TaxTMI 
TaxTMI 
2023 (2) TMI 872
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....2018. 1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression 'GST Act' would mean the CGST Act and the WBGST Act both. 1.2 The applicant is engaged in the business of providing restaurant services from its lounge bar called "The GRID" and is also providing catering services as well as banquet renting services. Along with such supplies or on a standalone basis, at times, the applicant is also engaged in selling/serving of alcoholic liquor for human consumption to its customers. 1.3 The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application....
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....d observation in course of hearing, the applicant has withdrawn the questions under serial number (i) to (iv) and has also rephrased the question under serial number (v) as under: * Whether or not the applicant is obliged to reverse Input tax Credit ('ITC') under Section 17(2) of the CGST Act read with Rule 42 of the Central Goods and Services Tax Rules, 2017 ('CGST Rules'), in view of the sale of alcoholic liquor for human consumption effected by it at its premises under the facts & circumstances of the present case? 1.6 The aforesaid question, in our conscious opinion, is in respect of admissibility of input tax credit and therefore found to be covered under clause (d) of sub-section (2) of section 97 of the GST Act. We do not agree with the submission made by the concerned officer from the revenue on this issue. 1.7 The applicant states that the question raised in the application has neither been decided by nor is pending before any authority under any provision of the GST Act. 1.8 The application is, therefore, admitted. 2. Submission of the Applicant 2.1 The applicant submits that since the instant application pertains to the sale of alcoholic liquor for human consumpti....
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....ITC of inputs and input services utilized towards such 'exempt supplies' is determined according to the formula prescribed under Rule 42 of the CGST Rules. The relevant extract of the Rule is as follows- "42. Manner of determination of input tax credit in respect of inputs or input services and reversal thereof.-(1) The input tax credit in respect of inputs or input services, which attract the provisions of sub-section (1) or sub-section (2) of section 17, being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, shall be attributed to the purposes of business or for effecting taxable supplies in the following manner, namely,- 2.5 Since the ITC required to be reversed pertains to exempt supplies, it becomes imperative to understand the meaning of the term 'exempt supply'. 'Exempt supply' is defined under Section 2(47) of the CGST Act, in the following manner- "exempt supply" means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrate....
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.... or both, except for taxes on the supply of the alcoholic liquor for human consumption." 2.13 Thus, by virtue of Article 366 (12A), the scope of GST has been restricted, under the Constitution of India, to specifically exclude sale of alcoholic liquor for human consumption. Therefore, selling 'alcoholic liquor for human consumption' cannot even be treated as a 'supply' as envisaged under the Act, much less an exempt supply which is 'not leviable to tax' under the CGST or IGST Act, simply because it cannot even be treated as a subject-matter on which any GST legislation may extend so as to render it either 'leviable' or 'not leviable' under the statute. 2.14 The scope of 'non-taxable supply' thus, must necessarily be limited to those supplies over which the legislature can exercise its legislative competence and impose tax. These may include- (a) Supplies mentioned under Section 9(2) of the CGST Act i.e. supply of petroleum crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel- which is at present 'not leviable to tax' under GST law and which will be brought under such levy with effect from such date as may be notified by the Government on the recommendat....
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....dent and Remembrancer of Legal Affairs, West Bengal v. Girish Kumar Navlakha and Ors., (1975) 4 SCC 754, where the Hon'ble Supreme Court observed that 'the preamble provides the key to the general purpose of the Act.' Reliance is also placed on the case of Popatlal Shah v. State of Madras, 1953 SCR 677, wherein the Hon'ble Supreme Court held as follows- "7. It is a settled rule of construction that to ascertain the legislative intent, all the constituent parts of a statute are to be taken together and each word, phrase or sentence is to be considered in the light of the general purpose and object of the Act itself. The title of the Madras Sales Tax Act describes it to be an Act, the object of which is to provide for the levy of a general tax on the sale of goods in the Province of Madras and the very same words are repeated in the preamble which follows. The title and preamble, whatever their value might be as aids to the construction of a statute, undoubtedly throw light on the intent and design of the legislature and indicate the scope and purpose of the legislation itself. The title and preamble of the Madras Sales Tax Act clearly show that its object is to impose taxes on sal....
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.... to goods and services tax - (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Explanation -The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council." 2.22 On a reading of the aforesaid, it emerges that the Constitution only empowers the State Government to levy excise duty on alcoholic liquor for human consumption as a necessary corollary liquor does not form the subject matter of GST to be levied either by the State or the Central Government. Thus, due to lack of legislative competence, the CGST Act or any other State GST legislation cannot charge GST on sale of alcoholic liquor fit for human consumption. Therefore, the question, that whether supply of alcoho....
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....s or both'. The CGST Act, defines 'supply' under Section 7 as follows- "7. (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;..." 2.28 As discussed above, the term 'supply' for the purpose of GST would not include 'sale of alcoholic liquor' within its fold, since, such an inclusion would be beyond the Constitutional mandate. Any reading to the contrary, cannot be sustained and even if the term 'supply' as defined under Section 7, was intended by the legislature to be read so, it would have to be read down in order to save the vires of the legislation and hence the question of treating sale of alcohol under Rule 42 of the CGST Rules does not arise. What is prohibited to be done directly, cannot be done indirectly 2.29 The Applicant submits that Section 17 of the CGST Act contemplates reversal of credit in certain situations viz "exempt supplies", and "supply for purposes other than business". In other words, when an assessee, for in....
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....;hors the same. The legal text contained in Chapter 84, as explained in Chapter Note 6, clearly states that a software, even if contained in a hardware, does not lose its character as such. When an exemption has been granted from levy of any excise duty on software whether it is operating software or application software in terms of heading 85.24, no excise duty can be levied thereupon indirectly as it was impermissible to levy a tax indirectly. In that view of the matter the decision in PSI Data Systems (supra) must be held to have correctly been rendered." 2.33 Thus, the Hon'ble Supreme Court held that when software has already been granted an exemption, it was not open to the Department to levy tax on it by including it in the value of another excisable commodity i.e. what could not have been done directly could not be done indirectly either. 2.34 It is therefore, submitted that the CGST Act ought not to be interpreted in manner prejudicial to such settled position, where the applicant has to bear tax on such activity in an indirect manner where it is directly and expressly excluded from the scope of the statute. Exclusion of sale of alcoholic liquor for human consumption fro....
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....aking taxable supply (i.e., on which output tax is not payable). This is on the basis that where no output tax is payable, there can ever be any cascading effect of taxes, with regard to the taxes incurred on the inputs which have been put to use for making the output supply, and accordingly, concept of input tax credit would be wholly not warranted. This would also include cases where the inputs on which credits are sought to be claimed have no nexus whatsoever with the output taxable supplies or these are used for non-business purposes. 2.40 In the present case, as set out in the facts of this application, none of the credit availed by the applicant pertains to purchase of alcoholic liquor for human consumption. To put it differently, the entire credit availed by the applicant pertains to those input goods and input services that have been used in making taxable supplies only. 2.41 Under these circumstances, if "exempted supply" is read to include sale of alcoholic liquor for human consumption, even though none of the credits availed by the applicant was on account of procurement of alcoholic liquor for human consumption, then that would (apart from being contrary to the legisl....
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....ered as supply under GST Act invoking article 366(12A) of Constitution of India where constitution excludes alcohol for human consumption from the ambit of levying tax. 3.5 But Section 2(78) of the WBGST Act defines non-taxable supply as supply of any goods or services or both which is not leviable to tax under this Act or under the IGST Act. The definition given here is in consonance of article 366(12A) which only empower to levy tax. So definition of non-taxable supply as per section 2(78) is complete and cannot be restricted and conditioned invoking article 366(12A) of Constitution. So from the above discussion it is clear that supply of liquor is non-taxable supply. 3.6 Now we need to understand exempt supply. Section 2(47) of the WBGST Act defines exempt supply as supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11 or under section 6 of IGST Act, and includes non-taxable supply. 3.7 As supply of liquor is non-taxable supply, it also comes under exempt supply. So it comes under the purview of reversal of ITC as per section 17(2) of the WBGST Act, 2017 when such supply is effected along with taxable su....
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....s or services or both to him which are used or intended to be used in the course or furtherance of his business. The GST Act allows a registered person to utilize such input tax credit, to the extent of its eligibility, for making payment of output tax. Section 17 of the GST Act, on the other hand, refers apportionment of input tax credit and blocked credits. With a view to appreciate the submissions made before us by the applicant on the issue involved in the instant case, we proceed to decide first whether the item alcoholoc liquor for human consumption can be considered as 'goods' under the GST Act and whether sale of this item qualifies as 'supply' within the meaning of scope of supply as defined in an inclusive manner in section 7 of the GST Act. 4.4 As per clause (52) of section 2 of the GST Act, 'goods' means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. The said definition thus excludes only money and securities meaning thereby only money and securities cannot be treated as goods ....
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....on-taxable supply. A conjoint reading of section 2(47) and 2(78) thus denotes clearly that the aforesaid supply would also be treated as 'exempt supply' under the GST Act. 4.8 We finally take the issue of reversal of input tax credit in respect of which the applicant has made this application. Sub-section (2) of section 17 of the GST Act read with rule 42 of the GST Rules allows a registered person to utilize input tax credit to the extent of input tax paid on inputs and input services that are used for making taxable supplies including zero-rated supply. Credit of input tax attributable to 'exempt supplies' is to be reversed as per the prescribed formula. As we hold that the activities of selling of alcoholic liquor for human consumption by the applicant would be treated as 'non-taxable supply' and therefore falls under the category of 'exempt supply' under the GST Act, the applicant is required to reverse input tax credit attributable to the exempt supply under sub-section (2) of section 17 of the GST Act read with rule 42 of the GST Rules. 4.9 We find that placing reliance on the maxim Quando aliquid prohibetur fieri, prohibetur ex directo et per obliquum, the applicant conten....