ITC on common input services for taxable and exempted supplies falls within Section 97(2) advance ruling scope

The AAAR Karnataka partially allowed the appeal regarding ITC on common input services. The lower authority incorrectly refused to rule on whether ITC can be claimed on common input services used for both taxable and exempted supplies, stating this was outside Section 97(2) scope. The AAAR held this question was within advance ruling scope under Section 97(2)(d) as it involves ITC admissibility on common services used for business furtherance. However, two other questions regarding ITC claiming methodology and financial year calculations were deemed outside advance ruling scope, as they concerned past actions rather than proposed supplies and should be decided by assessing officers.

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Issues Involved:
1. Whether ITC can be claimed on common services utilized for both taxable and exempted supplies.
2. Whether the method followed in claiming ITC is in accordance with the law.
3. Which financial year's turnover should be considered for calculating ineligible ITC under Rule 42 of CGST Rules.

Issue-wise Detailed Analysis:

1. Whether ITC can be claimed on common services utilized for both taxable and exempted supplies:
The Appellant sought a ruling on whether ITC can be claimed on common services such as CISF & Township Security Services, Maintenance of Water Treatment Plant, Horticulture, Maintenance of residential quarters, Maintenance of Information System, and Maintenance of Sewage Treatment Plant, which are used for both taxable and exempted supplies. The lower Authority refrained from giving a ruling, stating that the question was not covered under Section 97(2) of the CGST Act. However, the Appellate Authority found that the admissibility of ITC on common input services falls within the scope of Section 97(2)(d) since it involves examining whether the services are used in the course or furtherance of business and whether they are blocked under Section 17(5). The lower Authority was incorrect in not giving a ruling on this question. The Appellate Authority did not decide on the merits but remanded the matter back for a ruling.

2. Whether the method followed in claiming ITC is in accordance with the law:
The Appellant questioned the correctness of the method followed in claiming ITC. The lower Authority held that this question is not within the scope of an advance ruling under Section 97(2) of the CGST Act. The Appellate Authority agreed, stating that the correctness of the method adopted in compliance with Rule 42 of the CGST Rules should be decided by the assessing officer, not through an advance ruling. Therefore, no ruling can be given on this question.

3. Which financial year's turnover should be considered for calculating ineligible ITC under Rule 42 of CGST Rules:
The Appellant sought clarity on which financial year's turnover should be considered while calculating ineligible ITC under Rule 42 when the inward supply invoices were accounted for in one financial year but ITC was claimed in the subsequent financial year. The lower Authority held that this question is not within the scope of an advance ruling as it does not fall under any matters listed in Section 97(2) and relates to ITC already availed in the past. The Appellate Authority agreed with this finding, concluding that no ruling can be given on this question.

Conclusion:
The Appellate Authority modified the order of the Advance Ruling Authority, holding that the question on whether ITC can be claimed on common services is admissible for advance ruling. However, it upheld the lower Authority's findings that the questions regarding the method of claiming ITC and the financial year's turnover for calculating ineligible ITC are not within the scope of an advance ruling. The appeal was disposed of on these terms.

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