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Refund of service tax paid under RCM after filing of TRAN-1

During the course of audit of accounts conducted by CERA Audit party for the erstwhile regime, it was observed by the Revenue authorities that the petitioner is liable to pay service tax under reverse charge on services rendered at two quarries, for which, royalty had been paid by the petitioner to the Government of Tamil Nadu for mining stones since such royalty payments are liable to service tax consequent to the issuance of Notification No.22/2016 ST dated 13 April 2016. The Petitioner duly paid the ST, however, the same had been paid post the transitional date.

Accordingly, as the Petitioner could not avail the transitional credit of service tax paid, post the transitional date, the same had been claimed as refund. The refund application came to be rejected by the Revenue authorities mainly on the ground that there is no provision in the new regime to allow such refund. Aggrieved, the Petitioner preferred a Writ before the Madras HC.

The HC observed that the Petitioner should be allowed benefit of service tax paid under RCM post implementation of GST. The Court noted that neither refund under Section 142(3) of the CGST Act can be allowed being not eligible under erstwhile laws nor credit under Section 140(1) of the CGST Act can be allowed when time limit to transition such credit has lapsed. The Court invoked ‘Doctrine of Necessity’ and remanded matter back to department for reconsidering the Petitioner’s application for allowing GST credit under Section 142(3).

Ganges International Private Limited [2022-TIOL-325-HC-MADGST]

Authors’ Notes:

The Court exercised its discretionary powers to remand matter back for reconsideration under Section 142(3) for allowing credit. ‘Doctrine of Necessity’ is however misplaced in this case in the absence of statutory provisions to this effect. In past, the CESTAT has consistently allowed refund under Section 142(3) on similar facts.

Disclaimer:

The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.

AAAR disallows ITC on canteen facility services and promotional schemes

The Applicant had sought an advance ruling before the Haryana AAR to ascertain whether the ITC can be availed on third party canteen services and gift distribution. The Applicant further sought clarification in regarding GST liability on coupons distributed to employees.

The AAR held that the Applicant was neither eligible to avail ITC in respect of canteen services availed by it for its employees nor on business promotion activities. The AAR further held that the distribution of coupons among employees will attract GST. Aggrieved, the Applicant had preferred an appeal before the Haryana AAAR.

The Applicant argued that the restriction of ITC in respect of canteen services is not applicable when the said services are mandatory by law and not optional on the Applicant to its employees. It was argued that since the provision of canteen facility is mandatory to be provided under the Factories Act, such provision is covered under the exception of Section 17(5) of the CGST Act. The Applicant further argued that ITC in respect of promotional schemes shall be allowed to avoid the cascading effect.

The AAAR observed that Section 17(5)(b)(i) sub-clause ending with a colon and followed by a proviso which ends with a semi colon is to be read as independent sub-clause, independent of sub clause Section 17(5)(b)(iii) and its proviso [of sub-clause iii]. Thereby, the proviso to section 17(5)(b)(iii) is not connected to the sub-clause of Section 17(5)(b)(i) and cannot be read into it. Accordingly, it was ruled that ITC on GST paid on canteen facility is blocked credit u/s. 17(5) of the CGST Act and therefore would not be admissible.

As regards the second issue in relation to distribution of coupons among employees attracts GST liability, the AAAR ruled that distribution of coupons among employees does not attract GST.

As regards the issues relation to ITC on promotional schemes, the AAAR observed that sub section 17(5), clause (g) clearly forbids ITC admissibility on the items of personal consumption. Thus the items mentioned by the Applicant viz. sweets; dry fruits; electronic items and Gold and Silver Coins etc. are essentially being given to the relevant persons as items of personal use/ consumption. Thus, it was ruled that the Applicant was not eligible to take ITC on such business promotion expenses.

Muasashi Auto Parts India Private Limited [HAAAR/2020-21/06 dated 25 September 2020]

GLS Comments:

As the saying goes “The law is what is read, not what is written.” It seems that the Haryana AAR in the instant matter has followed the footsteps of Gujarat AAR in RE: Tata Motors [TS-437-AAR(GUJ)-2021-GST], who had interpreted Section 17(5) of the CGST Act in a similar fashion. In this regard, it shall be noted that Delhi HC in RE: Rodhee vs. Govt. of Delhi and Ors. [(2003) IILLJ 5 Del] had held that the intention of a semi-colon is to segregate two substantially similar topics from each other. If the said punctuation mark is not employed, a part of the foregoing words would have to be repeated once again or in the same context would have to be reiterated. It was further observed that if the proviso was not to operate on the first sub-section it should have ended with a full stop and not a semi-colon. Basis the same it was concluded that a statutory provision should not be interpreted only on the basis of the punctuation marks found therein.

ITC disallowed on construction of immovable property for lease of land

The Applicant had sought an advance ruling before the Haryana AAR to ascertain the availability of ITC of GST paid on construction of immovable property and further leasing out the premises. The AAR had held that the Applicant was not eligible to avail ITC in respect of inputs / capital goods used for creating warehouse for renting purpose. Aggrieved, the Applicant had preferred an Appeal before the Haryana AAAR.

The Appellant argued that Section 17(5)(d) of the CGST Act disallows ITC on construction of immovable property by a taxpayer on his own account. However, in the instant case as the construction of the immovable property is being done for further letting-out of the property, the said provision would not be applicable. The Appellant further relied upon the judgement of the Orissa HC in RE: Safari Retreats Private Limited [2019 (025) GSTL 0341], wherein the Court had allowed ITC on construction of immovable property for letting it out.

The AAAR observed that the construction of the immovable property had been done by the Appellant for itself i.e., with all the intentions to retain the ownership rights. Thus, the construction of the immovable property was construed to be done by the Appellant on his own account. The AAAR further observed that in terms of CBIC instruction vide F. No. 276/114/2015-CX.8A dated 09.02.2019, the judgement of the Orissa HC had not attained finality as it is pending before the Apex Court. Accordingly, the AAAR upheld the AAR order holding that the Appellant was not eligible to avail ITC as the construction of the immovable property was for his own account.

Dhingra Trucking Private Limited [HAAAR/2020-21/03 dated 30 September 2020]

GLS Comments:

The entire issue in the instant matter can be filtered down to the interpretation of the phrase ‘on his own account.’ The GST law nowhere defines the phrase. Accordingly, such situation calls for reference to the general rules of interpretation, which provides that there should be no additional inclusion of words and the provision must be construed strictly as per the plain language used by the Legislature. It is opined that the said term seeks to block ITC when the construction is being done for one’s own purpose. It cannot be said to block ITC in respect of immovable property intended for the purpose of leasing out. Such a situation blocking ITC for the purpose of re-sale, leasing-out, etc. would defeat the very objective of seamless flow of credit, especially for taxpayers engaged in real estate transaction.

However, the entire issue is very much interpretative in nature. Accordingly, it is contemplated that the issue of correct interpretation of Section 17(5)(d) of the CGST Act will have to be resolved by the Apex Court. It would be interesting to see the result in RE: Safari Retreats (supra), which would provide more perspective into the issue.

590 Records found, page 3 of 59

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