2023 (8) TMI 572 - AAAR - GST

Appellant must reverse ITC under Section 17(2) and Rule 42 for alcoholic liquor sales deemed exempt supplies

The AAAR, West Bengal dismissed the appeal regarding ITC reversal on alcoholic liquor sales. The authority held that appellant must reverse ITC under ... Reversal of ITC - sale of alcoholic liquor for human consumption effected by it at its premises - whether the appellant is required to undertake reversal in terms of Rule 42 to the extent of the turnover that relates to sale of alcoholic liquor for human consumption? - HELD THAT:- From the plain reading of the explanation to the Rule 42(1) of the GST Rules, 2017 as well as Entry 5 I and 54 of List II of seventh schedule, it is clear that for the purpose of computation of exempt turnover as well as total turnover, duties and taxes on alcoholic liquor for human consumption shall be excluded and not the whole value of sales of alcoholic liquor for human consumption. The appellant has claimed that under several legislations in India the term “goods” has been defined for charging of taxes on alcoholic liquor, and so the definition of ‘goods’ under section 2(52) of the GST Act, 2017, cannot include alcoholic liquor for human consumption. This claim of the appellant is not tenable. Defining “goods” in other Acts, does not bar defining the same in any other Acts including GST Act 2017. Clause 12A of Article 366 of the Constitution which was inserted vide Section 14 of the Constitution (101st Amendment) Act, 2016 also establishes alcoholic liquor for human consumption as goods even though that is in exclusion for the purpose of charging GST. It is established that alcoholic liquor for human consumption is “goods” even under virtue of the Constitution. Section 9 of the GST Act, 2017 provides for levy of GST on intra-state supplies of goods and/or services except on the supply of the alcoholic liquor for human consumption. This provision is in consonance of Clause 12A of Article 366 of the Constitution - Further, as per Section 49(4) of the GST Act, the amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or IGST Act. So, the objective behind ITC is for making payment towards output tax. Therefore, ITC cannot be allowed for the supplies which are non-taxable. Hence, as alcoholic liquor for human consumption is non-taxable, ITC cannot be allowed for supply of the same. Thus, the sale of alcoholic liquor for human consumption is a non-taxable supply under Section 2(78) of the GST Act, 2017 and subsequently is an exempt supply under Section 2(47) ibid. - the appellant is required to reverse input tax credit (ITC) in terms of sub-section (2) of section 17 ibid read with Rule 42 of the GST Rules, 2017 for sale of alcoholic liquor for human consumption. Appeal dismissed. Issues involved:1. Condonation of delay in filing the appeal.2. Obligation to reverse Input Tax Credit (ITC) under Section 17(2) of the CGST Act read with Rule 42 of the CGST Rules in view of the sale of alcoholic liquor for human consumption.3. Classification of alcoholic liquor for human consumption as goods under GST law.4. Definition and implications of non-taxable and exempt supply under the GST Act.5. Legislative intent and interpretation regarding the exclusion of alcoholic liquor from the GST regime.Summary:Condonation of delay:The request for condonation of delay in filing the appeal was accepted under Section 100(2) of the West Bengal Goods and Services Tax Act, 2017/ Central Goods and Services Tax Act, 2017.Obligation to reverse ITC:The principal question was whether the appellant is required to reverse ITC under Section 17(2) of the CGST Act read with Rule 42 of the CGST Rules due to the sale of alcoholic liquor for human consumption. The WBAAR held that the sale of alcoholic liquor qualifies as a non-taxable supply under the GST Act and thus falls under the category of exempt supply. Consequently, the appellant is required to reverse ITC attributable to the exempt supply.Classification of alcoholic liquor:The appellant contended that alcoholic liquor for human consumption does not qualify as goods under GST law, citing Article 366(12A) of the Constitution, which excludes it from the GST regime. However, the WBAAR and the appellate authority found that alcoholic liquor is considered goods under the GST Act, although it is excluded from GST levy.Non-taxable and exempt supply:The WBAAR observed that the sale of alcoholic liquor for human consumption is a non-taxable supply under Section 2(78) of the GST Act and is treated as an exempt supply under Section 2(47) of the GST Act. Therefore, the appellant must reverse ITC in accordance with Section 17(2) of the GST Act read with Rule 42 of the GST Rules.Legislative intent and interpretation:The appellant argued that the legislative intent was to exclude alcoholic liquor from the GST regime and that reversing ITC indirectly imposes a tax on alcoholic liquor, which is prohibited. The appellate authority, however, maintained that the exclusion pertains to the levy of tax and does not affect the classification of alcoholic liquor as goods or the requirement to reverse ITC for exempt supplies.Ruling:The appellate authority confirmed the WBAAR ruling, stating that the sale of alcoholic liquor for human consumption is a non-taxable supply and an exempt supply under the GST Act. Consequently, the appellant is required to reverse ITC in terms of Section 17(2) of the GST Act read with Rule 42 of the GST Rules. The appeal was rejected.