question is not covered under Section 97(2) of the CGST Act, 2017, and hence no ruling is provided.
3. Financial Year Turnover for Calculating Ineligible ITC: The question is not covered under Section 97(2) of the CGST Act, 2017, and hence no ruling is provided.

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