2018 (10) TMI 748 - AAR - GST

Input tax credit - scope of blocked credit - various goods and services used for maintenance of applicant s township, guesthouse, hospital, horticulture in its ordinary course of business - section 17(5) of CGST Act. Whether the applicant is entitled to take input credit of tax paid on various goods and services used for maintenance of applicants s township, quest houses hospitals and horticulture for paying output tax? Held that - Some of the services are exclusively in relation to the residential colony, some are in relation to the plant, some are in relation to the guest house and transit house, some are for use in residential colony as well as in the plant while some of the services like urban plantation, provision of drinking water at picnic spot, raising of seedling, and general plantation are neither for the plant nor for the residential colony. The applicant might be doing those activities while discharging some obligation but such activities are not for or in relation to the core business. Some other activities like contract for running a pharmacy outlet simply for dispensing medicine and other allied product free of charge. This is a clear case of supply without consideration mainly to the employees of the applicant. Still some other services like maintaining the power grid is predominantly for use in the plant and maintaining the solid waste treatment plant seems to be for treating the solid waste of the plant. The services are varied in nature and intended for partly business use (to the extent intended for the plant, plant area or plant building) and partly non business use (to the extent intended for use outside the applicant area). Some of the services ere for use in the residential colony while some other are for use in the hospital and guest houses. Undeniably the applicant is providing services to its employees by way of residential accommodation in the colony, temporary accommodation in the guest houses and is dispensing health services to its employees and others. The services which are being availed clearly in relation to the residential colony shall not qualify for input tax credit. On the other hand services received partly in relation to the residential colony and partly in relation to the plant, proportionate ITC to the extent relatable to the plant are available whereas services availed in relation to the residential colony shall not qualify for input tax credit in terms of Sub-section 2 of Section 17. Establishment of hospitals and maintenance thereof may be for discharging the statutory obligation under the ESI Act by the employer, but dispensing medical service to the employees and others is a supply of service by the employer (the applicant in this case). Such service being nil rated will fall under exempt supplies. Consequently, the inputs and input services received by the applicant for dispensing the exempt service will not qualify for input tax credit in terms of Section 17 (2) of the OGST/CGST Act. Establishing, maintaining and furnishing guest houses including landscaping by way of gardening or otherwise is neither a perquisite nor a statutory obligation. It is purely for providing accommodation service to guests including employees on tour. This is in fact a business requirement to maintain such facilities and accordingly the applicant is entitled to input tax credit of the tax paid on inward supply of input and input services for maintenance of the guest house, transit house, and training hostels, but excluding the food and beverages provided in such establishments. Credit of such input services are as such blocked in clause b of Sub section 5 of section 17 of the OGST and CGST Act - credit not allowed.

Summary

Issues Involved:

1. Entitlement to input tax credit (ITC) on goods and services used for maintenance of townships, guest houses, hospitals, and horticulture.
2. Classification of services and their eligibility for ITC.
3. Application of Section 17(5) of the CGST Act, 2017.
4. Determination of services as business-related or non-business-related.
5. Impact of exempt supplies on ITC eligibility.

Detailed Analysis:

1. Entitlement to Input Tax Credit:
The applicant sought an advance ruling on whether they are entitled to take ITC on various goods and services used for the maintenance of their townships, guest houses, hospitals, and horticulture as part of their business operations. They argued that these services are used in the course or furtherance of their business, thus entitling them to ITC under Section 16 of the CGST Act, 2017. They also claimed that these supplies are not blocked under Section 17(5) of the CGST Act.

2. Classification of Services and Their Eligibility for ITC:
The services listed by the applicant were classified into categories such as support services, waste collection, sanitation services, sweeping and snow removal services, security services, repair and maintenance services, painting services, human health services, and maintenance and repair of machinery and equipment. Each category was analyzed to determine whether the services were used for business purposes or for non-business-related activities.

3. Application of Section 17(5) of the CGST Act, 2017:
The ruling emphasized that ITC eligibility should be transaction-specific. Section 17(5) restricts ITC on works contract services for construction of immovable property (other than plant and machinery) and on goods or services used for construction of immovable property on the taxpayer's own account. Services related to the maintenance of residential colonies, guest houses, and hospitals were found to be blocked under this section.

4. Determination of Services as Business-Related or Non-Business-Related:
The ruling differentiated between services used for business purposes and those used for non-business-related activities. Services exclusively for residential colonies, guest houses, and hospitals were deemed non-business-related and thus ineligible for ITC. Conversely, services related to the plant and plant area were considered business-related and eligible for ITC.

5. Impact of Exempt Supplies on ITC Eligibility:
The ruling noted that services provided through hospitals and guest houses are exempt supplies under GST. Consequently, ITC on inputs and input services used for these exempt supplies is restricted under Section 17(2) of the CGST Act.

Conclusion:
The ruling concluded that the applicant is not entitled to ITC on goods and services used for the maintenance of residential colonies, guest houses, and hospitals as these are not in the course or furtherance of business. However, ITC is allowed for services used directly for the plant and plant area. The ruling also clarified that services for non-business activities, such as urban plantation and provision of drinking water at picnic spots, do not qualify for ITC.

Ruling:
The application for advance ruling was disposed of accordingly. The applicant or the jurisdictional officer may appeal to the Odisha State Appellate Authority for Advance Ruling under Section 100 of the OGST/CGST Act, 2017 within 30 days from the date of receipt of the Advance Ruling.