2020 (9) TMI 1226 - AAR - GST

Input Tax Credit - recovery of expenses from DISCOMs as well as UPPTCL and other power companies by way of book entries - inclusion of incidental expenses in value of supply - recovery against certain expenses such as interest cost, salary, depreciation etc. - transfer of miscellaneous incomes of applicant Corporation to DISCOMs, UPPTCL and other power companies will attract GST - HELD THAT - The relationship between Applicant Corporation and its subsidiaries is undoubtedly commercial. The fact that subsidiaries i.e. DISCOMs are providing exempt supply is immaterial for the purpose of determination of nature of activity between Corporation and its subsidiaries. The activities which are listed in para 5 of the Application and for which Operational Management Expenses are being incurred and passed on are apparently carrying a 'Consideration.' There is also no denying in the fact that it is for the furtherance of business. Thus, the activities squarely meet the twin test laid down under Section 7(1) of the CGST Act for the purpose of being identified as 'Supply'. The activities for which O M Expenses are being passed on and collected are 'Supplies' for the purpose of Section 7(1) of CGST Act, the same would be liable to be charged to GST as per the applicable rate laid down under the law and in accordance with the provisions of Section 15 of CGST Act. Quantum of O M Expenses chargeable to GST - HELD THAT - Most of the expenses on individual basis are taxable e.g. expenses passed on for the employees benefit or salary or for re-imbursement purpose are not relatable to normal employer-employee relationship, thereby covered under Schedule III under Section 7 of the CGST Act. The employees recruited by the one office and working in another office does not have any employer-employee relationship with the office where they are actually working. The expenses incurred on such employees claimed from the actual employer would constitute supply and accordingly liable to pay GST. Same is the case with 'Medical Expenses' or 'Recruitment Expenses'. Accordingly, the expenses incurred on account of heads claimed to be exempted are also liable to be charged to GST. Transfer of miscellaneous income of the Applicant Corporation to DISCOMs - HELD THAT - The recovery of expenses are classifiable as 'Supply', so would be the 'Income'. The same is also classifiable as 'Supply' and would be chargeable to GST. Availability and admissibility of Input Tax Credit of GST paid on the supplies - HELD THAT - The provisions governing Input Tax Credit are separately mentioned under CGST Act. Whether ITC is admissible on any Input Supply of Goods and Services has to be examined with reference to provisions of Section 16 17 of the CGST Act read with Rule 36 of CGST Rules. Therefore, at this stage it can only be said that the admissibility of Input Tax Credit of GST paid on supplies mentioned would depend upon meeting on the criteria / conditions specified under Section 16 17 read with Rule 36.

Summary

Issues:
1. Determination of liability to pay tax on services provided by the applicant Corporation in recovery of expenses from DISCOMs and other power companies by way of book entries.
2. Applicability of inclusion clause in Section 15 of CGST Act to the recovery of O&M expenses.
3. Tax liability on certain expenses like interest cost, salary, and depreciation.
4. Taxability of transfer of miscellaneous incomes to DISCOMs and other power companies.
5. Availability of Input Tax Credit on taxable expenditures.

Analysis:
1. The Authority admitted the application for consideration as it pertains to the determination of tax liability on services provided by the applicant Corporation. The activities of the Corporation were found to meet the definition of 'supply' under Section 7(1) of the CGST Act, making them liable for GST as per applicable rates and provisions of Section 15.
2. Since the recovery of O&M expenses was considered a supply, the second issue regarding the inclusion clause in Section 15 became irrelevant.
3. The Authority examined individual expenses like interest cost, salary, and depreciation to determine their tax liability. It was held that most expenses are taxable under Schedule III of the CGST Act, even if they are claimed to be exempt or non-taxable.
4. The transfer of miscellaneous incomes to DISCOMs was deemed as a supply and thus chargeable to GST, similar to the recovery of expenses.
5. Regarding Input Tax Credit, the Authority mentioned that the admissibility would depend on meeting the criteria specified under Section 16 & 17 of the CGST Act read with Rule 36.

Ruling:
1. The applicant is liable to pay GST on the O&M expenses charged from its subsidiary companies.
2. As the supplies are taxable, the second question is considered irrelevant.
3. GST is chargeable on specific heads mentioned in question three.
4. Incomes shared with subsidiaries are also subject to GST.
5. While Input Tax Credit may be availed, its admissibility depends on meeting the conditions specified under the CGST Act and Rules.

The ruling is valid unless declared void under the relevant provisions of the CGST Act.