TMI Blog2023 (2) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... on (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 it is held 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. Applicability of maxim Quando aliquid prohibetur fieri, prohibetur ex directo et per obliquum - applicant contends that reversal of input tax credit would other way mean discharging of GST liability on output supply of alcoholic liquor for human consumption - HELD THAT:- The statutory scheme, as envisaged under the Act requires reversal of tax which is charged on inward supply of goods or services or both. Input tax is totally diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in FORM GST ARA-01: (i) Whether the Constitution of India has conferred any power onto the Parliament to legislate on sale of alcoholic liquor for human consumption with reference to the Goods and Service tax regime, considering the provision of Article 246A read with Article 366(12A)? (ii) If the answer to question (1) is in the negative, then whether the Central Goods and Services Tax Act, 2017(CGST Act) can directly or indirectly deal with aspects touching upon sale of alcoholic liquor for human consumption by the applicant either with reference to levy of tax on such sale or with reference to reversal of credit solely because the applicant is effecting sale of such alcoholic liquor? (iii) Under these circumstances, whether the definition of exempt supply as provided under section 2(47) of the CGST Act, read with definition of the term non-taxable supply under section 2(78) can therefore inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 consumption by the applicant to its customers and credit related implications thereto, it is germane to understand the provisions for ITC and its proportionate reversal under the CGST Act and the CGST Rules. The applicant, thus, submits as follows: Provision mandating ITC reversal under the GST law 2.2 Section 16 of the CGST Act deals with the eligibility and conditions for taking ITC for Input Tax charged on any supply of goods or services or both, which are used or intended to be used in the course of furtherance of business. Section 17 (2) of the CGST deals with apportionment of credit i,e. it mandates that a registered supplier providing taxable supplies as well as exempt supplies to reverse ITC to the extent of the latter. The relevant portion of the same is reproduced hereunder for ease of reference: Apportionment of credit and blocked credits 17. (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Integrated Goods and Services Tax Act, and includes non-taxable supply ; 2.6 Non-taxable supplies have also been defined under the CGST Act, under Section 2(78) in the following manner- non-taxable supply means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act 2.7 Thus, for a transaction to be deemed as exempt supply , it will have to fall within the following threshold- (a) It must be a supply of goods or services or both, (b) It must either- Attract Nil rate of tax, or Be wholly exempt from tax under Section 11 of the CGST Act or Section 6 of the IGST Act, or Be a non-taxable supply under Section 2(78) of the CGST Act. 2.8 We may now examine if the sale of alcoholic liquor meets the above- ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 recommendations of the Council. In other words, supply of petroleum, high speed diesel are indeed subjects on which the legislature has the competence to levy GST, however solely as a policy decision, it has been kept out of the realm of GST until the contrary is notified by the Government. (b) Activities listed under Schedule III of the CGST Act, such as services by an employee to their employer, services by a court or tribunal. These services have been deemed to be as neither supply of goods nor as supply of service, and therefore by virtue of the statute itself have been ousted from the levy of GST. However, levying GST on such services at any given future date, will very well be within the legislative competence of the Parliament. 2.15 Therefore, the scope of non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sales that take place within the province, though these words do not necessarily mean that the property in the goods sold must pass within the province. The expression sale of goods is a composite expression consisting of various ingredients or elements. Thus, there are the elements of a bargain or contract of sale, the payment or promise of payment of price, the delivery of goods and the actual passing of title, and each one of them is essential to a transaction of sale though the sale is not completed or concluded unless the purchaser becomes the owner of the property. The question is what element or elements have been accepted by the Madras Legislature as constituting a sale in the province upon which it is the object of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 alcohol is non-taxable , is secondary given that it does not even qualify as supply under the Act. 2.23 Given this background, it is the applicant s humble submission that the latitude of Section 2(47) read with Section 2(78) of the CGST Act cannot exceed the scope as put forth in the Preamble of the Act and the Constitution of India and therefore if sale of alcohol do not qualify as supply under GST, any revenue earned out of sale of alcohol cannot be termed to be either an exempt supply under section 2(47) of the CGST Act or non-taxable supply under Section 2(78) of the CGST Act and therefore qualification under Rule 42 of the CGST Rules and question of reversal of credit does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 instance, makes an exempt supply, it is not allowed to utilize credit for making payment of its tax liability, rather it will have to reverse the credit which is akin to demand of tax liability. 2.30 In a situation where supply of alcohol is treated as a non- taxable supply and thereby an exempt supply , the applicant will have to consequently reverse ITC. In effect, the applicant will be discharging GST liability on output supply of alcoholic liquor by way of reversal of ITC. 2.31 In this context, the Applicant relies upon the maxim Quando aliquid prohibetur fieri, prohibetur ex directo et per obliquum - The maxim denotes the settled po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready 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 from the scope of Section 9(1) immaterial 2.35 Section 9(1) of the CGST Act reads as follows- Levy and collection (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 legislative power of the Parliament) run contrary to the very objective of the legislation. This is on the basis that even where the credits have no nexus with the output supply of alcoholic liquor for human consumption and have nexus solely with the taxable goods and services supplied by the applicant, it is nonetheless being asked to reverse part of that credit. 2.42 As such therefore, such an interpretation would be entirely against the very fundamental basic structure and philosophy of GST and thus erroneous and cannot be applied. 2.43 It is submitted that for the purposes of this app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2A) 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 supply. 3.8 The applicant has given some case reference like Superintendent and Remembrance of Legal Affairs, West Bengal Vs Ors.,(1975) 4 SCC 754 , Popatlal Shah Vs State of Madras , 1953 SCR 677 to clear that the legislative intent was nowhere to bring alcoholic liquor into the ambit of statute and any reading of the provisions that permits it would only render the provision ultra vires the Constitution. Completely agreeing on this point it should be remembered that in order to understand the legislative intent we need to interpret it according to its tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 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 under the GST Act. In absence of any such exclusion for alcoholic liquor for human consumption, which is undisputedly a movable property, thus qualifies as goods under the GST Act. 4.5 We further find that the expression supply is defined in section 7 to include 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 in the course or furtherance of business. The expression supply thus includes sale of goods. Sale of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding 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 contends that reversal of input tax credit would other way mean discharging of GST liability on output supply of alcoholic liquor for human consumption. We do not incline to accept the argument. Sub-section (2) of section 17 of the GST Act restricts the amount of input tax credit as is attributable to the taxable supplies including zero-rated supplies. On a plain reading of the above provisions, it clearly emerges that the statutory scheme, as envisaged under the Act requires reversal of tax which is charged on inward supply of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X
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