RECENT ADVANCE RULINGS IN GST (PART-19)

[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 600 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 one hundred 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 long term lease of land / concession fee

The applicant was a Government company and had executed Concession Agreement for renovation/development of their property through Private Investment Mode, with Myrayash Hotels Pvt. Ltd, Mumbai, given the exclusive right, license and authority to construct, operate and maintain the project for a period of 30 years extendable by further period of 30 years totaling 60 years.

The applicant sought advance ruling on as to whether GST is applicable on One Time Concession Fees charged by the applicant in respect of their property which is given to M/s. Myrayash Hotels Pvt. Ltd. for a long term lease of 60 years for development of infrastructure for financial business on Private Investment mode on Design Build, Finance, Operate and Transfer  (DBFOT) basis providing exclusive right, license and authority to construct, operate and maintain the project.

It was submitted by the applicant that  the one-time upfront concession fee charged by the applicant, an undertaking of Government of Goa, for lease of 60 years granted to M/s. Myrayash Hotels Pvt. Ltd., Mumbai is exempted from payment of GST under Sr. No. 41 of Notification No. 12/2017-C.T. (Rate), 28-6-2017 as amended by Notification No. 32/2017-C.T. (Rate), dated 13-10-2017. The Entry No. 41 reads as follows :

 “Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more) of industrial plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 50 percent or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area.”

The AAR observed that from section 142(10), it can be easily secreted that if the contract is made in Service Tax regime and the service is provided in the GST regime or the service is in the nature of continuous supply of service, the same shall be liable to tax under the GST Act. In the instant matter, though the consideration against service is received prior to the appointed day and the contract was made in service tax regime, it cannot be said that the supply of service is completed. It can easily be understand that the consideration is received against the services to be provided for next 60 years i.e. the supply of service is in the nature of continuous supply of service. Therefore, the same is liable to be taxed under GST Act. 

The AAR thus, ruled that the service provided by the applicant in the instant matter, is not falling under the criterion mentioned at Sr. No. 41 of the Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 as amended by the Notification No. 32/2017-Central Tax (Rate), dated 13-10-2017. Therefore, the applicant is not entitled for the benefits of the said notification and the activity of long term lease is liable for levy of GST. 

[In Re: Goa Tourism Development Corporation Ltd. 2018 (11) TMI 1347 - AUTHORITY FOR ADVANCE RULING, GOA].

Advance Ruling on transitional credit 

In the instant case, there were two issues raised before the AAR. The primary issue raised by the applicant is regarding availment, under the GST laws, of input tax credit (ITC) for excise duty paid under Rule 3(5B) of the Cenvat Credit Rules, 2004 (CCR) and the second issue   is whether they are eligible to avail ITC against unutilized cenvat credit such as Education Cess (EC), Secondary & Higher Education Cess (SHEC) and Krishi Kalyan Cess (KKC) lying in their books of accounts.

The AAR on question of credit of excise duty paid under Rule 3(58) of Cenvat Credit Rules, 2004, held that such question was not covered within the scope of section 97 of CGST Act, 2017 and was therefore, not discussed and allowed to be withdrawn.

On the issue of availing input tax credit on unutilized credit of Education Cess (EC), Secondary and Higher Secondary Education Cess (SHEC) and Krishi Kalyan Cess (KKC), it was observed that there were express provisions in Cenvat Credit Rules, 2004 that credit availed in respect of EC, SHEC and KKC can be used for making payment only in respect of payments against EC, SHEC and KKC respectively. All such cesses could not be treated as excise duty or service tax.

Rule 117 of the CGST Rules which provide the mechanism for carry forward of Tax or duty credit under any existing law or on goods held in stock on the appointed day.  The said rule provides for carry forward of only eligible duties and taxes as defined in the explanation to section 140. Eligible duty has been defined in the explanation to section 140 with reference to sub sections i.e. 140 (3,4,5&6). The definition of eligible taxes does not include the EC SHEC and KKC. The usage of word ‘eligible duties and taxes’ in the latter part of the Rule has confined the scope of carry forward of credit by excluding the EC, SHEC and KKC within its ambit.

Further, GST Guidance Note 11 on Transitional Provisions, para 11.04 with respect to the Transfer of credit of cesses such as Education Cess, Secondary and Higher Education Cess, Swatch Bharat Cess and Krishi Kalyan Cess states that “The Transitional provisions under the CGST Act allow carryover of only the Cenvat Credit and Credit of eligible duties mentioned in the explanations given at the end of section 140. Education Cess & Secondary and Higher Education Cess are not mentioned there. Therefore these will not be carried forward as credit of these cesses is not allowed under GST.

Further in an FAQ issued by the government on the said issue, in response to the question:

‘Whether closing balance of education cess and secondary higher education cess prior to 1stMar 2015 can be carried forward in GST?’ has been answered as follows:-

‘No it will not be carried forward in GST as it is not covered by definition of “eligible duties and taxes under Section 140 of the CGST Act’

It was therefore, ruled that applicant is not eligible to avail input tax credit against unutilised cenvat credit such as Education cess, Secondary & Higher secondary Education cess & Krishi Kalyan cess lying in its books of Accounts.

[In Re: CMI FPE Ltd.  2018 (9) TMI 234 - AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA ].

Advance Ruling on Job works 

Applicant was a a job worker engaged in production of Rubber backed and rubber edged coir mats and polypropylene mats of various designs and size as required by the principal on the materials provided by the principal. The materials like coir mats and mattings covered under HSN 5702 and tufted carpets covered under HSN 5703 are supplied by the principal for executing job works along with moulds in the required designs. The rubber compound required for the rubber backing and edging is prepared in a mixing mill.

Advance ruling was sought on the following issues:

1. Whether the process and treatment carried out on the goods belonging to the principal and made available by the principal amounts to job work?
2. Whether the activity of job work carried out on goods falling under Chapter heading 5702 and 5703 is liable to CGST at the rate of 2.5% under Entry No.26 (i)(b), Notification No. 11/2017-CT(R) dated 28.06.2017 (Corresponding 2.5% under Kerala (GST)?

It was ruled as follows:

1. Manufacturing services on physical inputs owned by the principal is treated as service by way of job work and is covered under SAC 9988.
2. The activity of job work carried out on the materials supplied by the principal falling under HSN 5702 & 5703 are taxable @ 2.5% CGST and 2.5% SGST vide Entry No. 26(i)(b), Notification No.11/2017-Central Tax (Rate) & SRO.No.370/2017.

[In Re: Irene Rubbers 2019 (5) TMI 904 - AUTHORITY FOR ADVANCE RULINGS, KERALA ]

Advance ruling on export of services 

In the instant case, the applicant is a 100% subsidiary of German company, Behr-Halla Thermocontrol   (GMBH), Germany (BHTC Germany).

The question before the AAR was whether in the facts and circumstances of the case, the Applicant is liable to pay Integrated Goods and Services Tax on the testing services provided to its overseas group entities, being a zero-rated supply?

The supplier of service is in India and the receiver of the service is outside India and therefore, as per Section 7(5) of the IGST Act, the supply of service in this case shall be treated as a supply of service in the course of Inter-State trade.

The AAR also observed that testing services provided by the applicant to its overseas group companies are not zero rates supplies. Prototypes made physically available by recipient of services (overseas clients) to the supplier of services (the applicant) and testing activities being carried out in India, clearly attract the provisions of section 13(3) (a) of Integrated Goods and Services Tax Act, 2017 and cannot be treated as zero rated supply, even if test reports sent to overseas client.

[In Re: Behr-Hella Thermocontrol  India Pvt. Ltd.   2018 (11) TMI 887 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA ].

 (Some more to follow …..)