TaxTMI 
TaxTMI 
TaxTMI 
2022 (1) TMI 660
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.... as "the Appellant") against the Advance Ruling No. GST-ARA-66/2018-19/B-162 dated 19.12.2018 passed by the Maharashtra Authority for Advance Ruling (hereinafter referred to as the "MAAR"). BRIEF FACTS OF THE CASE 1. The Appellant i.e. M/s. Cummins India Ltd. are engaged in manufacture and sale of a variety of diesel engines, parts thereof, and related services, and undertake all day-to-day activities required therefore. The Appellant are duly registered under the Central Goods and Services Tax Act, 2017 ("CGST Act") and Maharashtra Goods and Services Tax Act 2017 ("MGST Act") bearing GSTIN 27AAACC7258B1ZW. 2. Post-implementation of GST, the Appellant had analyzed all its business activities and day-to-day operations to ascertain levy of GST and necessary compliance under GST legislature. However, there appeared ambiguity in few of the activities of Appellant vis-a-vis interpretation of GST legislation. Thus, the Appellant had preferred an application to seek a Ruling relating to the following issues: i. Classification of Engine manufactured by Appellant ii. Levy of GST on facilitation of common input services, necessity of registering as an 'Input Service Distributor....
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....or distribution of ITC on common input supplies? 9. RULING PASSED BY AUTHORITY FOR ADVANCE RULING i. Availment of input tax credit on common input supplies on behalf of other unit / units registered as distinct person qualifies as supply and attracts GST. ii. Assessable value shall be arrived in terms of Rule 30 of the CGST Rules, 2017 (i.e. 110% of the cost of provision of such services). iii. The Appellant is required to obtain registration as ISD. 10. The Appellant, being aggrieved by the part of the impugned Ruling passed by the Maharashtra Authority for Advance Ruling, have preferred the present Appeal before the Maharashtra Appellate Authority for Advance Ruling (hereinafter referred to as "the MAAAR"). GROUNDS OF APPEAL 11. The grounds, mentioned by the Appellant in their Appeal memorandum, are as under. i. Impugned Order has failed to clarify the inapplicability of GST relating to functions of an employee from one distinct unit for another distinct unit, which cannot be treated as a supply in as much as services of an employee are excluded from the definition of Supply under Schedule III of the CGST Act: ii. The necessity for Appellant to determine the assessable....
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....egistration, if a person intends to avail the facility of ISD. The concept of ISD in GST regime is defined under Section 2(61) of the CGST Act. The relevant definition has been reproduced below for easy reference: "Input Service Distributor" means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central Tax, State tax, integrated Tax or Union territory Tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office;" (c) Referring to the above definition the Appellant has submitted that an ISD under GST regime is an office meant to receive tax invoice towards receipt of input services and further distribute the credit to the supplier units (having the same PAN) proportionately, i.e.. distinct persons, by issuing prescribed documents. As such, when the input supplies are being received by a unit on behalf of distinct persons, the ISD mechanism enables it to pass on the ITC to the unit which has actually consumed such servi....
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....distribution of ITC through ISD mechanism. The necessity to levy GST on availment of common input services on behalf of distinct units as well as treating the same for distribution of ITC through ISD would lead to anomality of interpretation, and result in a ruling that is practically infeasible to implement. Such a ruling defeats the very purpose of seeking clarity on the question raised by the Appellant, and is therefore unsustainable in law. (i) The Appellant has also submitted that while the Impugned Ruling has recorded its findings relating to necessity of registering as an ISD. it has at the same time mentioned that ISD is a facility that is available for persons / businesses. That being so, it cannot be said that such facility is a necessity. Also, the Impugned Ruling has nowhere clarified as to why the same needs to be followed despite the mechanism to treat transaction between distinct persons as 'supply', and levy GST thereon. It has also been submitted by the Appellant that while the Ruling itself has treated availment of common input services on behalf of other distinct units to be a supply on which GST is required to be levied, the necessity of obtaining ISD b....
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....bmissions. It is, therefore, contended by the Appellant that the cost of employee's salary as may be recovered by one distinct unit from another distinct unit may be excluded from the levy of GST. 12.3 DETERMINATION OF ASSESSABLE VALUE BASED ON 110% OF COST OF PROVISION OF SERVICE IS UNSUSTAINABLE IN LAW: (a) The Appellant has contended that since each of Appellant's unit is registered independently, and is treated as a 'distinct person' in view of provisions of Section 25(4) of the CGST Act, value of supply made between such distinct person is required to be assessed in view of Rule 28 of the Central Goods and Service Tax Rules, 2017 ("CGST Rules"). Relevant portion of Rule 28 is extracted below for ready reference: "28. Value of supply of goods or services or both between distinct or related persons, other than through an agent.- The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall- (a) be the open market value of such supply; (b) if the open market value is not availab....
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.... other recipient units, the value of such facilitation service can be determined based on the deeming fiction as provided under second proviso to Rule 28. Accordingly, any nominal value assigned to such supply of facilitation is deemed to be accepted as open market value and payment of GST thereon would be treated as sufficient compliance with the obligation to discharge GST liability. (e) It is further contended by the Appellant that the Impugned Ruling has failed to take into cognizance the applicability of second proviso to Rule 28. and has invoked the provisions of Rule 30 to determine the assessable value based on 110% of the cost of provision of Service. As a matter of fact, the impugned Order is completely silent on the additional submission of the Appellant in support of Applicability of Rule 28. Relevant portion of the Ruling is reproduced below: Rule 30 prescribes for value of supply of goods or services or both based on cost of production or manufacture. The applicant has submitted that they are engaged in manufacture, sale of a variety of diesel engine, parts thereof, and related services, and undertakes all day-to-day activities required, therefore. Thus, they have ....
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....terial findings relating to additional submissions made by the Appellant which can potentially support the clarification as sought for by the Appellant in the present case, renders the Impugned Ruling non-speaking of the issue relevant to the present case, and is therefore, liable to be modified on this ground alone. Reliance in this regard is placed on the decision of Hon'ble High Court in the case of Anil Products Limited vs CCE [2010 (257) ELT 523 (Guj.)] wherein Hon'ble High Court quashed the Tribunal's decision which was devoid of specific findings on submissions made, judgments relied upon, and the distinguishing features pointed out by the appellant therein. Relevant portion of the decision is reproduced below: "We are of the opinion that the sole reliance placed by the Tribunal in the decision of Shanpur Industries (supra) is not justified and the Tribunal ought Io have given its specific findings on the various submissions made, judgments relied upon and the distinguishing features pointed out by the appellant before the Tribunal." (c) The position of law expounded above has time and again been upheld in a catena of decisions referred below: * Micro Stretc....
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.... additional submission by 02.11.2021 in response to our queries as to some of the submissions made by the Appellant during the personal hearing were not part of the original Advance ruling Application. ADDITIONAL SUBMISSIONS DATED 02.11.2021 16. The appellant vide their additional submission dated 02.11.2021 have stated that all submissions, which are being made in the said personal hearing before the bench of the Appellate Authority for Advance Ruling, have also been made before the Advance ruling Authority vide various submission made at the different point of times. They further deposed that the submissions regarding valuation of the impugned transaction pertaining to the facilitation services in terms of the second proviso to clause (c) of rule 28 of the CGST Rules, 2017 as well as their contention in respect of the obtaining the ISD registration for the Head Office in as much as obtaining registration for ISD should not be compulsion for such offices/units which intend to avail the ITC for the GST paid on procurement of the Common Input services on behalf of other units, have been specifically made vide their letter dated 12.12.2018 filed before the Maharashtra Advance Rulin....
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.... without consideration: Further Schedule I to the CGST Act, 2017 has been reproduced herein under: 1. ........... 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in course or furtherance of business: Now, we will comprehend the meaning of services as provided in the Section 2(102) of the CGST Act. 2017, which is being reproduced herein under: "services" means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged: 19. Thus, the GST Law has provided a very wide connotation for services, which will cover any activity other than those, which involves goods, money and securities. In view of this wide scope and coverage of the term "services", it is adequately evident that the impugned activities of providing facilitation services to their branch offices/units by way of availment of the common input services by the Appellant' Head office on behalf of its Branch Offices/Unit....
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..... the following categories of persons shall be required to be registered under this Act,- (i)................ (ii) .................. ........................ (viii) Input Service Distributor, whether or not separately registered under this Act: ................................ 24. On perusal of the above provision, it is revealed that all the Input Service Distributors, whether separately registered under this act or not, are to be registered compulsorily as ISD. Thus, the law is very clear in this regard that any Input Service Distributors, which intends to distribute the credit of the tax paid on the common input services received by it on behalf of its branches/units, has to mandatorily register itself as an ISD. and is bound to comply with the provisions and rules made in relation thereto. 25. In the instant case, there is no doubt regarding the Appellant's Head Office as being in the nature of the Input Service Distributor as per the stipulations prescribed in the definition of the Input Service Distributor provided in the Section 2(61) of the CGST Act, 2017. which is being reproduced herein under: Section 2(61) "Input Service Distributor" means an office of....
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....ch would eventually arise on account of providing the said facilitation services to its Branch Offices/Units, does not hold water, and hence not tenable. It is further stated that the ISD is the only option available to the Appellant to pass on the credit of tax paid by the Head Office on the availment of the common input services received from the third -party vendors on behalf of their Branch Offices/Units. 29. The Appellant have further contended vide their additional submissions dated 12.06.2019. that the holding of normal supplier's registration as well as ISD registration will lead to the anomalies, and will have unjust and dreadful GST impact on their taxation. They have depicted this situation by an illustration with hypothetical transactional flow wherein in the first model when they are operating with only normal supplier registration, i.e., without being registered as ISD. they have assumed the cost of common input services to the tune of Rs. 80.000/-, on which they are liable to pay GST to the tune of Rs. 14.400/-. Further, they have assumed the cost of employee's salary to the tune of Rs. 20.000/-. thereby, making the total cost of supply/taxable value of the ....
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.... of supply, if all the following conditions are satisfied, namely,- (i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient; (ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and (iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. Explanation.- For the purposes of this rule, the expression "pure agent" means a person who- (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; (b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; (c) does not use for his own interest such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services in addition to the amount recei....
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....t of common input services on behalf of the Branch Offices/Units, register themselves as an ISD apart from the normal supplier's registration. 36. Now. let us move on to discuss moot issue no. (iv). i.e.. what will be the valuation of the services provided by the Head Office to its Branch Offices/Units, and whether the allocation of the cost of the employees salary by the Head Office/Corporate Office to the branch offices would attract levy of GST. For the valuation part of this issue, we intend to examine the valuation rules governing the valuation of the transactions in different conditions and circumstances. For this we refer to Rule 28 of the CGST Rules. 2017. as emphasized by the Appellant, which is reproduced herein under: "28. Value of supply of goods or services or both between distinct or related persons other than through an agent- The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall- a. be the open market value of such supply; b. if the open market value is not available, b....
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....egal entity to perform its duties as the employer continues. Accordingly, functions performed by the employee from one distinct unit for another distinct unit continue to be covered by the employer - employee relationship, which is explicitly excluded from the levy of GST vide entry no. I of Schedule - III to the CGST Act. 39. In this regard, it is evident that the employees of the Appellant's Head Office are working at behest of the Head Office, and not at behest of the Branch Offices/Units. Further, since the Head Office is using all its human resources to facilitate the operational requirements of the Branch Offices/Units by way of procuring common input services on behalf of the Branch Offices/Units. thereby, providing the impugned facilitation services, therefore, allocation and recovery of any amount including its employees salary cost from the Branch Offices/Units will be subject to GST. The Appellant have further contended regarding inapplicability of GST on the allocation and recovery of the salary cost of the Head Office's employee from the Branch Offices/Units owing to the entry I of the Schedule III to the CGST Act. 2017, which stipulates as under: services by ....