The Government has clarified the scope of Intermediary Services through the above Circular, issued after the GST Council meeting held on 17th September, 2021.
Clarification on certain issues: Circular No. 160/16/2021-GST dated 20th September, 2021
The above Circular has been issued to clarify certain issues in respect of
1. Time limit for availment of ITC in respect of Debit Notes to be considered with reference to the date of issuance of Debit Note, w.e.f. 1st January, 2021 [section 16(4)].
2. No necessity of carrying physical copy of Tax Invoice during journey in case where invoice has been generated in prescribed mode of e-invoice. [Rule 48(4).] Production of QR code, with embedded IRN, would suffice.
3. Applicability of restrictions imposed u/s 54(3) of the CGST Act for availment of refund of accumulated ITC, in case of export of certain goods.
Clarification relating to Export of Services: Circular No. 161/17/2021-GST dated 20th September, 2021
An important aspect related to Export of Services has been clarified through the above Circular. After a detailed analysis of legal provisions, the Circular concludes that ‘a company incorporated in India and a body corporate incorporated by or under the laws of a country outside India, which is also referred to as foreign company under Companies Act, are separate persons under the CGST Act, and thus are separate legal entities. Accordingly, these two separate persons would not be considered as “merely establishments of a distinct person in accordance with Explanation 1 in section 8”.’
Therefore, supply of services by a subsidiary / sister concern / group concern, etc., of a foreign company, which is incorporated in India under the Companies Act, 2013, may qualify for being considered as export of services, as it would not be treated as supply between merely establishments of distinct persons under Explanation 1 of section 8 of the IGST Act, 2017. Similarly, the supply from a company incorporated in India to its related establishments outside India, which are incorporated under the laws outside India, would not be treated as supply to merely establishments of distinct person under Explanation 1 of section 8 of the IGST Act, 2017. Such supplies, therefore, would qualify as ‘export of services’, subject to fulfilment of other conditions as provided under sub-section (6) of section 2 of the IGST Act.
ADVANCE RULINGS
(1) ITC – Eligibility for Solar Plant
M/s KLF Nirmal Industries Pvt. Ltd. (Order No. 19/ARA/2021 dated 18th June, 2021) (Tamil Nadu)
The facts are that the applicant is in the business of edible oil and has an extracting plant in the State of Tamil Nadu. For operating the plant, the applicant has got a solar plant installed in its factory. The supplier has considered the supply / installation of the solar plant as works contract.
It is positively confirmed that the electricity generated is only used for its captive consumption in the plant and nothing is given to outside agencies. To substantiate this fact, they have produced the memo issued by the Tamil Nadu Generation and Distribution Corporation Ltd., wherein it is stated as under:
‘(13) At present, as per the Hon’ble TNERC’s Grid Connectivity and Intra-State Open Access Regulations, 2014, parallel operation charges (Rs. 15,000 per month per MW or part thereof as per TNERC Order No. 5 of 2019 dated 29th March, 2019) as fixed by the TNERC have to be paid by the generator. This charge is applicable as the generator is availing parallel operation with the grid for captive use of solar power without availing open access and it is subject to revision based on the TNERC order issued from time to time.’
The applicant also submitted that the solar plant is capitalised in their books in the category of ‘Plant and Machinery’ and also that no depreciation is claimed on the GST component.
Based on the above facts, the applicant has posed the following questions:
‘1. Whether the company is eligible to take input tax credit as inputs / capital goods or input services of the items listed in Appendix-A.
2. Whether the company is eligible to take input tax credit for inputs and services for running the solar plant.’
The AAR referred to the statutory provisions of sections 16 and 17 of the CGST Act and observed the requisites for getting ITC. He noted that the applicant fulfils the conditions of section 16 as it has tax invoice, it is for business, the goods are received, the tax charged is paid and the return is filed. There is no dispute about compliance of the above conditions.
Reference was also made to the provision of blocked credit in section 17(5)(c). The said section is also reproduced in the AR as under:
‘(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely,
(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation – For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.’
The AAR observed that the said section will not affect the case of the applicant because although the solar plant is a works contract and it is an immovable property, but still it is in the excluded category being ‘plant and machinery’.
There were other purchases in the block of plant and machinery. However, since it was not substantiated further, the AAR did not give any further ruling on the same.
Based on the above facts, the AAR held that the applicant is eligible to take ITC on the solar plant.
(2) Exemption – Registration
M/s Sachdeva College Ltd. (Advance Ruling No. HR/HAAR/2020-21/16 dated 23rd June, 2021) (Haryana AAR)
The applicant is a limited company incorporated under the Companies Act. It provides training to selected candidates sponsored by the Directorate of Welfare of Scheduled Caste and Backward Classes Department, Haryana (referred to as Directorate of Welfare).
There is an agreement with the Directorate of Welfare and the whole expenditure is borne by the Government.
Based on the above facts, the following questions were put before the AAR:
‘2. The questions framed in advance ruling application are:
2.1 To determine the liability to pay GST / IGST tax on training to students at the behest of the Directorate of Welfare of Scheduled Caste and Backward Classes Department, Haryana by the applicant under a training programme for which the total expenditure is borne by the State Government of Haryana which implements three types of schemes, i.e., State Scheme, Sharing basis, Centrally-sponsored Scheme, especially in view of Entry No. 72 of the Haryana Government Excise & Taxation Department Notification No. 47/ST-2 dated 30th June, 2017, and whether this Entry grants exemption of GST on the training of students by the petitioner?
2.2 Whether the applicant is liable to be registered under the State of Haryana under HGST / CGST in view of the facts and circumstances of the present case?’
The applicant is claiming exemption for fees received from the Directorate of Welfare. The Excise and Taxation Commissioner, Haryana has clarified that no GST is payable on schemes related to training as per Entry No. 72 of the Haryana Department vide Notification dated 30th June, 2017.
The AAR referred to the exemption entry in the Haryana SGST and CGST as under:
‘E. Following services have been exempted by Notification No. 47-ST-2 (HGST) Entry No. 72 of HGST; 09/2017 (IGST) Entry No. 75 of IGST; and 12/2017 (CGST) Entry No. 69 of CGST:
47-ST-2 (HGST) Entry No. 72 of HGST:
“Services provided to the Central Government, State Government, Union Territory Administration under any training programme for which total expenditure is borne by the Central Government, State Government, Union Territory Administration.”
09/2017 (IGST) Entry No. 75 of IGST:
“Services provided to the Central Government, State Government, Union Territory Administration under any training programme for which total expenditure is borne by the Central Government, State Government, Union Territory Administration.”
12/2017 (CGST) Entry No. 69 of CGST:
“Services provided to the Central Government, State Government, Union Territory Administration under any training programme for which total expenditure is borne by the Central Government, State Government, Union Territory Administration”.’
The meaning of ‘coaching’ as given in the Cambridge Dictionary was referred to, which defines coaching as under:
‘the job or activity of providing training for people or helping to prepare them for something.’
The AAR relied upon the clarification given by the Excise Commissioner to the Directorate of Welfare in which, with reference to the above Entry No. 72 in Notification No. 47/HGST dated 30th June, 2017, it is clarified that no tax is payable, the transaction being exempt under the above entry.
Accordingly, the AAR opined that no tax is payable on the above transactions.
Regarding the liability for registration, the AAR observed as under:
‘Further, section 23 of the Act provides that any person engaged exclusively in the business of supplying goods and services or both that are not liable to tax or fully exempt from tax under this Act or under the Integrated Goods and Service Tax Act… So the applicant is not liable for registration till he supplies goods and services or both that are not liable to tax or fully exempt from tax under the GST Acts.’
Thus, the AR decided in favour of the applicant.
(3) Exempt supply vis-à-vis local authorities
M/s CMS Engineering Concern (Advance Ruling No. 05/WBAAR/2021-22 dated 30th July, 2021) (WB AAR)
The applicant, M/s CMS Engineering Concern, is engaged in the operation of water pumps and safeguarding pumping machinery at various pump-houses in different districts of West Bengal for supply of drinking water to the public and hospitals upon receipt of a work order from the Directorate of Public Health Engineering, Government of West Bengal (hereinafter referred to as the PHE Directorate).
The applicant is of the opinion that he provides services to local authority, i.e., Panchayat and Municipality, whose powers and duties are described in Article 243G and Article 243W of the Constitution of India. The services are described in the Eleventh and Twelfth Schedule of the Constitution attached to Article 243G (Panchayat) and Article 243W (Municipality). Both of the said Schedules contain ‘Drinking water’ and ‘Water supply for domestic, industrial and commercial purposes’.
Therefore, according to the applicant, the services provided by him are pure services which do not involve any supply of goods. Further, such services are provided to a local authority by way of activity in relation to the function entrusted to the Panchayat under Article 243G or in relation to the function entrusted to the Municipality under Article 243W and therefore the services are exempt from taxation vide entry at serial number 3 of the Notification No. 1136 F.T. dated 28th June, 2017 of the WB SGST [corresponding Central Notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017 under CGST], as amended from time to time.
Based on the aforesaid nature of supply, the applicant has sought advance ruling on the question as to whether or not the services provided by him are exempt from GST.
The applicant referred to the advance ruling pronounced by the West Bengal AAR in the matter of Mahendra Roy (Case No. 35 of 2019-2019-VIL-288-AAR) where the applicant is stated to be providing conservancy / solid waste management service to the Conservancy Department of the Howrah Municipal Corporation. In this case, the AAR has held that the supply is exempt from the payment of GST under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, as amended from time to time.
The Revenue objected that the services rendered by the applicant for supervision of electrical installation and operating and guarding of pumping machinery are supply of services in the form of works contract or job work. These supplies in no way are sovereign services of the Government. Therefore, it was submitted that the stated services could not be considered as services falling under the purview of Articles 243G and 243W of the Constitution.
The AAR referred to the Entry involved and reproduced the same as under:
Entry serial No. 3 of the Notification No. 1136 F.T. dated 28th June, 2017:
|
Sl.
No.
|
Chapter, Section, Heading, Group or Service Code
(Tariff)
|
Description
of Services
|
Rate
(per cent)
|
Condition
|
|
3
|
Chapter 99
|
Pure Services (excluding works
|
NIL
|
NIL
|
|
|
|
(continued)
contract service or other composite supplies involving supply of
any goods) provided to the Central Government, State Government or Union
Territory or Local Authority or a Governmental authority by way of any
activity in relation to any function entrusted to a Panchayat under Article
243G of the Constitution or in relation to any function entrusted to a
Municipality under article 243W of the Constitution
|
|
|
Based on the above entry, the issues to be decided were:
(i) whether the instant supply of services can be treated as pure services;
(ii) whether the applicant provides services to the Central Government, State Government or Union Territory or Local Authority or a Governmental authority; and
(iii) whether the said services are in relation to any function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W of the Constitution of India.
The AAR observed that pure services will mean supply of services which do not involve any supply of goods.
Although minute details of the work involved were not available, the AAR assumed that if it does not involve goods, it will not be works contract, as works contract takes place when goods are involved. Since there is no activity of treatment or process of goods, it cannot be job work also, observed the AAR.
The AAR also referred to the functions entrusted to the Panchayat and Municipality under Articles 243G / 243W by reproducing the Articles.
He found that the functions entrusted to a Panchayat or to a Municipality as listed in the Eleventh and / or Twelfth Schedule include the functions like drinking water or water supply for domestic, industrial and commercial purposes.
In view of the above, the AAR held that the services as provided by the applicant for operation of water-pump and safeguarding pumping machinery at various pump-houses in different districts for supply of drinking water is a matter listed in the Eleventh and / or Twelfth Schedule in relation to functions entrusted to a Panchayat under Article 243G and / or to a Municipality under Article 243W of the Constitution and accordingly held the supply as exempt.
(4) Maintainability of Advance Ruling application
M/s Sree Krishna Rice Mill (Advance Ruling No. 04/WBAAR/2021-22 dated 30th July, 2021) (WB AAR)
The applicant, Sree Krishna Rice Mill, has entered into agreements with State Government agencies for custom milling of paddy, i.e., production of rice on job work. In the execution of custom milling, the applicant has to collect / procure paddy from paddy storage centres (commonly known as Mandis) and thereafter transport it to its milling site. After milling of rice from the said procured paddy, the applicant delivers such milled rice from its milling site to the various delivery centres.
According to the applicant, milling charges and usage charges for packing of rice is a taxable supply on which tax is levied @ 5% (CGST @ 2.5% and SGST @ 2.5%). However, on the issue of the services of transportation of paddy / rice, the applicant is of the opinion that the transportation charges in relation to paddy / rice are exempt from payment of tax under Entry serial No. 21 of Notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017, being services provided by a goods transport agency by way of transport in a goods carriage of agricultural produce. The applicant further expressed his view that labour charges on procurement of paddy are not liable to tax under the GST Act.
Based on the aforesaid nature of supply, the applicant raised the following issues before the AAR:
(i) Whether transportation of raw paddy from the point of purchase to the rice mill is taxable or not;
(ii) Whether the reimbursement of Mandi labour charges is taxable or not.
The AAR discussed details of the above issues at great length. However, he noted that at present investigation proceedings are pending related to custom milling of paddy. He referred to the 1st proviso to sub-section (2) of section 98 of the CGST Act which says that the AAR shall not admit an application where the question raised is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act.
Although in the application uploaded on 31st March, 2021 a declaration is made that the questions raised in the application are not pending nor decided in any proceeding, the correct fact is that the applicant has been served with a notice dated 16th March, 2021 in connection with proceedings under the provisions of the GST Act and the questions raised in the instant application are related to the said proceedings.
Under the circumstances, the AAR denied any ruling on the application and disposed of it accordingly.
