TaxTMI 
TaxTMI 
2022 (1) TMI 660
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.... India Limited (hereinafter referred to 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, neces....
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....he Applicant is required to register itself as an Input Service Distributor for 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....
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.... as to necessity of availing the ISD facility itself. (b) It has been submitted by the Appellant that Section 24 merely refers to the necessity of an independent registration, 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 su....
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....acts levy of GST: such a mechanism is also in line with the intent of GST to levy consumption-based Tax. In such a case, the same availment of common input services at the hands of head office cannot be subjected to 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 submi....
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....mber 12, 2018 so as to attain clarity as to inapplicability of GST on the cost of employees as may be recovered by one distinct unit from another distinct unit. However, the impugned Order is completely silent on the stated submissions. 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....
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....nd proviso to Rule 28, the Appellant has submitted that all the units of Appellant registered as distinct units are engaged in providing taxable supplies, and are eligible to avail ITC of the input supplies. In such a case, where the supplier unit supplies the services of facilitating common input services on behalf of 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: ....
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.... (b) It is submitted that the additional submissions referred above indeed support the submissions relating to clarification sought by Appellant from the Authorities. However, the Authorities have, instead of scrutinising/analysing these submissions, chosen to remain silent on the same throughout the impugned Order. It is further submitted that, absence of any material 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 o....
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....ices on which ITC has been availed by the Appellant, sample invoice for cross charge between distinctly registered entities. Input Tax Credit register & GSTR-3B of distinct persons evidencing availment of ITC of GST charged on the invoice of cross charge along with compilation of case laws relied upon by them. They also reiterated their earlier submissions made in the appeal memorandum. They further requested to file an 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 CG....
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....levant portion of which has been reproduced herein under: (1) For the purposes of this Act, the expression "supply" includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business:...... (b) ..................... (c) activities specified in schedule I, made or agreed to be made 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 deno....
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....titled to avail and utilize the credit of tax paid on the common input services received by it on behalf of the branch offices/units." 23. Now, coming to the moot issue no. (iii). i.e.. whether they have to be compulsorily registered as an ISD in accordance with Section 24(viii) of the CGST Act. 2017 under the circumstances as detailed above, we will first examine the relevant provision of Section 24(viii) of the CGST Act. 2017. which is being reproduced herein under: 24. Notwithstanding anything contained in sub-section (1) of section 22. 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 pai....
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.... on behalf of their branch offices/units. 28. In this regard, it is opined that the Appellant are not entitled to avail or utilize the credit of tax paid on the common input services received by them on behalf of their branch offices/units as the said common input services are used or consumed by the branch offices/units. and not by the Head Office. Thus, the aforesaid contention, put forth by the Appellant wherein they have argued that the Head Office itself will be availing and utilizing the credit of lax paid by it on the said common input services for selling off its own GST liability which 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 l....
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.... under the provisions of Section 2(61) of the CGST Act. 2017. Here, it is be mentioned that the said GST amount of Rs. 14,400/-. paid by the Head Office to the third party vendors, would be recovered by the Appellant's Head Office in the capacity of pure agent as provided under Rule 33 of the CGST Rules. 2017, which is being reproduced hereinunder: 33. Value of supply of services in case of pure agent.- Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value 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 supplie....
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....ovisions laid under Section 24(viii) of the CGST Act. 2017, it is conclusively inferred that any persons, which fulfills the condition of the ISD as provided under 2(61) of the CGST Act. 2017. and intends to distribute the credit of tax paid on account of the receipt of the common input services for its branches/units, will have to compulsorily register itself as an ISD. and it is immaterial whether the person is already holding other separate registrations under GST Act, or not. 35. Therefore, under the present facts and circumstances, it is imperative that the Appellant's Head Office, if it intends to distribute the credit of tax paid on account of the availment 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 e....
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.... as supply, and hence will not attract levy of GST in terms of entry I of the Schedule III to the CGST Act. 2017. In this regard, the Appellant have contended that even though employees of the Appellant at one distinct unit provide assistance to other distinct units of the Appellant, the employees are essentially performing functions for the same legal entity. They have further contended that it is settled law that legal relationship of employment is between employee and the Company as a whole, encompassing all its establishments. This position of law is also evident from the fact that in case of closure of any manufacturing unit, the right to emoluments/compensation of employees working in such unit survives, and the obligation of legal 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,....