RECENT ADVANCE RULINGS IN GST (PART-18)

[Dr. Sanjiv Agarwal]

Advance rulings are important in any tax law as it provides a forum for clarification and possible interpretation of statutory provisions. Moreover, it conveys the legislative intention from the revenue’s view point. Provisions of advance ruling are contained in section 95 to 106 of CGST Act, 2017 and State / UT GST enactment. Rules 103 to 107 of also provide for forms, manner, certification etc.

The Authority for Advance Rulings (AAR) have been set up in all the states and we have now around 500 advance rulings on different issues already pronounced by various State Authorities. The appellate mechanism for filing appeals against AAR rulings is also in place and we have about thirty five such appellate orders confirming or modifying the AAR orders. One major issue presently being faced is about multiple authorities (equal to number of States), each pronouncing a ruling of its own even if the matter is covered by some other State AAR’s rulings.  Even the orders from Appellate Authority for Advance Ruling have also started pouring in and we have over two dozen Appellate Orders from AAAR. There are situations where we may have different rulings on same question(s) by different AARs. GST Council / Cabinet has approved (on 23.01.2019)  to have a Centralized Appellate Authority for Advance Ruling under GST that would decide on cases where there are divergent orders at the State level. The same has been provided for in the Finance Act, 2019. The said authority will be setup by way of Notification.

The summary of few more recent advance rulings pronounced by State Advance Ruling Authorities are discussed hereunder but these needs to be read in the background of the question involved:

Advance ruling on ITC / transition provision    

The applicant was engaged in providing various retail financial services like stock broking, share broking, marketing of initial public offering of companies and mutual funds, corporate advisory services etc. which were not taxable under VAT Law. Based on the transitional provisions, they claimed input tax credit on closing stock of computers, laptops and other goods lying in the physical possession of the applicant as on 30th June 2017.

The applicant sought advance ruling from AAR, Kerala on the following issues :

1. Whether computers, laptops etc. used by the applicant for providing output service would qualify as inputs for the purpose of availing transitional ITC under Section 140(3) of KSGST Act?
2. If the goods are physically available as closing stock as on 30th June, 2017, can the applicant avail ITC for the VAT paid?

The court observed that the applicant being a service provider, is not eligible to avail input tax credit on computers and laptops held during transition period. The proviso to Sub-Section (2) of Section 140 of the GST Act, is specific to the point that input tax credit not admissible as under the existing law is ineligible to claim input tax credit under GST Act. Section 140(2) of the Act covers transitional credit claim on capital goods by a dealer registered in earlier law. Further, section 140(3) of the GST Act covers ‘credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day’, hence, the transitional credit claim of the assessee in respect of capital goods is not acceptable.

Thus, the following ruling was pronounced :

1. The computers, laptops etc. used by the applicant for providing output service would not qualify as inputs for the purpose of availing transitional ITC under Section 140(2) /140(3) of the KSGST Act.

2. The goods, even though physically available as closing stock as on 30th June 2017, ITC is not eligible for the VAT paid.

Being aggrieved, applicant preferred an appeal before Appellate Authority of Advance Ruling (AAAR) Kerala which confirmed the ruling pronounced by AAR order dated 14.12.2018.   

[In Re: Geojith Financial Services Ltd.  2018 (10) TMI 513 - AUTHORITY FOR ADVANCE RULINGS, KERALA; ].

Advance Ruling on e-way bill generation 

The applicant sought advance ruling on various questions including the one below:

Whether the exemption to a ‘defence formation’ for preparation and generation of E-way bills is applicable to Ordnance factories & other Central Government & Public Sector Undertakings (PSU’s) that function under the Ministry of Defence, Government of India?

The Indian Ordnance Factory is an industrial organization, functioning under the Department of Defence Production of Ministry of Defence, Government of India. Further, we find that Section 2(53) of the CGST Act and the corresponding section of the SGST Act defines the word ‘Government’ as the Central/State Government, The applicant which is engaged in research, development, production, testing, marketing and logistics of a comprehensive product range in the areas of air, land and sea systems is having an industrial status and functions under the Ministry of defence. It is not created by the constitution of India as a legislative, executive or judicial authority of the country. Hence the applicant cannot be treated as ‘Government’ as defined under section 2(53) of the CGST Act, 2017.

The AAR observed that as per para 14(k) of Rule No. 138 of the CGST Rules, 2017 (Notification No. 12/2018 - Central Tax), e-way bill is not required to be generated when any movement of goods is being caused by defence formation under the Ministry of Defence as a consignor or a consignee. The applicant which functions under the  Ordnance Factory Board (OFB) which in turn is functioning under the Department of Defence Production and Supply of Ministry of Defence, Government of India, is causing movement of goods to units of the Indian Armed Forces, proof establishments, DRDO, etc and are eligible for the benefit under Rule 138(14)(k) of the CGST Rules.

The AAR thus ruled that the exemption to a ‘defence formation’ for preparation and generation of E- way bills is applicable to Ordnance factories & other Central Government & Public Sector Undertakings(PSU’s) that function under the Ministry of Defence, Government of India.

[In Re: General Manager Ordnance Factory Bhandara ; (2019 (6) TMI 1236 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA ].

Advance Ruling on job work / place of supply

The applicant - job worker was engaged in job work of removing ‘caffeine’ from Tea powder imported from foreign Company viz., HTH Hamburger Teehandel GmbH Im. & Export, Hamburg, Germany (Principal) and exporting the de-caffeinated tea to its Principal. Apart, from this, the applicant-job worker was also engaged in the manufacture, export of Spice Oils and Oleoresins from India. Their annual turnover is reported as more than ₹ 1500 Crores.

The applicant sought  advance ruling on the process of job work i.e., importing the goods i.e., Green Tea/black tea powders from his Principal from Germany and under taking process of ‘super critical fluid extraction.’ The material is being supplied by his Principal- foreign customer at free of cost and the processed output will be exported to them. The goods contains caffeine which is being removed by the applicant-job worker through extraction process. The de-caffeinated goods will be exported to the Principal as per their requirement and instructions.

The applicant sought clarification on the following issues :-

1. Whether the process of providing job work service to foreign customer as explained above is taxable under GST. Is such transaction attracts GST?
2. If applicable to GST, whether they have to pay IGST or SGST+CGST?.
3. Is the job work service provided by them is exempted from service fax under Mega exemption list as per Notification No. 25/2012 dated 20.06.2017 and not chargeable to GST?

The AAR observed that the process of providing job work service to the foreign customer, in the premises of the applicant as per the specifications of the recipient of services is taxable under APGST Act 2017, as per Entry No.26 (HSN Code 9988) Proviso (iv), and liable to tax @ 18%. The place of supply for instant transaction is location of the service where actually performed i.e., business premises of the applicant which is located in the State of Andhra Pradesh. Hence the tax liability under SGST Act/CGST Act 2017 only applies. As the Service Tax Act itself subsumed under Goods & Services Tax Act 2017, the Notification referred to, is no more applicable.

The AAR thus ruled as under:

1. The process providing job work service to the foreign principal, in the premises of the applicant as per the specifications of the recipient of services, is taxable under APGST Act 2017/CGST Act 2017, as per Entry No.26 (HSN Code 9988) Proviso (iv), and liable to tax @ 18%.
2. The place of supply for this transaction, is location of the service where actually performed i.e., business premises of the applicant, which is located in the State of Andhra Pradesh. Hence the tax liability under SGST Act/CGST Act 2017 only applies.
3. Regarding applicability of Notification No.25/2012, dated 20.06.2012, as the Service Tax Act itself subsumed under Goods & Services Tax Act 2017, the Notification referred to, is no more applicable.

[In Re: Synthite Industries 2018 (11) TMI 403 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH ].

Advance Ruling on Job work

In the instant case, applicant is engaged in the business of manufacturing and trading of ‘slates’, which are used by primary school students, mostly at village level, for the purpose of learning i.e. educational purpose. The ‘slates’ were tax free under Gujarat Value Added Tax Act and under GST Act also under Chapter 96 – Miscellaneous Manufactured Articles with HSN Code 9610 0000. It has got order from Gujarat Council of Elementary Education Sarva Shikshan Abhiyan Mission for supply of Teachers’ Slate and Students’ Slate. Teachers’ Slate is used by teachers to explain to students, whereas the Students’ Slate is used by students for learning.

Applicant was of the opinion that both the slates i.e. Students’ Slate and Teachers’ Slate are of same category, Teachers’ Slates should also be treated as tax free, as the Students’ Slates are already tax free under GST Act.  It was also of the view that getting some job work done on slates and when the main manufactured item is tax free, they are not required to pay tax under Reverse Charge Mechanism for job work.

The AAR observed that from the technical specification of ‘Teachers’ Slate’ and ‘Students’ Slate’, same are clearly designed to be used for writing or drawing with slate pen and chalk. Taking the technical specification of ‘Teachers’ Slate’ and ‘Students’ Slate’, as submitted by the applicant, and Explanatory Notes for Heading 96.10 of Harmonised System of Nomenclature, into consideration, it was held that the product ‘Teachers’ Slate’ and ‘Students’ Slate’ is appropriately classifiable under Tariff Heading 96.10.

The AAR provided the following rulings :

1. The products ‘Slate for Student’ and ‘Slate for Teacher’ supplied by M/s. Raja Slates Pvt. Ltd. (GSTIN 24AAACR3936K1ZB) are appropriately classifiable under Tariff Heading 96.10.
2. The products ‘Slate for Student’ and ‘Slate for Teacher’ supplied by M/s. Raja Slates Pvt. Ltd. (GSTIN 24AAACR3936K1ZB) are eligible for exemption from payment of Goods and Services Tax vide Sl. No. 146 of Notification No. 2/2017-Central Tax (Rate) dated 28.06.2017 issued under the CGST Act, 2017 and Sl. No. 146 of Notifications No. 2/2017-State Tax (Rate) dated 30.06.2017 issued under the GGST Act, 2017.
3. In case of receipt of ‘manufacturing services on physical inputs (goods) owned by others’ by M/s. Raja Slates Pvt. Ltd. from the unregistered supplier of such service, the Goods and Services Tax is required to be paid by M/s. Raja Slates Pvt. Ltd. under Section 9(4) of the CGST Act, 2017 and the GGST Act, 2017, subject to exemption, if any, available.

[In Re: Raja Slates Pvt. Ltd. 2018 (10) TMI 299 - AUTHORITY FOR ADVANCE RULING, GUJARAT].

(Some more to follow …..)