TMI Blog2019 (6) TMI 1236X X X X Extracts X X X X X X X X Extracts X X X X ..... mages deducted from the payments to be made to suppliers in case of delayed delivery of goods or services - Amount of Security deposit forfeited of suppliers due to non-fulfilment of certain contract conditions - Security deposit left unclaimed by the suppliers and recognised as income after 3 years - Food and beverages supplied at industrial canteen inside the factory premises - Community hall (Multipurpose Hall) provided on rental basis to employees of our organisation - School bus facility provided to children of the employees - Conducting exams for various vacancies - Rent recovered from residential quarters of employees - HELD THAT:- In case of Liquidated damages deducted from the payments to be made to suppliers in case of delayed delivery of goods or services, Sr. No. 62 (heading 9991 or 9997) of Notification No. 12/2017- Central Tax (Rate) dated 28 th June 2017 provides NIL rate of Tax in respect of services provided by the Central Government, State Government, etc. by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Central Government, State Government, Union Territory or local authority u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of supply of services as mentioned above and they are liable to pay GST on the amount charged by them from their employees for supplying such services. For reasons mentioned in the foregoing the applicant is not entitled for any exemption under Notification No. 12/2017-Central Tax(rate) dated 28-06-2017. School bus facility provided to children of the employees - HELD THAT:- As per Sr. No. 66 (b) (heading 9992) of Notification No. 12/2017-Central Tax (Rate) dated 28 th June 2017, services provided to an educational institution by way of transportation of students does not attract any GST liability. As the applicant is not an educational institution and the school bus facility is extended to the children of employees and not to an educational institution, the provisions of Sr. No. 66 (b) (heading 9992) of Notification No. 12/2017-Central Tax (Rate) dated 28 th June 2017 is not applicable to them. Conducting exams for various vacancies - HELD THAT:- The services by way of conducting exams is available only to educational institutions as per Sr. No. 66 (aa) (heading 9992) of Notification No. 12/2017-CentraI Tax (Rate) dated 28 th June 2017. The applicant is neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that are located outside the factory premises but within the factory estate - HELD THAT:- The activities listed by the applicant are carried out outside the factory premises. These activities can at best be termed as welfare or social activities and they are not carried out in furtherance of the business and have no nexus to their manufacturing activity. Since these activities are not used or intended to be used by the applicant in furtherance of business ITC on the same are not available to them. Medicine purchased by the hospital maintained by our organisation and used for treatment of factory employees and their dependents - Expenditure on maintenance, upkeep and other activities relating to such hospital - HELD THAT:- The hospital/dispensary maintained by the applicant for its employees and their dependents come within the definition of Clinical Establishment as defined under the said Notification at definition mentioned at Sr. No. 2(s) and such supply of service is exempted under Sr. No. 74, heading 9993 of the Notification no. 12/2017-Central Tax(Rate) dated 28 th June 2017. Thus ITC on such exempted supply of services is not available to applicant under sub section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Armed Forces, proof establishments, DRDO, etc. and are eligible for the benefit under Rule 138 (14) (k) of the CGST Rules. Whether exemption on payment of GST on transport of military or defence equipments through a goods transport agency applicable to goods transported by our organisation? - HELD THAT:- As per Sr. No. 21, Heading 9965 or 9967, clause (h) of the Notification No. 12/2017- Central Tax (Rate), Services provided by a goods transport agency, by way of transport in a goods carriage of defence or military equipments are exempt from the levy of GST - the applicant is manufacturing and transporting goods like propellant explosives that are used in the manufacture of ammunition and therefore the said exemption is available to them. Whether Input Tax Credit is to be reversed on finished goods that are destroyed during testing? - HELD THAT:- The interpretation as made out by the applicant that reversal of ITC will arise only if the inputs or capital goods are themselves lost, stolen or destroyed etc. and not where the finished goods are lost, stolen or destroyed etc. is not acceptable for the simple reason that Section 16(1) contemplates both the situati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on reverse charge mechanism has to be calculated and paid by them for payments made to arbitrators and advocates from the date of notifications coming into effect. We have in our discussions above held that the applicant is not Governments and therefore the said exemption is not applicable to them. N/N. 3/2018- Central Tax (Rate) - HELD THAT:- The applicant has submitted that as per Notification No. 3/2018-Central Tax (Rate), services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 has been covered under reverse charge mechanism. They have submitted that since their organisation is a part of the Central Government, the notification is applicable to them - Renting of immovable property is to be treated as supply of service as per the provisions of Schedule II (Section 7) of CGST Act 2017. The applicant, who is no: Government are giving nonresidential property on rental basis to a registered person under the CGST Act 2017, which is covered under the definition of supply of services as defined in CGST Act 2017 as supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reational activities, residential quarter buildings of employees, roads, footpaths, street lightings and other parts of estate area that are located outside the factory premises but within the factory estate . c) Medicines purchased by the hospital maintained by our organisation and used for treatment of factory employees and their dependents. Expenditure on maintenance, upkeep and other activities relating to such hospital. d) Expenditure related to maintenance and upkeep of guest houses maintained by organisation. e) Expenditure related to purchase of LPG cylinders used within industrial canteen. 3) 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? 4) Whether exemption on payment of GST on transport of military or defence equipments through a goods transport agency applicable to goods transported by our organisation? 5) Whether Input Tax Credit is to be reversed on finished goods that are destroyed during testing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ultimately supplied to Indian defence and military forces. Thus, OFBa majorly acts as a feeder factory for goods such as explosives and propellants for its sister Ordnance Factories that use such goods for production of finished goods. However, some of the manufactured goods are also directly supplied to depots and units of defence and military forces, as per requirement. OFBa also sells a small part of its manufactured goods to state police and private firms. Supplies to Defence Public Sector companies like Bharat Dynamics Ltd. Etc. and defence laboratories like Defence Research Development Laboratory are also there. 2) The manufacturing process involves procurement of various raw materials from sister Ordnance factories and private entities. Majority of the purchase is from private entities. The output is then transferred to sister Ordnance factories/units of armed forces as per order. The consideration for transfer is fixed by OFB and is booked in the financial accounts of our organisation and the adjustment is done through book transfer. Money consideration is involved only for a small portion of the produce, where the goods are sold to units under Ministry of Home ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity control checking of products of OFBa. The cost of salary other expenses related to such allied establishments is included in the total cost of manufacturing of final products of OFBa thus forms part of the value of taxable supply. Employees of such establishments are also provided residential quarters for accommodation and monthly license fees is collected from them in respect of such accommodation. The employee strength of such organisations is extremely small in comparison to the employee strength of OFBa. 9) The whole of OFBa estate is divided into two parts- a) Factory premises. It consists of the factory where manufacturing activity is carried out the administration building. b) Estate area:- It consists of the area other than factory premises. Residential quarters of employees of OFBa and allied establishments, gardens, parks, playground, factory school for children of employees, hall for recreational activities, places of worship of God, market area, guest houses, school for children of employees, factory hospital open land is included is included in such estate area. 3. Statement containing the applicant s interpretatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on are on behalf of the President of India. Thus, OFBa is a part of the Central Government as per clause (23) of section 3 of the General Clauses Act, 1897. a) Liquidated damages deducted from the payments to be made to suppliers in case of delayed delivery of goods or services:- Our organisation deducts liquidated damages (L.D) from the payments to be made to its suppliers in case of delayed delivery of goods or services. As per para 5(e) of Schedule II to the CGST Act, 2017, agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is an activity that shall be treated as a supply of service. So, OFBa would have paid tax on such L.D deducted from supplier s payment had it not been a part of the Central Government since Sr. No. 62 of the exemption list on supply of services as per notification no. 12/2017- Central tax(Rate)specifies that, Services provided by the Central Government, State Government, Union territory or local authority by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Central Government, State Government, Union ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncts of a port or an airport; (c) transport of goods or passengers; or (d) any service, other than services covered under entries (a) to (c) above, provided to business entities shall attract NIL rate of tax. Accordingly, the following services supplied by OFBa should attract NIL rate of tax since they are provided to non-business entities:- d) Food and beverages supplied at industrial canteen inside the factory premises: As per Clause 6 of Schedule II to the CGST Act, 2017, supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration shall be treated as a supply of services. There is an industrial canteen inside the factory premises that serves food and beverages to employees of the factory. Neither is alcoholic liquor served in the industrial canteen nor is the industrial canteen air conditioned. Nominal charges for such food and beverages are recovered from the employees on no profit basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility provided to children of the employees: OFBa provides the service of pick and drop of the children of its employees from school located outside the factory via bus owned by the factory. Charges in terms of monetary consideration are recovered by the factory from its employees in lieu of such service provided to them. So, keeping in view the above discussed Sr. No. 6 of the exemption list on supply of services as per notification no. 12/2017- Central tax(Rate), such services provided by OFBa attract NIL rate of tax since the provider of service (OFBa) is a unit of the Central Government and the recipient of services(factory employees) are non-business entities. g) Conducting exams for various vacancies in the factory: For conducting examinations to fill up various staff vacancies in OFBa, it collects fees from the candidates who wish to appear in such examinations. So, keeping in view the above discussed Sr. No. 6 of the exemption list on supply of services as per notification no. 12/2017- Central tax(Rate), such services of conducting examinations provided by OFBa attract NIL rate of tax since the provider of service (OFBa) is a unit of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o purchase of LPG cylinders used within industrial canteen. The basic question that is being asked here is that whether the following services received by the factory are covered under the definition of input services as per section 2(60) of the CGST Act, 2017 whether such services can be considered to be falling within the scope of used or intended to be used in the course or furtherance of business as per section 16(1) of the CGST Act, 2017 so as to entitle OFBa to avail Input Tax of the said services. It is worthwhile to note here that Hon. Finance Minister of India stated at paragraph 5(b) of the Statement of Objects Reasons while introducing the Central Goods Services Tax ( CGST ) Bill, 2017 in the Parliament as under:- 5. The Central Goods and Services Tax Bill, 2017, inter alia, provides for the following, namely:- (b) to broad base the input tax credit by making it available in respect of taxes paid on any supply of goods or services or both used or intended to be used in the course or furtherance of business. Hence a clear intent to broad base the input tax credit is evident from the above. Also, the term used or inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r availing Input Tax Credit of GST in respect of expenditure on the said services; that is input services and used or intended to be used in the course or furtherance of business since as per section 2(17) of the CGST Act, 2017, the term business includes manufacture . In fact, the scope of availing Input Tax Credit has been further widened under the GST regime to include all inputs and input services used in the course or furtherance of business vis-a-vis erstwhile CENVAT Credit Rules where admissibility of CENVAT Credit was restricted to input services used directly or indirectly, in or in relation to manufacture of final product. a) Maintenance of garden inside the factory premises:- Here factory premises means plant area where manufacturing activity is carried out and administrative building. The services of maintenance upkeep of gardens that are located within the factory premises should be considered to be an input service as per section 2(60) of the CGST Act, 2017 and should also be considered to be used or intended to be used in the course or furtherance of business as per section 16(1) of the CGST Act, 2017 and Input Tax Credit should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant cannot run their factory. Therefore, I hold that the appellant is entitled to avail CENVAT Credit for horticulture services. In M/s, Orient Bell Ltd., Vs. Commissioner of Central Excise, Noida, reported in 2016 SCC Online CESTAT, 7923 = 2017 (1) TMI 840 - CESTAT ALLAHABAD , it was held by the Hon. Tribunal that So far as garden maintenance is concerned, the same is input service as it is a pollution control requirement and improves the aesthetics and overall atmosphere and thus is an expenditure in or in relation to manufacture. In Commissioner of Central Excise, Delhi III, Suzuki Motor Cycle India Private Limited {2017 (47) STR 85 (Tri-Chan) = 2016 (9) TMI 576 - CESTAT CHANDIGARH , it was held by the Hon. Tribunal that the assessee is entitled to avail the credit of gardening service. b) Maintenance and upkeep activities relating to gardens, parks, playground, factory school for children of employees. hall for recreational activities, residential quarter buildings of employees, Roads, footpaths, street lightings and other parts of estate area that are located outside the factory premises but within the factory estate:- As exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... located at a remote area and employees from different parts of the country are recruited to work over here in OFBa. The residential colony is an industrial township and the appellant is responsible to provide all types of municipal services in the colony. If the employees are not provided a proper residential colony with all the aforementioned facilities and establishments, there would be no availability of proper staff and labour required for continuous manufacturing activities. Thus, such services procured in relation to such establishments are necessary for furtherance of business of our organisation since these services help in maintaining the basic living standard of the employees who in tum are responsible for running the day- to-day business of the factory. Cost of such services forms part of the cost of the final products and thus forms part of the value of taxable supply. Reliance is placed on the following judicial pronouncements of various High Courts Tribunals wherein it was adjudged that CENVAT Credit of Service Tax was allowable on expenditure related to services procured in relation to residential colony for the employees:- In the case of CCE vs. ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in a position to get the proper/adequate manpower for running its plant activities and thus set aside the order passed by the Id. Commissioner (Appeals) of denying CENVAT credit of service tax taken by the appellant on maintenance and repair work of their residential colony. In the case of CCE Meerut vs. M/s. Bajaj Hindustan Ltd., the dispute was in relation to allowance of CENVAT Credit of Service Tax paid on construction services to the respondent for construction of residential colony/dormitory located in the precinct of the factory. The Hon. New Delhi bench of the Tribunal held that construction of residential colony/dormitory adjacent to the factory premises was the necessity because of the location of the factory in a remote area, where if the accommodation is not provided to staff/workers, the continuous/round the clock manufacturing activity will hamper. Further, the cost towards such construction has also been considered as expenditure in the books of accounts of the respondent. Therefore, such construction activity was held to be relation to the business of the respondent and therefore CENVAT Credit was allowed in relation to such services. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t area and other establishments mentioned above. Thus, the Input Tax Credit related to expenses mentioned in Annexure B in relation to such inter-connected roads should be admissible on the following grounds: a) The road ranging from the main entrance gate from where the factory estate begins up to the factory premises is used for inward and outward transportation of raw materials finished goods and is thus used in the course or furtherance of business. b) The roads within the factory estate; that is the establishments like residential quarters, hospital, guest houses, market area and all other establishments as mentioned above are also used for the purpose of business of OFBa since as argued above all such establishments are there for the benefit of employees of the factory thus such roads are used in the course of business of OFBa. c) The cost of such services forms part of the cost of the final products and thus forms part of the value of taxable supply. (iv) Land that is currently not used for any purpose whatsoever:- The specific transactions in respect of which ruling on entitlement of input tax credit is required is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies are provided to employees of the factory without any consideration. Input Tax Credit on the inputs like medicines and others mentioned in Annexure D purchased by the factory for the hospital and expenditure on maintenance, upkeep and other activities also mentioned in Annexure D relating to such hospital should be admissible on the following grounds:- i) Hospital helps in keeping the employees fit and healthy, so that they can contribute for furtherance of business of OFBa. ii) As a part of welfare measure, it is necessary to provide the employees basic medicinal facilities within the factory estate itself since the factory is located at a remote location. iii) Cost of such medicines and expenditure on maintenance, upkeep and other activities relating to such hospital forms part of the cost of the final products and thus forms part of the value of taxable supply. iv) Reference to the judicial pronouncements mentioned in above questions can be drawn in so much so that hospital has been set up for the benefit of the employees and it too forms a part of residential colony of OFBa. d) Expenditure related to maintenance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of guest house maintenance services since such services have nexus or integral connection with the business of manufacturing of the final product. In the case of Commissioner of C. Ex., Visakhapatnam Vs. Hindustan Zinc Ltd. [2009 (16) S.T.R. 704 (Tri. - Bang.)] = 2009 (4) TMI 129 - CESTAT, BANGALORE , it was held that Guest House is used for businessmen during visit to the company in connection with the business. It is indeed related to business activity. The appellants are rightly entitled for credit. e) Expenditure related to purchase of LPG cylinders used within industrial canteen and within the office:- LPG cylinders are purchased and used within:- (i) Industrial canteen: - The industrial canteen is used for providing food and beverages at subsidised rates to employees. Hence, such expenses of purchasing LPG cylinders should also be considered for the purposes of furtherance of business of OFBa and ITC should be allowed on such expenses. Also, maintenance of such industrial canteen is a statutory obligation under the Factories Act, 1948. (ii) Within the office: - We wish to withdraw this sub-question from the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the management of the Ministry of Defence, Government of India should also get covered under the term defence formation under the Ministry of Defence and the aforementioned exemption should be applicable when goods are sent from the factory to such organisations. D) Question No. 4:- Whether exemption on payment of GST on transport of military or defence equipments through a goods transport agency applicable to goods transported by our organisation? As per Sr. No. 21 of the Notification No, 12/2017- Central Tax (Rate), Services provided by a goods transport agency, by way of transport in a goods carriage of defence or military equipments are exempt from the levy of GST. The term defence or military equipment has not been defined in the CGST Act, 2017. As per Oxford dictionary, the word equipment means the necessary item for a particular purpose . Hence the term defence or military equipment should mean items/goods that are to be used by Indian defence or military forces. So, the question arises that whether the following category of goods shall get covered under defence or military equipment :- Production Goods:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r transporting goods that are not manufactured by it but are issued from its stock. Such goods maybe anything that are lying in the stock of the factory. Such goods are transported to the following:- i) Transport to sister Ordnance factories: - When such goods are transported to sister Ordnance factories, then the goods should get covered under the term defence or military equipment since Ordnance factories are part of the Department of Defence Production, Ministry of Defence. ii) Transport to Research institutions: - When such goods are transported to research organisations like DRDO, ARDE etc., then also the goods should get covered under the term defence or military equipment since such research institutions are also a part of Ministry of Defence. iii) Transport to private entities: - When old used goods scrap are sold through auction process to private entities and transportation of such goods is carried out through GTA, then also such goods should get covered under the term defence or military equipment since the supplier of goods is our organisation which is a part of the Department of Defence Production, Ministry of Defen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Excise Regime, there was specific provision for reversing the CENVAT credit availed on inputs contained in finished goods lost as well as availing the remission of duty. This was due to the fact that the excise duty was levied on the manufacture . Since the liability had already arisen, the remission was to be taken and credit already availed was required to be reversed in view of the specific provision. There is no such provision in GST regime. Also, the liability is linked to supply rather than manufacture . The liability to pay tax arises on Supply under the GST regime. As per section 7(1) of the CGST Act, 2017, the expression supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal. Thus, dispatch of samples of finished goods for quality testing purposes to proof establishments and the consumption of such goods during such testing process does not fall in the definition of supply since such dispatch cannot be classified as sale, transfer, barter, exchange, licence, rental, lease or disposal. Therefore, in view of this, the reversal of tax on the ITC cannot be demanded on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by the factory should not be added to the output tax liability of the factory as per 2nd proviso to section 16(2) of the CGST Act, 2017 due to non-payment towards the value of supply to the supplier in respect of which such input tax credit was availed by the factory. G) Question No. 7:- Being a part of the Ministry of Defence, Government of India, whether the following notifications are applicable to our organisation and what shall be the impact of such notifications:- a) Notification No. 2/2018- Central Tax (Rate), in relation to services by an arbitrator or an advocate to our organisation. b) Notification No. 3/2018- Central Tax (Rate), in relation to services supplied by our organisation by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017. c) Notification No. 36/2017 - Central Tax (Rate), in relation to payment of tax on reverse charge mechanism on sale of used vehicles, seized and confiscated goods, old and used goods, waste and scrap to a GST registered person. Applicability and impact of the following notifications:- a) As per Notification No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise Tariff Heading Propellant 36010090 Explosive 36020090 Cord Detonating, Charge Linear 36030019 (b) Rate of Central Excise Duty as applicable. Central Excise Duty @ 12.5% Adv. was payable/paid. (c) Details of benefit of Notification of Central Excise if any availed. Notification No. 10/97- CE dated 01/03/1997 - for material issued to various units of Ministry of Defence for research and Development purpose. 5 a) Classification of Service/Services as applicable Renting of immovable property, Manpower supply and security Services Transport of goods by road Services. b) Rate/ rates of Service Tax as applicable to services provided: @15% adv. (including of SB Cess and KK Cess). (c) Details of benefits of Notification of Service Tax if any availed- NIL . 6 Copies of advance ruling application/orders if any obtained by applicant under the provisions of Central Excise, Service Tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Govt. of India is a union Govt. created by the constitution of India as the legislative, executive and judicial authority of the union Of India of states and union territories of the constitutionally democratic republic. On the above facts, though ordnance factory is functioning under the Ministry of defence, Govt. of India, the organization shall not be treated as Government defined under section 2(53) of the CGST Act,2017, since the organization is having Apex Body and industrial status. Hence, the contention of applicant that their organization is Government is not legal and correct. As per Sr. No. 62 (heading 9991 or 9997) of Notification No. 12/2017- Central Tax(Rate) dated 28th June 2017 provide NIL rate of Tax in respect of services provided by the Central Government, State Government, Union Territory or Local authority by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Central Government, State Government, Union Territory or local authority under such contract. Hence, the ordnance factory is not liable to get exemption under Notification No. 12/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioning under the Ministry of defense, Govt. of India, shall not be treated as Government defined under section 2(53) of the CGST Act, 2017, since the organization is having Apex Body and industrial status. The fact of the applicant organization having industrial status has already been mentioned in their present advance ruling application and there is no need to establish separately that the applicant s organization shall not be treated as Government. It is also noticed that, the applicant has not clarified the fact that whether they themself engage in supply of food and beverages at the canteen for their employees or they have engaged any contractor for the supply of food and beverage. They have also not clarified whether they are charging money from their employee for supply of such food and beverage in their industrial canteen. Hence in absence of such clarification, liability cannot be ascertained at this stage. However, as per the notification 11/2017-CT dated 28.06.2017 amended by notification No. 46/2017 dated 14.11.2017, the supply of food and beverages is covered under the category of catering services, which is taxable under GST regime. The taxability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... movable property shall be treated as supply of service. In the applicant s own case, they have provided residential quarters on rental basis to their employees, which shall be covered under the definition of supply of services as defined in CGST Act 2017 but services by way of renting of residential dwelling for use as residence is currently chargeable to nil rate of tax under the GST regime. Qus.2(a) whether Input Tax Credit on expenditure on the goods and services consumed by their organization in Maintenance of garden inside the factory premises shall be available to them. Legal Submission by Department :- As per the section 16 of the CGST Act, every registered person shall be entitled to take credit of input tax charged on any supply of goods and services or both by him which are used or intended to be used in the course of furtherance of his business and said amount will be credited to the electronic credit ledger of the such person. However the applicant has received services from the service provider towards the Maintenance of garden inside the factory premises of the applicant. Such taxable service received by the applicant is not covered under the neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of service is exempted under Sr. No. 74, heading 9993 of the Notification no. 12/2017-Central Tax(Rate) dated 28th June 2017. Consequently, the input tax credit on such exempted supply of services is not available to applicant under sub section (2) of Section 17 of the CGST Act, 2017. Ques. 2(d) whether Input Tax Credit on Expenditure related to maintenance and upkeep of guest houses maintained by organization shall be available to them Legal Submission by Department:- As per the section 16 of the CGST Act, every registered person shall be entitled to take credit of input tax charged on any supply of goods and services or both by him which are used or intended to be used in the course of furtherance of his business and said amount will be credited to the electronic credit ledger of the such person. However the applicant has received services from the service provider towards the maintenance of guest houses maintained by organization within the factory estate. The said activities are neither relating to business nor relating to manufacture of final products and its supply. The said activities may be welfare activity undertaken while carrying on the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on payment of GST on transport of military or defense equipments through a goods transport agency applicable to goods transported by their organization ? Legal Submission by Department :- As per clause (h), of Sr. No. Sr.21 (heading 9965 or 9967) of Notification No. 12/2012-Central Tax (Rate) dated 28th June 2017, the Services provided by a goods transport agency, by way of transportation in a goods carriage of defense or Military equipments is NIL. Hence the applicant is entitled for exemption from payment of GST on transport of military or defense equipments through a goods transport agency transported by their organization. Ques(5) Whether Input Tax Credit is to be reversed on finished goods that are destroyed during testing? Legal Submission by Department:- The submission made the applicant may be taken into consideration on merits. Ques (6) Whether proportionate Input Tax Credit has to be reversed in cases where lesser payment is made to the supplier due to deduction on account of liquidated damages from supplier s dues:- Legal Submission by Department: - As per the provisions of section 16 of CGST Act, 2017, the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ques No. 7(C) Being a part of the Ministry of Defence, Government of India, what is the impact Of the Notification No. 36/2017 - Central Tax (Rate), in relation to payment of tax on reverse charge mechanism on sale of used vehicles, seized and confiscated goods, old and used goods, waste and scrap to a GST registered person. Legal Submission by Department:- :- As per Notification No. 4/2017-CentraI Tax(Rate) dated 28th June 2017 as amended vide Notification No. 36/2017-Central Tax (Rate) dated 13 th October,2017, the recipient of supply shall pay tax on reverse charge basis. Hence applicant is liable to pay GST on sale of used vehicles, seized and confiscated goods, old and used goods, waste and scrap to a GST registered person. Ques No.(8) Whether Input Tax Credit on services of passenger vehicles hired by our organization is available? Legal Submission by Department:- As per the section 16 of the CGST Act, every registered person shall be entitled to take credit of input tax charged on any supply of goods and services or both by him which are used or intended to be used in the course of furtherance of his business and said amount will be credite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first of all take up the issue as to whether the applicant can be considered as government . As per clause (23) of section 3 of the General Clauses Act, 1897, the word Government or the Government shall include both the Central Government and any State Government. We agree with the submissions made by the jurisdictional office that the Indian Ordnance Factories 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 we find that the applicant cannot be treated as Government as defined under section 2(53) of the CGST Act, 2017. Keeping this factor in mind we now tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them and this additional consideration will be required to be added in the taxable value and accordingly, tax liability will have to be discharged by the applicant. The jurisdictional office has reported that the applicant has paid the service tax on such amount of Security deposited forfeited before the GST regime. With reference to question no 1 (c) in respect of Security deposit unclaimed by the supplier which has been recognized as income after 3 years by the applicant, we find that there appears to be no intention on the part of the applicant to forfeit such deposit. It is just a case of the supplier not claiming the same. Hence we cannot treat the same as a consideration received for the supply of goods or services or both and therefore the applicant is not liable to pay any tax on such amount shown as income under the GST Regime. Security Deposits which in normal course are refundable as such, are not liable to tax under the GST regime. As regards question no. 1 (d) above, the applicant has submitted that they are themselves are running a non-air-conditioned industrial canteen inside the factory premises to serve food and beverages to their employees for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied by them. With respect to I (f) above, we find that under the provision of GST Laws, renting of immovable property is included in Schedule II of the CGST Act and is taxable. However Entry No. 12 of Notification No, 12/2017 mentioned above, exempts supply of services by way of renting of residential dwelling for use as residence. Question No. 2:- 1) Whether Input Tax Credit on expenditure on the goods and services consumed by our organisation in following activities shall be available:- a) Maintenance of garden inside the factory premises. b) Maintenance and upkeep activities relating to gardens, parks, playground, factory school for children of employees, hall for recreational activities, residential quarter buildings of employees, roads, footpaths, street lightings and other parts of estate area that are located outside the factory premises but within the factory estate. c) Medicine purchased by the hospital maintained by our organisation and used for treatment of factory employees and their dependents. Expenditure on maintenance, upkeep and other activities relating to such hospital. d) Expenditure rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not available to them. With respect to question no. 2 (c), we agree with the submissions made by the jurisdictional office and find that hospital/dispensary maintained by the applicant for its employees and their dependents come within the definition of Clinical Establishment as defined under the said Notification at definition mentioned at Sr. No. 2(s) and such supply of service is exempted under Sr. No. 74, heading 9993 of the Notification no. 12/2017-Central Tax(Rate) dated 28 th June 2017. Thus ITC on such exempted supply of services is not available to applicant under sub section (2) of Section 17 of the CGST Act, 2017 in respect of services and goods procured for maintenance of hospitals and pharmacy outlet as such services, being nil rated, fall under exempt supplies. With respect to question no. 2 (d), we find that provision of guest houses is a perquisite for their employees and therefore tax paid on maintenance and upkeep of guest houses cannot be allowed as ITC. Guest houses are generally used for temporary accommodation of employees as well as outsiders. Such provision of guest house cannot be treated as an activity in course or furtherance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the applicant is manufacturing and transporting goods like propellant explosives that are used in the manufacture of ammunition and therefore the said exemption is available to them. E) Question No. 5:- Whether Input Tax Credit is to be reversed on finished goods that are destroyed during testing? The applicant has submitted that they send samples of the finished goods, for quality testing, to proof establishments set up under the Ministry of Defence outside the factory where such samples are completely destroyed during the testing process. Section 17(5)(h) of the Central GST (CGST) Act, 2017 reads that input tax credit shall not be allowed in respect of goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples. From a perusal of Section 16 it is seen that only a registered person is entitled to take credit of input tax charged on any supply which are used or intended to be used in the course or furtherance of business. Accordingly we find that goods, or services, or both are eligible for input credit in both the scenarios i.e. when they are intended to be used and when they are actually used. In the subject case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the submissions made by the applicant we find that ultimately they would be paying a lesser amount to their suppliers against supply of goods received, which would result in lesser payment being made by the supplier towards GST. Hence the applicant will be eligible to take ITC proportionally equal to actual payment made to such suppliers and is therefore required to reverse ITC accordingly. Question No. 7:- Being a part of the Ministry of Defence, Government of India, whether the following notifications are applicable to our organisation and what shall be the impact of such notifications:- a) Notification No. 2/2018- Central Tax (Rate), in relation to services by an arbitrator or an advocate to our organisation. b) Notification No. 3/2018- Central Tax (Rate), in relation to services supplied by our organisation by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017. c) Notification No. 36/2017-Central Tax (Rate), in relation to payment of tax on reverse charge mechanism on sale of used vehicles, seized and confiscated goods, old and used goods, waste and scrap to a GST regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y our organisation is available? This question has been withdrawn by the applicant. 07. In view of the extensive deliberations as held hereinabove, we pass an order as follows : ORDER (Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA-79/2018-19/B-168 Mumbai, dt. 24-12-2018 For reasons as discussed in the body of the order, the questions are answered thus Question :- 1) Being a part of the Ministry of Defence, Government of India, whether on which our organisation Ordnance Factory Bhandara (OFBa) is liable to pay GST Advance on the following supply of services: a) Liquidated damages deducted from the payments to be made to required suppliers in case of delayed delivery of goods or services. b) Amount of Security deposit forfeited of suppliers due to non fulfilment of certain contract conditions. c) Security deposit left unclaimed by the suppliers and recognised as income after 3 years. d) Food and beverages supplied at industrial canteen inside the factory premises. e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Question :- 5) Whether Input Tax Credit is to be reversed on finished goods that are destroyed during testing? Answer :- Answered in the negative in view of discussions made above. Question :- 6) Whether proportionate Input Tax Credit has to be reversed in cases where lesser payment is made to the supplier due to deduction on account of liquidated damages from supplier s dues? Answer :- Answered in the affirmative. Question:- 7) Being a part of the Ministry of Defence, Government of India, whether the following notifications are applicable to our organisation and what shall be the impact of such notifications: a) Notification No. 2/2018- Central Tax (Rate), in relation to services by an arbitrator or an advocate to our organisation. b) Notification No. 3/2018- Central Tax (Rate), in relation to services supplied by our organisation by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017, c) Notification No. 36/2017 - Central Tax (Rate), in relation to payment of tax on reverse charge mechanism on sale of used vehicles, seized and confiscated goods ..... X X X X Extracts X X X X X X X X Extracts X X X X
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