Category: Recent Developments In GST

A. NOTIFICATIONS

i) Notification No.19/2025-Central Tax dated 31.12.2025

By above notification, certain tobacco products are notified for declaration of Retail Sale Price under section 15(5) of CGST Act.

ii) Notification No.20/2025-Central Tax dated 31.12.2025

By above notification, the CBIC seeks to notify Central Goods and Services Tax (Fifth Amendment) Rules, 2025 as operative from 1.2.2026.

B. NOTIFICATION RELATING TO RATE OF TAX

i) Notification No.19/2025-Central Tax (Rate) dated 31.12.2025

The above notification seeks to amend Notification 09/2025- Central Tax (Rate), to prescribe GST rates on tobacco products.

C. OTHERS

i) GSTN has issued consolidated FAQ on GSTR-9/9C for financial year 2024-25, dated 17.12.2025.

ii) The order about filing of appeals before GSTAT in staggered manner is withdrawn vide order No.315/3025 dated 16.12.2025.

iii) GSTN has also issued Advisory and FAQ on Electronic credit reversal and Reclaimed Statement and RCM liability/ITC statement dated 29.12.2025.

D. ADVANCE RULINGS

7. Manav Seva Charitable Trust (AAR Order No. 2025/AR/28 dt.23.12.2025)(Guj)

Plantation of trees – Exemption as Charitable activity

FACTS

The facts are that the applicant is a registered Charitable Trust duly recognised by way of Registration u/s 12AB of Income-tax Act, 1961. They are engaged in charitable activities, including preservation of environment by way of plantation of trees and maintenance of trees. The activity of plantation and maintenance of Trees, inter alia, involves, avenue plantation, its required maintenance, application of pesticide/insecticide/anti-termite and generally to do anything incidental, ancillary or subservient to the principal object of plantation of trees and post-plantation maintenance.

The main object of applicant, as contained in Trust Deed, was also “Tree Plantation and Maintenance”.

Following questions were raised for ruling by AAR.

“1. Whether, in the facts and circumstances of the case, the entry no. 1 of Notification No. 12/2017 (as amended from time to time) applies to the charitable activity of plantation and maintenance of tree (more particularly described in the Statement of Relevant Facts), by the applicant being a Charitable Institution, duly recognized u/s. 12AA of the Income-tax Act, 1961 for Preservation of Environment?

2. Whether, in the facts and circumstances of the case, the applicant being a Charitable Institution, duly recognized u/s. 12AA of the Income-tax Act, 1961, is liable to pay tax on charitable activity of plantation and maintenance of tree? If yes, then to what extent and at what rate?”

In application, applicant highlighted the importance of activity including supported by State of Gujarat and implication of various policies formulated by Government, including National Forest Policy,1988. Applicant relied on Entry no. 1 of Notification No. 12/2017 (as amended from time to time), which describes that “Services by an entity registered under section 12AA or 12AB of the income-tax Act, 1961 (43 of 1961) by way of charitable activities.”- shall be taxable at Nil Rate. The term “Charitable Activities”, as defined in the said notification includes activities relating to preservation of environment including watershed, forests and wildlife and therefore, applicant submitted to give ruling in its favour, declaring its above activity as exempt under above entry.

HELD

The ld. AAR narrated features about Government’s forest policy and scope of entry 1 of Notification no.12/2017. The ld. AAR, observed that for being covered under the said entry, following conditions have to be fulfilled:

“(a) The entity should be registered under Section 12AA or 12AB of the Income Tax Act, 1961.

(b) the services provided should fall under the definition of charitable activities as defined in the notification.”

The ld. AAR concurred with applicant and observed that as per the definition of charitable activities mentioned in Clause 2(r) of the notification No.12/2017-CT(R) dtd. 28.6.2017, activities related to preservation of environment including watershed, forests and wildlife fall under the ambit of charitable activities.

The ld. AAR further observed that the objective of the schemes is for preservation of environment and therefore the activity of applicant falls under the definition of charitable activities mentioned in Notification No. 12/2017-CT(R) dated 28.06.2017 and eligible for exemption.

8. Advanced Hair Restoration India Pvt. Ltd. (AAR Order No. 37/2025 dt.24.11.2025)(Ker)

Specified Healthcare Services – AAR held the activity of applicant as exempt under above entry 74 of Notification no.12/2017-CT (R) dt.28.6.2017.

FACTS

The applicant submitted that it is engaged in rendering healthcare services in connection with the treatment of psoriasis affecting the skin and scalp, dandruff, dermatitis, anti-fungal infections, folliculitis, and other related ailments. Applicant has its principal place of business at Ernakulam and maintains additional places of business across the State. It is also submitted that the applicant is duly authorised to carry out the aforesaid service activities under the licences issued by the respective local authorities, including the paramedical licence granted by the Health Services Department.

It was further explained that for providing such services, the applicant has appointed around 80 qualified medical officers, dental surgeons, and dermatologists across its various centres. It was elaborated that with the professional expertise of these doctors, including skin specialists and dermatologists and with the assistance of paramedical staff such as nurses, the applicant has been providing systematic and effective treatment for the aforesaid ailments across its establishments in the State.

The applicant maintains necessary records, including details of service recipients, nature of ailments treated, treatments administered, and particulars of the doctors concerned. The applicant contended that the services rendered in connection with the aforesaid healthcare activities are squarely covered under Sl. No. 74 of Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017, thereby entitling the applicant to exemption from GST.

HELD

The ld. AAR analysed the scope of above entry 74 in Notification no.12/2017 and noted that the said entry prescribed NIL rate for-

“(a) Healthcare services by a clinical establishment, an authorised medical practitioner or para-medics;

(b) services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above.”

The ld. AAR also observed that healthcare services should fall within ambit of para 2(zg) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. AAR noted that the essential element of “healthcare services” is that the treatment should relate to an illness or abnormality and should be provided under a recognized medical system.

Applying above criteria the ld. AAR held that the applicant’s activity of rendering hair treatment described above clearly falls within the scope of “illness” or “abnormality” as contemplated in the Notification.

It was also noted that the applicant holds statutory licences issued under section 447 of the Kerala Municipality Act, such as the IFTE and OS licences, which describe the establishments as “skin clinics” which further strengthens the case that the applicant falls within the statutory meaning of a “clinical establishment”.

Accordingly, the ld. AAR held the activity of applicant as exempt under above entry 74 of Notification no.12/2017-CT (R) dt.28.6.2017.

9. Goexotic Plus91 Motors Pvt. Ltd. (AAR Order No. 42/2025 dt.11.12.2025) (Kerala)

Admissibility of Input Tax Credit (ITC) on Direct Expenditures for Second-Hand Vehicles – held that ITC is eligible on other items as well as capital goods also.

FACTS

The facts are that the applicant is a registered Tax Payer under GST regime and is engaged in the business of buying and selling second hand motor vehicles, primarily old and used luxury cars. These vehicles are procured from both registered and unregistered persons.

The applicant, before supplying these vehicles to customers, undertakes minor processing activities such as repairs and refurbishment, including the replacement of spare parts. These activities are undertaken to enhance the resale value of the vehicles but do not alter their fundamental nature. The said repairs and refurbishments are either carried out at the applicant’s own service station or through external service stations.

For the purpose of valuation and taxation under GST, the applicant proposes to adopt the special valuation mechanism as laid down under Rule 32(5) of the CGST Rules, 2017, which permits payment of GST only on the margin (i.e., the difference between selling price and purchase price), provided that no input tax credit (ITC) is availed on the purchase of the second-hand motor vehicles.

In the course of business, the applicant incurs various common business expenses such as office/showroom rent, telephone expenses, advertising costs, professional fees, and also procures capital goods such as workshop machinery, office equipment, computer systems, and demo cars, which are utilized in the business operations.

The application is filed to seek ruling on below questions:

“Question 1- Admissibility of Input Tax Credit (ITC) on Direct Expenditures for Second-Hand Vehicles: In view of the Notification No. 8/2018-Central Tax (Rate) dated 25th January 2018, the applicant would like to get clarification as to whether the input tax credit would be available on inward supplies of goods or services which are in the nature of direct expenditures like spare purchases, repairs and refurbishment costs of vehicles, etc., except on purchase of old or used motor vehicles as mentioned in para 2 of the notification?

Question 2– Admissibility of Input Tax Credit (ITC) on Other Common Business Expenses and Capital Goods: In view of the Notification No. 8/2018-Central Tax (Rate) dated 25th January 2018, the applicant would like to get clarification as to whether the input tax credit would be available on inward supplies of other goods or services except on purchase of old or used motor vehicles as mentioned in para 2 of the notification. That is, whether credit of input tax available on inward supplies of goods or services like office/showroom rent, telephone, advertisement, professional charges, capital goods, etc., except that on inward supply of old or used motor vehicles.”

The applicant submitted that it is eligible to ITC on other items as it complies with condition of section 16(1).

The ld. AAR referred to text of Notification no. 8/2018-Central Tax (Rate) dated 25th January 2018 and observed that the benefit of paying tax on the margin basis is not available in cases where input tax credit (ITC) has been availed on “such goods.” The ld. AAR held that, the restriction on availing ITC appears to be limited to the inward supply of the used vehicles themselves and there is no bar under the notification on claiming ITC on other inward supplies, including but not limited to spare parts, repair and refurbishment services, rent, advertising, professional services, or capital goods utilized in the course of business.

The ld. AAR also observed that in present case the applicant has applied minor modifications, repairs and refurbishments on the vehicles to enhance their market value without altering their essential character and accordingly held that the applicant’s activity qualifies under the provisions of Rule 32(5) for determination of value on the margin basis.

The ld. AAR also concurred with view of applicant that even where the margin is Nil, it cannot be classified as an exempt supply and such supply will not trigger reversal of common input tax credit under Rule 42 or 43.

Accordingly, the ld. AAR answered both questions in favour of applicant and held that ITC is eligible on other items as well as capital goods also.

10. Premlata Rakesh Jain (Sambhav Warehousing) (AAR Order No. 2025/62 dt.23.12.2025)(Guj)

ITC vis-à-vis Construction of warehouse – held that no ITC is permissible on goods/services used for construction of warehouse.

FACTS

The facts narrated by applicant are that it is a provider of Storage and Warehouse services and he is constructing a warehouse and therefore, needs to purchase cement, steel, beam, column etc. for construction of the warehouse. Applicant would also be availing the construction services for the same. It was explained that ITC on construction related material or services were covered under block credit under Section 17(5) of the CGST Act, 2017 and cannot be claimed even though the same was used for the furtherance of business. However, subsequent to the judgement of the Supreme Court in the case of Chief Commissioner of Central Goods and Services Tax Vs Safari Retreats Pvt. Ltd. [2024 (90) G.S.T.L. 3 (S.C.) – 2024-VIL-45-SC] (Safari Retreats) and the Supreme Court’s interpretation of Section 17(5) on the issue, the applicant felt that ITC can be eligible and hence approached AAR. Accordingly, the applicant has sought an advance ruling on the following question: –

“Whether ITC is admissible for the goods or services utilised for the construction of warehouse or shed from which storage and warehousing services are provided as furtherance of business or provided on rent.”

It was submission that ITC would be allowable on construction expenses for building intended for leasing, treating such building as plant, based on their functional use, in view of the judgement of the Supreme Court in the case of Safari Retreats.

Since the whole basis of applicant was on the judgment of the Supreme Court in the Safari Retreats, ld. AAR went through said judgment and analysed fully.

The ld. AAR noted distinction made by Supreme Court between the expression “plant and machinery” used in Section 17(5)(c) and ‘plant or machinery’ used in Section 17(5)(d).

The ld. AAR noted that based on above distinction, Supreme Court has come to conclusion that blockage u/s.17(5)(d) is not applicable when warehouse is plant or machinery.

The ld. AAR observed that though there may be scope to apply such interpretation, now it is not possible due to fact that subsequent to the judgment of Safari Retreats, the Legislature, vide Section 124 of the Finance Act, 2025 has amended Section 17(5)(d) and substituted the words ‘Plant or Machinery’ with the words ‘Plant and Machinery’ with effect from 01.07.2017. It is also noted that another explanation is added in Section 17(5)(d), as per which, for the purpose of clause (d), anything contrary contained in any judgment, decree or order of any court, tribunal, or other authority, any reference to “plant or machinery” shall be construed and shall always be deemed to have been construed as a reference to “plant and machinery. The ld. AAR held that the amendment read with the new explanation has basically nullified the effect of the judgement of the Supreme Court in Safari Retreats as far as the interpretation of Section 17(5)(d) is concerned.

In view of above latest position, the ld. AAR ruled in negative and held that no ITC is permissible on goods/services used for construction of warehouse.

11. Medtrainai Technologies P. Ltd. (AAR Order No. 25/WBAAR/2025-26 dt.24.12.2025)(WB)

Pure Agent Conditions – AAR ruled that the supply received by the applicant from the foreign attorneys is a taxable service and accordingly liable to tax under RCM.

FACTS

The facts are that the applicant wanted to file patent in Japan (and later in USA and UK) and also allotted the task to one Indian concern viz: M/s. Seenergi IPR (GSTIN 19ABLFS2275H1ZR). M/s. Seenergi IPR, on completion of the task in Japanese patent office, raised the invoice which is fully paid by the company. M/s.Seenergi IPR did not collect GST and directed the company to pay tax under reverse charge mechanism (RCM) for total invoice amount. The invoice has two parts. Part-A is reimbursement of payment to Japanese attorney at Japan and Part-B is Seenergi IPR’s own fee. The applicant had reservation about paying RCM on Part A as it envisaged no benefit out of such payment.

The applicant raised following questions:

“(i) Whether the company needs to pay GST towards reimbursement of expenses Japanese patent attorney has done towards filing a patent in Japanese patent office. The company is filing the patent in favour of Nilanhra Banerjee, one of the directors. The company is not planning to do business in Japan.

(ii) Same question remains for any other patent office on foreign soil as the company has submitted patents in USA and UK.”

The main contention of applicant was that Part A in invoice is a reimbursement of expenditure done by Japanese patent lawyers in Japan and therefore, the actual transaction was done on the company’s behalf in Japan and applicant derives no benefit, whatsoever, from the given transaction in India. The company is only reimbursing the money and transaction is outside the jurisdiction of GST law of the country. Accordingly, it was submitted that GST is not applicable on said Part A.

The ld. AAR examined the meaning of ‘reimbursement’ as per different dictionaries and derived meaning that the reimbursement is repayment of what has already been spent or incurred for the restoration of the spent or incurred amount and it is not a consideration for a service rendered.

The ld. AAR also referred to section 15 of the CGST Act,2017 which provides for value of supply and laid stress on language of section 15(2)(c) which reads as under:

“15. (2) The value of supply shall include—

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;”

HELD

The ld. AAR also referred to Rule 33 where requirements for being ‘pure agent’ are mentioned.

Analysing fact position that there is no contract or signed agreement between applicant and M/s. Seenergi IPR, the ld. AAR observed that M/s. Seenergi IPR never acted as a ‘pure agent’ as per Rule 33. The claim of being reimbursement was also turned down as the amount was paid in advance.

Based on above finding the ld. AAR concluded that the applicant has received service of filing patent application from foreign companies situated outside India and covered under SAC 9982 as legal and accounting service at Serial No.20 of Notification no.11-Central Tax (Rate) dated 28.6.2017.

Referring to section 13 about place of supply, the ld. AAR held that legal services do not fall in sub-sections (3) to (13) of section 13 and hence the place of supply for service received by the applicant in Japan is the location of the applicant i.e. West Bengal.

The argument of exempt service for Advocate or Senior Advocate also rejected as the foreign service provider do not fall under the Advocate Act,1961.

Accordingly, the ld. AAR ruled that the supply received by the applicant from the foreign attorneys is a taxable service and accordingly liable to tax under RCM. The ld. AAR answered the issue against applicant.

BCAJ Admin

A. NOTIFICATIONS

i) Notification No.1/2025-Central Tax dated 10^th January, 2025

By the above notification, the due date for furnishing FORM GSTR-1 for the month of December, 2024 and the quarter of October to December, 2024 is extended to 13^th January, 2025, and 15^th January, 2025 respectively.

ii) Notification No.2/2025-Central Tax dated 10^th January, 2025

By the above notification, the due date for furnishing FORM GSTR-3B for the month of December, 2024 and the quarter of October to December, 2024 is extended to 22^nd January, 2025 and 24^th January, 2025 respectively.

iii) Notification No.3/2025-Central Tax dated 10^th January, 2025

By the above notification, the due date for furnishing FORM GSTR-5 for the month of December, 2024 is extended till 15^th January, 2025.

iv) Notification No.4/2025-Central Tax dated 10^th January, 2025

By the above notification, the due date for furnishing FORM GSTR-6 for the month of December, 2024 is extended till 15^th January, 2025.

v) Notification No.5/2025-Central Tax dated 10^th January, 2025

By the above notification, the due date for furnishing FORM GSTR-7 for the month of December, 2024 is extended till 15^th January, 2025.

vi) Notification No.6/2025-Central Tax dated 10^th January, 2025

By the above notification, the due date for furnishing FORM GSTR-8 for the month of December, 2024 is extended till 15^th January, 2025.

NOTIFICATIONS (RATES)

CBIC has issued Notifications Central Tax (Rates)1 to 8 on 16^th January, 2025. The effective date of notification and effect thereof may be summarized in brief, as follows:

CTR-1, effective from 16^th January, 2025, notifies the rate of tax applicable on Fortified Rice Kernel. (Reduced from 18 per cent to 5 per cent). It also redefines the expression ‘pre-packaged and labelled’, for all commodities intended for retails sale.

CTR-2/2025, effective from 16^th January, 2025, provides exemption from tax to “Gene Therapy”.

CRT-3/2025, effective from 16^th January, 2025, provides for concessional rate of tax on food inputs of food preparations intended for free distribution to economically weaker section under a Government program.

CRT-4/2025, effective from 16^th January, 2025, provides for increase in GST rate applicable on sale of old and used motor vehicles (from 12 per cent to 18 per cent).
(The taxable value is determined based on the margin of the supplier – same as earlier).

CRT-5/2025, is in respect of the rate of tax applicable on hotel accommodation services. (Effective from 1^st April, 2025). The applicable rate of tax on such services, will now be decided based on the concept of “specified premises’” for a financial year, instead of earlier system of “declared tariff”.

CRT-6/2025, is in respect of certain services of insurance provided by the Motor Vehicle Accident Fund. (Effective from 1^st April, 2025)

CRT-7/2025, effective from 16^th January, 2025, provides for certain changes in applicability of provisions of RCM. Accordingly, now (1) “sponsorship services” provided by ‘any person other than a body corporate’ will attract RCM. (earlier the wordings were: ‘provided by any person’). (2) RCM, in respect of renting of Immovable Property (other than residential dwelling), provided by an un-registered person to a registered person, will not be applicable to those registered persons who have opted for ‘composition scheme’.

B. CIRCULARS

(i) Clarification on ITC availed by Electronic Commerce Operators – Circular no.240/34/2024-GST dated 31^st December, 2024.

By the above circular, clarification is provided in respect of input tax credit availed by electronic commerce operators, where services specified under Section 9(5) of CGST Act are supplied through their platform.

(ii) Clarification on ITC as per section 16(2)(b) of CGST – Circular no.241/35/2024-GST dated 31^st December, 2024.

By the above circular, clarification is provided on availability of input tax credit as per section 16(2)(b) of CGST Act in respect of goods, which have been delivered by the supplier at his place of business under Ex-Works Contract.

(iii) Clarification on place of supply of Online Services supplied to Unregistered recipient – Circular no.242/36/2024-GST dated 31^st December, 2024.

By the above circular, clarification is provided in respect of place of supply of Online Services supplied by the suppliers of services to unregistered recipients.

(iv) Clarifications on issues related to GST treatment of voucher – Circular no.243/37/2024-GST dated 31^st December, 2024.

By the above circular, clarification is provided on various issues pertaining to treatment of vouchers under GST.

C. ADVISORIES

i) Vide GSTN dated 18^th December, 2024, guidance is provided for Entry of RR No./eT-RRs following the Integration of E-Way Bill with Freight Operation Information System of Indian Railways.

ii) Vide GSTIN dated 17^th December, 2024, the information about updating to E-Way Bill and E-Invoice Systems is provided.

iii) Vide GSTIN dated 15^th December, 2024, the information about Biometric based Aadhaar Authentication and Document Verification for GST Registration Applicants of Chhattisgarh, Goa and Mizoram is provided.

iv) Vide GSTIN dated 1^st January, 2025, the information related to extension of E-way bills expired on 31^st December, 2024, is provided.

v) Vide GSTIN dated 31^st December, 2024, the information about Biometric based Aadhaar Authentication and Document Verification for GST Registration Applicants of Arunachal Pradesh is provided.

vi) Vide GSTIN dated 14^th January, 2025, the information about Waiver scheme under Section 128A is provided.

vii) Vide GSTIN dated 14^th January, 2025, the information about Generation date for Draft GSTR-2B for Dec, 2024 is provided.

viii) Vide GSTIN dated 8^th January, 2025, the information about Biometric based Aadhaar Authentication and Document Verification for GST Registration Applicants of Rajasthan is provided.

ix) Vide GSTIN dated 7^th January, 2025, the information about enabling of filing of Application for Rectification as per Notification no.22/2024-CT dt.8th October, 2024 is provided.

D. INSTRUCTIONS

The CBIC has issued instruction No.1/2025-GST dated 13^th January, 2025 by which, instructions about guidelines for arrest and bail in relation to offences punishable under the CGST Act, 2017, are revised.

E. ADVANCE RULINGS

‘Tolerating an Act’ – Scope

Chamundeswari Electricity Supply Corporation Ltd. (AAR Order No. KAR/AAAR/02/2024 dated 6^th November, 2024 (Kar)

The present appeal has been filed by the appellant, M/s. Chamundeswari Electricity Supply Corporation Limited, against the Advance Ruling order No. KAR/ADRG/09/2023 Dated: 27^th February, 2023 – 2023-VIL-39-AAR.

The facts are that the appellant is a public sector company of Government of Karnataka, engaged in the distribution of electricity and supply of electric power in the districts of Mysore and others.

The Appellant is supplying electricity for housing, irrigation and also for all kinds of commercial and non-commercial purposes to the cliental comprising of individuals, farmers, organisations, hospitals, government organisations, commercial establishments, industries etc.

To meet the huge energy demand and universal supply obligation, it purchases power from central and state generating stations, private power generators which also include generators from non-conventional sources like wind, solar, mini hydel etc. The retail tariff is determined by the Karnataka Electricity Regulatory Commission, (KERC) as per the Electricity Act, 2003.

As per scheme, such Industries or companies can also buy power from private generators notwithstanding that they have entered into agreement with the appellant under “Open Access Consumers” (“OA Consumers” for short). To comply with the obligations created in agreement with its customer, the appellant enters into back-to-back Power Purchase Agreements (PPA) with private and state-owned energy generators to purchase power as back up for seamless supply of electricity assured to such customers.

The further relevant facts are as under:

The appellant collects an Additional Surcharge, the subject matter of this appeal, from Consumers when Consumers opt to buy electricity from third party private generators by invoking an open access clause.

The appellant has to pay third-party generators. Appellant recovers said amount from its customers under the heading of ‘Additional Surcharge’. The issue was about the liability of GST on the above collection.

In the above factual scenario, the appellant filed application for AR raising various different questions. The question (vii) was as under:

“vii. Whether Additional Surcharge collected from Open Access Consumer as per sub section (4) of Section 42 of the Electricity Act, 2003, clause 8.5.4 of the Tariff Policy 2016. Clause 5.8.3 of the National Electricity Policy and Clause 11(vii) of the KERC (Terms and Conditions for Open Access) Regulations, 2004, is taxable under the GST Acts?”

The ld. AAR answered the said question as under:

“vii. Additional Surcharge collected from Open Access Consumer as per subsection (4) of Section 42 of the Electricity Act, 2003, clause 8.5.4 of the Tariff Policy 2016, Clause 5.8.3 of the National Electricity Policy and clause 11(vii) of the KERC (Terms and Conditions for Open Access) Regulations, 2004, is taxable under GST Act.”

The main reason of ld. AAR to hold as above was that it interpreted the charges as for ‘tolerating an act’ and hence, a supply of service under GST Act.

The appellant was aggrieved by the above decision of ld. AAR and hence this appeal to ld. AAAR.

The ld. AAAR went through elaborate submission / grounds of appeal of the appellant. The main argument of appellant was that the appellant is collecting additional surcharge as per the Electricity Act; Tariff Policy; National Electricity Policy of Ministry of Power, Government of India and Karnataka Electricity Regulatory Commission (Terms and conditions for open Access) Regulation, 2004, KERC (Electricity Supply) Code, 2004 of Karnataka Electricity Regulatory Commission, Government of Karnataka from the open access customers, and therefore it forms part of tariff for the supply and distribution of electricity and cannot be taxable as separate service by way of ‘tolerating an act’.

The ld. AAAR also referred to Circular 178/10/2022-GST dated 3^rd August, 2022 in which the concept of supply vis-à-vis ‘tolerating an act’ is explained.

The ld. AAAR observed that the collection of Additional Surcharge from OA consumers based on quantum of energy wheeled from the private generators is only to meet the fixed cost of the appellant arising out of this obligation to supply. Such collection mechanism is backed by an Act and policies of Central Government as well State Government. The ld. AAAR also observed that, the Appellant has entered into agreements with their customers, basically for supply of electricity and the money is collected by the Appellant in the form of Additional Surcharge, in situations where OA customer is not purchasing the entire requirement of electricity from them. The ld. AAAR also observed that there is no express or implied promise by the Appellant to agree to do or abstain from doing something in return for the money paid to them, rather they are ready to supply electricity as per the agreement. The ld. AAAR also observed that there is no independent arrangement entered into by the appellant for tolerating an act against which the consideration is collected as Additional Surcharge and, therefore, such amount do not constitute payment (or consideration) for tolerating an act.

Referring to section 15(2)(a), which provides that any taxes, duties, cesses, fees and charges levied separately under any law for the time being in force, other than GST, should be part of valuation of supply, the ld. AAAR held that Additional Surcharge levied under Electricity Act on their customers is part of taxable value and exempt along with electricity charges in terms of entry No. 104 of Notification No. 02/2017 CT(R) dated 28^th June, 2017 applicable to goods and /or entry No.25 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 applicable to services and therefore not liable to tax.

The ld. AAAR thus allowed appeal in favour of appellant.

TAXABILITY OF VOUCHERS

Payline Technology Pvt. Ltd. (AAAR Order No. 04/AAAR/23/09/2024 dated 23^rd September, 2024 (UP)

This appeal was filed by M/s. Payline Technology Pvt. Ltd. against the advance ruling no. UP ADRG-43/2024 dated 20.02.2024-2024-VIL-118-AAR, passed by the ld. UPAAR.

The facts are that the appellant is in the business of selling and purchasing Gift Cards, Vouchers, and pre-paid Vouchers closed or semi-dosed-ended vouchers (referred to as cards/voucher) against which goods or services can be purchased from specific brands on e-commerce platforms (such as Amazon, Flipkart, etc.). Appellant purchases cards from entities against advance payments at a discounted price. Thereafter, these vouchers are supplied to clients. The further fact is that once these vouchers are purchased by the appellant from the original issuers, the appellant becomes the
absolute owner of these vouchers, and both risk and reward lie with the appellant. It is noted that the appellant is neither the issuing person nor the user of these Vouchers.

The ld. AAR held that supply of Vouchers by the appellant are taxable @ 18% as per residual entry no.453 of the Third Schedule of Notification No.01/2017-Central Tax (Rate) dt.28^th June, 2017.

Before the ld. AAAR, the appellant reiterated its ground that vouchers are very much in the nature of “money” and hence excluded from the definition of “Goods” as well as from “Services”, making the supply of these instruments non-taxable. The judgment in case of Premier Sales Promotion Ltd. relied upon.

It was further submitted that the goods/services are not identifiable at the time of issuance of said vouchers and hence, the time of supply of such vouchers shall fall at the time of their redemption which usually happens only after the cards are sold to the end consumers by the appellant. It was accordingly submitted that, there is no GST liability on cards sold by it.

The ld. AAAR referred to nature of vouchers considering the regulations of the Reserve Bank of India (RBI) in terms of the Payment and Settlement Systems Act, 2007 (PSS)and the guidelines issued there under.

The ld. AAAR observed that the pre-paid payment instruments (PPI, in short) that can be issued in India can be classified under three categories. Looking at Guidelines given by RBI, the ld. AAAR observed that these conditions are mainly applicable to the issuers of the PPIs, and not to its traders, like appellant, as the Appellant is not the issuer of the voucher, but is the third party who buys and sells the vouchers.

The ld. AAR held that, the voucher in the hands of the appellant cannot be termed as “money”.

The ld. AAAR also analysed whether the vouchers are ‘goods’ or ‘services’.

For this purpose, reference made to definition of said terms in CGST Act. The ld. AAAR also verified whether it can be actionable claim. After discussion, the ld. AAAR observed that voucher by itself is a movable property and hence constitutes goods. It is further observed that since the voucher is in the possession of the claimant at the time of claim, it cannot be considered as actionable claim.

Further, referring to section 7(1) of CGST Act, the ld. AAAR held that it is taxable in hands of appellant.

The ld. AAAR deferred with the ld. AAR in respect of time of supply. In AR the ld. AAR has held that the sections 12(2) and 12(4) are not applicable to appellant. However, the ld. AAAR held that the section 12(4) of the CGST Act, 2017 is a specific provision for deciding the time of supply of the vouchers and is applicable to the appellant. Accordingly, the ld. AAAR held that time of supply of vouchers will be determined in terms of Section 12(4) of the CGST Act, 2017.

The ld. AAAR also held that in the present case, the appellant is engaged in trading of Vouchers/coupons and getting commission in the form of discount on such services, which are taxable.

Considering the above, the ld. AAAR held that trading in Vouchers/coupons, being a service, is the taxable event where the time of supply is when the Vouchers/coupons are traded or sold. It is also held that the value of service shall be the margin between the buying and selling price of the coupons.

Accordingly, the ld. AAAR modified AR holding that the supply of Gift voucher is a transaction of supply of goods and time of supply to be decided as per section 12(4) of CGST Act. It is further held that GST is applicable on the commission/discount earned in the trading of Vouchers/Coupons by the appellant and the time of supply will be the time when the Vouchers/ Coupons are traded or sold. It is further held that the value of service shall be the margin between the buying and selling price of the Vouchers/ Coupons.

[Note: The CBIC has issued Circular No.243/37/2024-GST, in which clarifications are given about taxability of voucher under GST.]

VALUATION – FREE OF COST SUPPLY

High Energy Batteries (India) Ltd. (Advance Ruling No. 28/ARA/2024 dated 6^th December, 2024 (TN)

The applicant is engaged in manufacture of “Silver Oxide Zinc Torpedo Propulsion batteries” falling under Chapter sub heading No.850640 and secondary Silver Oxide Zinc Rechargeable Batteries falling under Chapter sub heading No. 8501780. It supplies the same to various Naval Defence formations (Indian navy) on payment of applicable GST.

The applicant submitted that the silver required for the manufacture of such batteries is supplied free of cost by the recipient, i.e. Naval formations by way of supplying their used batteries (non-serviceable). It was submitted that after extracting the silver from the used batteries supplied by Naval formations, the applicant manufactures the “Silver Zinc Batteries” as per the specification provided by the Naval formation and supplies the same to them. It was explained that while fixing the price for the batteries manufactured, the cost incurred by the applicant for extracting the silver from the old batteries is also included but the cost of the silver contained in the old batteries, supplied by the Naval formations free of cost in the form of old batteries, is not included in the taxable value for the purpose of payment of GST on the ground that the same is supplied free of cost by the Naval formations, who are the purchasers of the applicant.

It was also explained that the above mode of dealing is included in the contract signed between the applicant and their customer.

With above background, applicant raised following question before the ld. AAR.

“(1) Whether the value of the Silver supplied free of cost by the Naval Formations (in the form of old batteries) are to be included in the taxable value adopted by the applicant on the batteries manufactured by the applicant and supplied to the Naval Formations for the purpose of payment of GST or not.”

The applicant relied upon section 15(1) which provides for valuation as transaction value. The reference also made to definition of ‘consideration’ in section 2(31) of CGST Act. It was submitted that the transaction value agreed between the parties is only relevant for valuation purposes under GST and it is a matter of commercial arrangement between the supplier and recipient, as to what is in the scope of each of the parties. It was submitted that once it is clear that the supplier has to only supply final goods, then there is no question of adding the value of the free materials for determining the transaction value.

The ld. AAR observed that as per section 15(1) value of supply will be transaction value if,

a. the supplier and the recipient of the supply are not related parties.

b. the price is the sole consideration for the supply.

The ld. AAR observed that though the applicant and the recipient are not related persons, the consideration is not paid wholly in money. The ld. AAR, on perusal of the agreement, inferred that the contract is for the supply of Silver Oxide – Zinc Torpedo propulsion Battery Type A- 187M3- Complete with Hardware. It is further observed that the main input namely; Silver, is supplied free of cost against Bank Guarantee in the form of old and used batteries by the recipient, in addition to the consideration in money value for the supply of said Silver Oxide – Zinc Torpedo propulsion Battery. Therefore, the provision of Section 15(1) of the CGST Act, 2017 i.e. to adopt the transaction value as the value of supply of goods or services or both is not applicable for determining the value of supply in the applicant’s case, observed the ld. AAR. The ld. AAR observed that the consideration for the supply of Silver Oxide Zinc Torpedo propulsion Battery is paid in terms of money and Old and used Batteries.

The ld. AAR observed that old and used batteries are supplied by the naval formations i.e., by the Central Government Department to the applicant and for the said supply, unless otherwise exempted, the recipient of the said old used goods, that is the applicant, is liable for payment of Central tax and State Tax or as the case may be the Integrated Tax, as envisaged under Section 9(3) of the CGST Act or Section 5(3) of the IGST Act, read with corresponding Notifications issued, viz., Notification No.36/2017- Central Tax (Rate), dated 13/10/2017 and Notification No. 37/2017 Integrated Tax (Rate) dated 13^th October, 2017, respectively.

The ld. AAR in this respect also referred to section 15(4) and Rule 27 and held that value of the taxable supply in case of applicant should be determined as per Rule 27(b) of CGST Rules,2017.

BLOCKED ITC U/S.17(5)(A) – NATURE OF EXCEPTION

A2Mac1 India Pvt. Ltd. (Advance Ruling No. 29/ARA/2024 dated 6^th December, 2024 (TN)

The applicant is incorporated under the Indian Companies Act and is engaged in providing ‘Collaborative Automobile Benchmarking services’ by data management to the customers as a subscription package through an online platform where the detailed analysis of software concept of structure, process and global benchmarking data is made available.

From the database, the subscribers of the applicant get 360 degrees vehicle insights such as technology insights, cost insights, performance insights, market insights, sustainability insights, software insights, supply chain insights etc. and can use it for its own purpose. The applicant earns from subscription.

For vehicle benchmarking, the Applicant purchases brand new cars in the domestic market, disassembles them and adds research data to the corpus knowledge database for providing various insights to the customers. Motor vehicles bought by the Applicant are wholly and exclusively used for automotive research purpose carried out at the applicant’s factory. Hence, these vehicles are temporarily registered with RTO (Regional Transport Office).

The applicant also furnished a detailed process flow of the activities undertaken by it connected to vehicle dynamic benchmarking process with relevant images.

The cost of the vehicle bought and used for automotive benchmarking process is expensed out in the books by applicant. Further, at the end of specific/vehicle retention period, they are sold and the applicant is of the view that it is an activity of ‘supply’ in the course of its business and discharges applicable GST on such transactions.

The applicant was of view that ITC of tax paid on the purchase of new vehicles/cars is available to him as the applicant is providing taxable service using vehicles/cars for research purposes and the purchase of vehicles / cars are integral part of the business model. It was submitted that the cost of purchase of vehicles / cars are predominant to the business without which the main revenue stream of the Applicant i.e., supply of services via platform subscription would fail.

In above fact, the applicant sought to know whether the input tax credit on the purchase of vehicles/cars is claimable or not, in terms of Section 17(5)(a) of the CGST Act.

The applicant explained its eligibility to ITC on purchase of new motor cars explaining the scheme and intention of ITC with reference to various provisions like section 16(1) and 16(2) on CGST Act. The applicant also demonstrated its eligibility to get out of blocked credit in view of exception in section 17(5)(a)(A) on ground that for the Company’s business, the motor vehicles are indispensable tools for Research Study which in turn offered for subscription to the Customers.

The ld. AAR, for deciding the above issue, referred to section 17(5) which reads 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: –

2[(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely: –

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;1

(aa) vessels and aircraft except when they are used-

…………”

The ld. AAR also referred to definition of ‘Motor Vehicle’ as provided in Section 2(76) of CGST which further refers to Motor Vehicles Act,1988 for merging of Motor Vehicles for purpose of GST Act.

The ld. AAR observed that Section 17(5) (a) blocks credit for ‘motor vehicle for transportation of persons’ and exceptions are available only to the three specified activities.

Referring to Circular No.231/25/2024-GST dt.10^th September, 2024, the ld. AAR observed that the law is very clear and specific that except for the exceptions provided in sub-clauses (A), (B) and (C), the input tax credit on the purchase of vehicles, irrespective of any kind of outward supplies, shall not be eligible.

The ld. AAR observed that the applicant is seeking eligibility to ITC on the ground that the motor vehicles, used by them for making exhaustive analysis, are sold and the applicant is of the view that it is activity of ‘supply’ in the course or furtherance of business and discharges applicable GST on such transaction. However, the ld. AAR did not approve eligibility to ITC on above basis as it is not within Exception clauses (A), (B) and (C).

The ld. AAR, on perusal of the sample invoices relating to supply of motor vehicles after retention period, saw that the applicant is not classifying the product after use as ‘used or old motor vehicles’ but are supplying it as scrap of ‘Automobile part’ paying GST @ 18 per cent (CGST-9 per cent and SGST-9 per cent). The ld. AAR observed that the applicant is supplying the goods as ‘Scrap’ and therefore, the activity will not also fall within the scope of ‘further supply of such motor vehicles’. Accordingly, the ld. AAR held that the applicant cannot claim the exception and was not eligible to avail ITC on the motor vehicles purchased by them.

CLASSIFICATION – CHANGE OF TARIFF – PARTS OF SHIP

Imtiyaz Kaiym Barvatiya (Advance Ruling No. GUJ/GAAR/R/2024/19 (in application no.Advance Ruling/SGST&CGST/2023/AR/17) dated 3^rd September, 2024 (Guj)

The facts are that the applicant imports various goods/spares, which are supplied on ships and it is the applicant’s contention that this equipment forms an essential part of the ship and makes the ship ‘sea worthy’. The goods are imported by the applicant on payment of IGST. The appellant has provided detailed list of equipments by way of Annexure. The name of equipments, description and utility as part of ship is explained in the said chart.

The applicant stated that they charge GST on parts/equipment supplied by them on the ship by classifying it under the same tariff head under which the goods are imported and discharges GST liability on supply based on rates applicable to such tariff entry. Instance is given that a “Standard Solas Model” is classified under tariff head “8479” captioned as “Ship Spares” and is taxed at the rate of 18 per cent.

The applicant has further stated that the customer insists for GST at 5 per cent on the reasoning that these goods form part of ship and are covered at Sr. No. 252 of notification No. 1/2017-Central Tax (which covers parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907).

With above background the applicant has raised the following question for advance ruling viz;

“To decide as to whether the supply of goods [as listed in Annexure I-A of this ARA application is classifiable as “parts of goods of headings 8901, 8902, 8904, 8905, 8906, 8907” under entry 252 of Schedule I of GST Notification No. 01/2017-Central Tax (Rate) dated 28.6.2017 as amended and is liable to GST @ 5% (CGST-2.5% and SGST-2.5%) or IGST @ 5% or not.”

The applicant has relied upon the AAR ruling in the case of M/s. A. S. Moloobhoy Private Ltd. dated 18.7.2018 passed by the Maharashtra Authority for Advance Ruling-2018-VIL-232-AAR.

The ld. AAR reproduced entry 252 as under:

“Notification No. 1/2017-Central Tax dated 28.6.2017 Schedule I – 2.5%

The ld. AAR referred to the classification mechanism under GST including notes for classification under Customs Tariff.

The ld. AAR referred to one of the items for determination viz. “Standard Solas Model”, wherein the goods are classified under chapter heading 8479 as ‘ship spares’ and liability is discharged @ 18 per cent.

The ld. AAR noted that the applicant imports the goods and during the importation, the goods are classified by Customs under the Customs Tariff Act, 1975, and the applicant discharges the relevant customs duties including the IGST, which is applicable. It is also noted that the applicant willingly discharges the duties involved, which leads to the inference that he has agreed to the classification of the imported goods as done by the proper officer of Customs.

The ld. AAR observed that;

“18. On the aforementioned background, we find that the applicant is before us with an averment, that though the goods have been classified by Customs under various tariff items [as is mentioned in column 4 of the table above in respect of the bills of entry, the copies of which has been submitted vide email dated 29.7.2024] he now feels that consequent to the importation while undertaking further supply of the said goods, it should be classified under the heading 8901, 8902, 8904, 8905, 8906 & 8907 and thereby be eligible for benefit of Sr. No. 252 of notification No. 1/2017- CT (R) dated 28.6.2017. Availing the benefit of the said exemption notification, will make the supply leviable to GST @ 5%.”

In view of above the ld. AAR was to decide whether a change in classification is permissible.

The ld. AAR has opined in negative and held that change of classification is not permissible. The reasoning is based on the following factors.

“[a] the applicant without any protest agreed with the classification done by Customs and discharged the duties; and

[b] classification under GST is based on Customs Tariff Act, 1975, in terms of explanation (iii) and (iv) of notification No. 1/2017-CTR dated 28^th June, 2017;

[c] that there is no change in the character of the goods supplied by the applicant to the one imported.”

The ld. AAR did not agree with the reliance of the applicant on the advance ruling dated 18^th July, 2018 in the case of A S Moloobhoy Private Limited on the ground that it is applicable only to A S Moloobhoy Private Limited in terms of section 103 of the CGST Act, 2017.

In view of the above, the ld. AAR gave a ruling that the supply of goods given in application is classifiable under the same chapter, heading, sub-heading and tariff item under which the goods were imported and the rate of the supply of said goods would be in terms on the rates applicable to such respective tariff entry.

BCAJ Admin

A. AMENDMENT TO CGST ACT

Act No. 48 of 2023 dated 28th December, 2023

By this Act, CGST Act is amended. The amendment is relating to appointment and age limits of the Members of GST Appellate Tribunal. Amongst others, the Advocate is also eligible to appointment as member subject to fulfillment of other conditions.

B. NOTIFICATIONS

i) Notification No. 55/2023-Central Tax dated 20th December, 2023

By above notification, due date for filing of return in FORM GSTR-3B for the month of November 2023 for the persons registered in certain districts of Tamil Nadu is extended till 27th December, 2023.

ii) Notification No. 56/2023-Central Tax dated 28th December, 2023

By above notification, dates for specified compliances are extended in exercise of powers under section 168A of CGST Act. The time limit specified for issuing orders under section 73(10) for the year 2018–19 is extended till 30th April, 2024, and for the year 2019–20 till 31st August, 2024.

iii) Notification No. S.O.1(E), dated 29th December, 2023

By this notification, the principal Bench of Goods and Services Tax Appellate Tribunal (GSTAT) is constituted at New Delhi.

C. NOTIFICATIONS RELATING TO RATE OF TAX

Notification No. 1/2024-Central Tax (Rate) dated 3rd January, 2024 & Notification No. 1/2024-Integrated Tax dated 3rd January, 2024

The above notifications seek to amend NotificationNo. 01/2017- Central Tax (Rate) dated 28th June, 2017 and Notification No. 1/2024-Integrated Tax dated3rd January, 2024. Particularly, the changes are made in Schedule 1, and in Sr. No.165 & 165(A), the tariff items are substituted. The said serial numbers are relating to LPG and other gases.

D. ADVISORY / INSTRUCTIONS

a) Instruction no. 5/2023-GST dated 13th December, 2023 – In this instruction, CBIC referring to judgment of Hon. Supreme Court in the case of Northern Operating Systems Private Limited (NOS), has instructed that the application of section 74(1) of the CGST Act for issuing show cause notices should only occur when investigations reveal concrete evidence of fraud, deliberate misrepresentation, or withholding of facts to avoid tax.

b) The GSTN has issued Advisory dated 29th December, 2023, informing about extension for reporting opening balance of ITC reversal.

c) The GSTN has issued an Advisory dated 1st January, 2024, whereby availability of functionalities on the portal for the GTA taxpayers is informed.

E. ADVANCE RULINGS

49 Liability to GST vis-à-vis Money deposited in Escrow Account

Dedicated Freight Corridor Corporation of India Ltd.

(Order No. A. R. GUJ/GAAR/R/2023/31

dated 3rd November, 2023 (Guj)

The facts are that M/s. Dedicated Freight Corridor Corporation of India Limited (hereinafter, referred as Applicant), a PSU under the ownership and control of Ministry of Railways and incorporated under the Companies Act, 1956, is registered with the GST department.

Applicant is engaged in the business of construction, maintenance and operation of dedicated freight corridors. To undertake this work, they enter into contract with third-party contractors. The agreements so entered into contain dispute resolution clauseto tackle any eventuality of dispute that may arise between the contractor and the applicant.

The dispute resolution clause is based on the General Conditions for Contract as defined in FIDC’s first Edition 1999. [FIDIC means (Federation InternationaleDesIngenieurs – Conseils) which is an International Standards Organization for Consulting Engineering & Construction Technology].

The dispute resolution clause has various features and time mechanisms.

The relevant clause is about deposit of money into Escrow Account, pending litigation. The condition related to deposit in Escrow Account states that if PSUs are challenging any award / order passed against them by the Arbitral Tribunal, they are required to deposit 75 per cent of the amount directed to be paid in such award / order, in an Escrow Account against bank guarantee (BG) submitted by the contractor, without prejudice to the final order of the Court in the matter under challenge. Further that this deposit of 75 per cent amount into Escrow account by the PSU is subject to the fact that the contractor may ask for payment of 75 per cent of the amount awarded in terms of Cabinet Committee of Economic Affairs (CCEA) decision, after justifying the utility of such payment supported with authentic documents.

It was submission of applicant that the amount so deposited by the applicant in an Escrow account cannot be withdrawn by the contractor on his own volition. It was explained that as per the Arbitral Award Escrow Account Agreement, the Banker shall act as the trustee of the Escrow account and in terms of Clause 5 of the said agreement, the concerned banker shall withdraw and appropriate the amounts from the said Escrow account strictly in accordance with the instructions issued by the applicant to the contractor.

The further process of deposit in Escrow Account is that in case the applicant succeeds in the challenge / appeal, the amount so deposited and utilised by the Contractor is required to be paid back along with applicable Interest, and if the contractor fails to do so, the Applicant can en-cash the BG submitted by the contractor.

It is also evident that in case the challenged order / award is passed in favour of the contractor, the Applicant will be liable to pay the remaining 25 per cent of the amount along with any remaining balance in the Escrow account.

The applicant interpreted that even though he has parted away with 75 per cent of the disputed amount required to be paid in terms of the DAB decision / arbitral award, it is not an amount finally ‘paid’ to the contractor but only ‘deposited’ in an Escrow account.

It is submission of applicant that in terms of section 7 of the CGST Act, 2017, with respect to the transaction in question, it cannot be said that there is any supply of goods / services since there is no sale, transfer, barter, exchange or disposal made or agreed to be made for consideration by a person in the course or furtherance of business. It was also submitted that the amount deposited is under its control and appropriation is subject to its consent and subject to furnishing of BG of equivalent amount by contractor.

The treatment of ‘deposit’ as per the definition of term ‘Consideration’ was cited. As per the applicant, the deposit in Escrow Account is deposit as referred to in said definition.

Applicant also pointed out consequences if such deposit in Escrow account is treated as supply.

It was clarified that the present application is in respect of litigated area where no invoice about such litigated area is raised by contractor, like escalation clause, prior period differential amount, etc.

With the above background, the applicant posed the following question for advance ruling:

“1. Whether the amount deposited by the applicant (75%) in escrow account against bank guarantee pending outcome of the further challenge against Arbitral Award or dissatisfaction against DAB decision, is liable to GST under the provisions of CGST Act, 2017?

2. If the answer to first question is in affirmative, then, what shall be the ‘time of supply’ when tax on such DAB/arbitral award is payable to Government exchequer, i.e., whether tax is payable (a) when part amount (75%) is deposited into escrow account pending litigation, or (b) when complete award amount (100%) is paid to the contractor pursuant to finality of the decision.

3. If answer to Question No. 1 is affirmative, whether the applicant is eligible to claim Input Tax Credit (ITC) thereupon?”

The ld. AAR considered argument of department also where they stated that it is supply and liable to GST.

The ld. AAR referred to definition of “consideration” as per section 2(31) and meaning of “supply” in section 7 of CGST Act.

The ld. AAR noted that the primary question raised before them is whether the amount deposited in an Escrow account, which is pending outcome of the further challenge before DAB / Arbitral Tribunal and which can be withdrawn only against BG, is liable to GST under the provisions of CGST Act, 2017 or otherwise. The ld. AAR noted that the main crux of the argument of the applicant is that there is no supply involved in terms of section 7 of the CGST Act, 2017, and that it would not fall within the ambit of the definition of “consideration”.

Based on analysis of facts and definitions as above, the ld. AAR observed as under:

“25. We find that though the amount ie 75% paid into an escrow account is towards the dispute pertaining to the supply, what brings this particular transaction out of the scope of the consideration is the fact is that it is not paid to the contractor [supplier] but is deposited in an escrow account; that it cannot be withdrawn from the account without the explicit approval of the applicant; that the amount can be withdrawn only subject to the condition that the supplier [contractor] provides a BG for the said amount. In-fact, the applicant, though he has deposited the amount in an escrow account, also does not term this as a consideration for the supply since he is agitating his case, feeling aggrieved by the decision rendered against him. In view of the foregoing, we hold it to be outside the scope of ‘consideration’ as defined under section 2(31) of the CGST Act, 2017.”

In view of the above, the ld. AAR held that there isno supply as there is no consideration, confirming no tax is at present payable on said deposit in Escrow account.
However, the ld. AAR put a rider that the moment the supplier [contractor] finally succeeds in the dispute / the applicant accepts the adverse decision, this ruling would be rendered infructuous. In other words, the ld. AAR clarified that this AR is in operation only for a limited period when the supplier [contractor] has not succeeded in the litigation or the applicant has not accepted an adverse decision. The ld. AAR observed that the department reserves every right to recover any interest due on such amount for the delay in payment of GST, if any, on account of the non-acceptance of adverse decision of the DAB / Tribunal.

Accordingly, the ld. AAR disposed of AR application holding that there is no liability on amount deposited in the Escrow account.

50 Job Work

Shree Avani Pharma (Order No. A. R. GUJ/GAAR/R/2023/32

dated 3rd November, 2023 (Guj)

The facts are that the applicant is a partnership firm and is engaged in the job work of converting raw material [inputs owned by others] viz [i] Nitroantraquinone (HSN 2909); (ii) Monon methyl Amine (HSN 2921) & (iii) Bromine (HSN 2801) into Antraquinone derivatives (HSN 2914). The conversion is done by the applicant for their client M/s. Profile Bio-Chemical Pvt Ltd. (referred to as ‘client’), who is registered under GST. It is clarified that during the job work, ownership of the goods does not change, i.e., remains with its client.

Applicant has given the process flow chart, which depicts the following steps:

The applicant has further explained the process in detail, not repeated here for sake of brevity.

Applicant was of opinion that their service of job work falls under SAC 9988, and that he has to pay GST @ 12 per cent.

With this background, the applicant has sought advance ruling on the below mentioned question viz:

“1.Whether the service in question falls within the entry Sr. No. 26 of notification No. 11/2017-CE (Rate) dated 28.6.2017, as amended vide notification No. 20/2017-CT (Rate) dated 30.9.2019 & SAC 9988 (id) & attract GST @ 12% [CGST 6% + SGST 6%] or otherwise.”

The ld. AAR referred to definition of “job work” as given in section 2(68), which reads as under:

“(68) ‘job work’ means any treatment or process undertaken by a person on goods belonging to another registered person and the expression ‘job worker’ shall be construed accordingly.”

The ld. AAR also reproduced Notification No. 11/2017- Central Tax (Rate) dated 28th June, 2017, which gives reduced rate for job work which is amended from time to time.

The last amendment in the above notification is reproduced in AR as under:

“[Notification No. 20/2019-C.T. (Rate), dated 30-9-2019] (n) against serial number 26, in column (3), after item (ia) and the entries relating thereto in columns (3), (4) and (5) the following shall be inserted, namely:

2. This notification shall come into force with effect from the 1st day of October, 2019.”

The ld. AAR also made reference to Circular no. 126/45/2019-GST, dated 22nd November, 2019, in which the scope of the above notification is explained.

The relevant portion of circular is as under:

“4. In view of the above, it may be seen that there is a clear demarcation between scope of the entries at item (id) and item (iv) under heading 9988 of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017. Entry at item (id) covers only job work services as definedin section 2(68) of CGST Act, 2017, that is, servicesby way of treatment or processing undertaken by a person on goods belonging to another registeredperson. On the other hand, the entry at item (iv)specifically excludes the services covered by entry at item (id), and therefore, covers only such services which are carried out on physical inputs(goods) which are owned by persons other than those registered under theCGST Act.”

The ld. AAR considered that the description of the heading 9988 is manufacturing services on physical inputs (goods) owned by others and that the job work as defined under section 2(68) of the CGST Act, 2017, means any treatment or process undertaken by a person on goods belonging to another registered person. The activity of the applicant is converting the inputs supplied by the client into Antraquinone derivatives (HSN 2914).

After discussing the scope of Notification No. 11/2017-CT(Rate) dated 28th June, 2017, the ld. AAR summarised that Sr. No. 26(id) [residual entry] covers job work where inputs are sent by a registered person, while Sr. No. 26(iv) covers manufacturing services (processing) wherein inputs (goods) are sent by an unregistered person.

Since in this case, the applicant is carrying out the processing for their client M/s. Profile Bio-Chemical Pvt Ltd., who is registered under GST and that during the course of job work, ownership of the goods does not change and remains with its client, the ld. AAR concurred with applicant that it is liable to GST @ 12 per cent as per entry at Sr. No. 26(id) of notification No. 11/2017-CE (Rate) dated 28th June, 2017, as amended vide notification No. 20/2017-CT (Rate) dated 30th September, 2019, and the activity is classifiable under SAC 9988, which attracts GST @ 12 per cent.

51 GST charged on Canteen Service provider — Whether ITC available?

Tata Motors Ltd. (A. R. (Appeal) No. GUJ/GAAR/APPEAL/2022/23 (in App.No.AR/SGST&CGST/2021/AR/18)

dated 22nd December, 2022 (Guj))

The appellant has filed an appeal against the Advance Ruling no. GUJ/GAAR/ R/39/2021 dated 30th July, 2021 (2021-VIL-316-AAR).

The appellant had sought Advance Ruling on the following questions, from ld. AAR:

“1. Whether input tax credit (ITC) available to applicant on GST charged by service provider on canteen facility provided to employees working in factory?

2. Whether GST is applicable on nominal amount recovered by Applicant from employees for usage of canteen facility?

3. If ITC is available as per question no.(1) above, whether it will be restricted to the extent of cost borne by the Applicant (employer)?”

In AR, the appellant had submitted that they aremaintaining canteen facility for their employees at their factory premises to comply with the mandatoryrequirement of maintaining the canteen as per the Factories Act, 1948, and as per proviso to section 17(5)(b) of CGST Act, 2017, ITC of GST paid on goods or services or both shall be available where it is obligatory for an employer to provide the same to its employees under any lawfor the time being in force. It was also submitted thatthe appellant is recovering nominal amount from employees and expenditure incurred towards canteen facility borne by appellant is part and parcel cost to company.

The appellant had further submitted that they are not in the business of providing canteen service and, hence, recovery of nominal amount will not fall in definition of supply and relied upon ruling of Maharashtra AAR in the case of Jotun India P Ltd [2019 TIOL 312 AAR GST – 2019-VIL-296-AAR].

The ld. AAR vide the AR order dated 30th July, 2021 referred to the above, gave the following ruling:

“1. Whether input tax credit (ITC) available to applicant on GST charged by service provider on canteen facility provided to employees working in factory? Ans: ITC on GST paid on canteen facility is blocked credit under Section 17(5)(b)(i) of CGST Act and inadmissible to applicant.

2. Whether GST is applicable on nominal amount recovered by Applicants from employees forusage of canteen facility? Ans: GST, at the hands on the applicant, is not leviable on the amount representingthe employees portion of canteen charges, which is collected by the applicant and paid to the Canteen service provider.”

Aggrieved by the aforesaid advance ruling in respect to question no. 1 and indirectly to question no. 3, the appellant has filed the present appeal.

Appellant pointed out that the advance ruling was given by ld. AAR on footing that the proviso to section 17(5)(b)(iii) is not connected to the sub-clause 17(5)(b)(i). However, the appellant submitted that such interpretation cannot be read into it, and if such interpretation of ld. AAR is accepted, then it will make the proviso to section 17(5)(b)(iii) redundant for aspects which have been incorporated under section 17(5)(b)(i).

Various unexpected results of such interpretation were shown to ld. AAAR.

The appellant also relied upon various judgments for interpretation of legislation.

Lastly, the appellant also submitted that the CBIC vide its Circular no. 172/04/2022-GST dated 6th July, 2022, has clarified this issue also at Sr. No. 3 which is as under:

Appellant further submitted that in view of the above clarification, the appellant is eligible to take ITC on the GST charged by the service provider on the canteen facility provided to its employees working in their factory. They further clarified that input tax credit to the extent applicable on the amount of canteen charges recovered from their employees will not be taken.

The ld. AAAR referred to provision of section 17(5)(b) and reproduced the same as under:

“Section 17(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:

(b) the following supply of goods or services or both-

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”

Though ld. AAR has given reasons for adopting its views, the ld. AAAR, considering the above Circular No.172/04/2022-GST dated 6th July, 2022, wherein at Sl. No. 3, it is clarified that the proviso at the end of clause (b) of section 17(5) of CGST Act is applicable to the entire clause (b), the ld. AAAR held that the issue is to be decided in favour of the appellant.

Thus, it is held that Input Tax Credit will be available to appellant in respect of canteen facility provided to its direct employees but not in respect of other types of employees including contract employees / workers, visitors etc. It is also clarified that the ITC will be eligible to the extent of cost suffered by the appellant, i.e., after reducing recovery from employees out of total cost incurred.

In view of the above finding, the ld. AAAR modified the Advance Ruling No. GUJ/GAAR/R/39/2021 dated 30th July, 2021.

52 Recipient vis-à-vis Agent

West Bengal Agro Industries Corporation Ltd. (Order No. 15/WBAAR/ 2022–23

dated 22nd December, 2022) (WB)

The facts are that the applicant is a Government Undertaking under the administrative control of Water Resources Investigation & Development Department, Government of West Bengal. The commercial operations carried out by the applicant are mainly related with three operating divisions namely, (i) Project Division, (ii) Agronomy Division and (iii) Agri Engineering Division.

It was submitted by the applicant that the Agri Engineering Division undertakes civil works as “Executive Agency or Project Implementing Agency” entrusted by various Administrative Departments of Government of West Bengal in the development of rural infrastructure like road, bridge, building, etc., under various schemes like, RIDF, etc., and the applicant accordingly gets the work done from different suppliers / contractors.

The applicant filed this application for ruling on the following issue:

“(a) Whether the applicant is required to issue tax invoice to State Government Department / Directorate on the contract value as determined by the department where the applicant is working as a ‘Project Implementing Agency’?”

The applicant reiterated that upon selection by various departments of Government of West Bengal as an ‘executing agency’, it undertakes various works following the Standard Operating Procedure. The variousclauses in SOP show that the applicant is doing work as an agent.

The applicant submitted that the work being undertakenby him as an ‘executing agency’ is in line with the notification number 5400-F(Y) dated 25th June, 2012,issued by the Audit Branch of Finance Department, Government of West Bengal. The applicant further referred to Memo No. 8183-F(Y) dated 26th September, 2012, which is issued on the subject matter of “Clarification regarding engagement of ‘Agency’ under Rule 47D of Finance Department’s Notification No. 5400-F(Y) dt.25.06.2012” wherein issues regarding the appointment of Government Agency for execution of work in terms of rule 47D has been clarified.

The applicant submitted that the aforesaid clarification along with the SOP to be followed, clearly indicates that his work is to facilitate execution of the entrusted works of the Government Department by calling tender, awarding the work to L1 bidder, monitoring the execution and finally releasing the payment to agency, on behalf of the concerned Administrative Department. It was further submitted that the applicant has no choice to execute the work on its own and has to get the work done by a contractor, being selected through a transparent tendering process.

In light of the above, the applicant contended that his role is similar to an ‘agent’ where the concerned Administrative Department acts as a ‘principal’.

The applicant submitted that for the purpose of implementing any work assigned to him as an ‘executing agency’, he enters into two separate contracts, one with the Department concerned and other with the contractor respectively.

It was also contended that the property in goods used in the execution of works is directly transferred from contractor to concerned Department through principle of accretion, accession or blending, and the applicant neither holds, nor is in a position to transfer the property in goods used thereon, and hence, the contract between the concerned Department and the applicant should not be treated as ‘works contract’ as defined in clause (119) of section 2 of the GST Act.

The applicant also conveyed that the concerned Government department does not ask for invoice from the applicant. In view of the above, the applicant expressed its view that he is not required to submit tax invoice to concerned department for the works done by him as a project implementing agency, and he is required to issue tax invoice only for Agency Fees along with the summary bill of the works done with the required certificate.

The ld. AAR examined the argument of the applicant. The ld. AAR made reference to definition of “recipient” insection 2(93) of CGST Act, which reads as under:

“(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and (c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied.”

The ld. AAR observed that the applicant enters into an agreement with the contractor and so he is liable to pay the consideration to the contractor. The ld. AAR also noted the submission of the applicant that he merely acts as an ‘agent’ of the said administrative department to execute the work. The ld. AAR observed that an agent shall also be treated as recipient of supply of goods or services or both since the aforesaid definition has made it abundantly clear that “any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied”. Reading as above the ld. AAR observed that the applicant undisputedly is the recipient of supply provided by the contractor meaning thereby the contractor doesn’t make any supply to the department concerned.

In view of the above findings, the ld. AAR held that there are two separate supplies: the first one by the contractor to the applicant and the second one by the applicant to the department concerned though there is no value addition in respect of the second supply.

The ld. AAR gave ruling as under:

“The applicant while working as a ‘Project Implementing Agency’ is making supplies to State Government Department/ Directorate and therefore is required to issue tax invoice on the contract value as determined by the department.”

BCAJ Admin