2019 (6) TMI 1236 - AAR - GST

Levy of GST - Supply of various services - whether the applicant can be considered as government ? - HELD THAT - As per clause (23) of section 3 of the General Clauses Act, 1897, the word Government or the Government shall include both the Central Government and any State Government - Section 2(53) of the CGST Act and the corresponding section of the SGST Act defines the word Government as the Central/State Government, The applicant which is engaged in research, development, production, testing, marketing and logistics of a comprehensive product range in the areas of air, land and sea systems is having an industrial status and functions under the Ministry of defence. It is not created by the constitution of India as a legislative, executive or judicial authority of the country - hence, the applicant cannot be treated as Government as defined under section 2(53) of the CGST Act, 2017. Levy of GST - Supply of services - Ministry of Defence, Government of India - Ordnance Factory Bhandara (OFB) - Liquidated damages deducted from the payments to be made to suppliers in case of delayed delivery of goods or services - Amount of Security deposit forfeited of suppliers due to non-fulfilment of certain contract conditions - Security deposit left unclaimed by the suppliers and recognised as income after 3 years - Food and beverages supplied at industrial canteen inside the factory premises - Community hall (Multipurpose Hall) provided on rental basis to employees of our organisation - School bus facility provided to children of the employees - Conducting exams for various vacancies - Rent recovered from residential quarters of employees - HELD THAT - In case of Liquidated damages deducted from the payments to be made to suppliers in case of delayed delivery of goods or services, Sr. No. 62 (heading 9991 or 9997) of Notification No. 12/2017- Central Tax (Rate) dated 28 th June 2017 provides NIL rate of Tax in respect of services provided by the Central Government, State Government, etc. by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Central Government, State Government, Union Territory or local authority under such contract. Since the applicant is not Government , they are not liable to get exemption under the said Notification in respect of Liquidated damages deducted from the payments to be made to suppliers in case of delayed delivery of goods or services. Amount of Security deposit forfeited of suppliers due to non-fulfilment of certain contract conditions - HELD THAT - Security deposits which are refundable in nature are not liable to tax as per the GST Laws. However in this case such Security deposits are forfeited which would be considered as additional consideration flowing to the applicant on account of supply of goods by them and this additional consideration will be required to be added in the taxable value and accordingly, tax liability will have to be discharged by the applicant. The jurisdictional office has reported that the applicant has paid the service tax on such amount of Security deposited forfeited before the GST regime. Security deposit left unclaimed by the suppliers and recognised as income after 3 years - HELD THAT - There appears to be no intention on the part of the applicant to forfeit such deposit. It is just a case of the supplier not claiming the same. Hence we cannot treat the same as a consideration received for the supply of goods or services or both and therefore the applicant is not liable to pay any tax on such amount shown as income under the GST Regime. Security Deposits which in normal course are refundable as such, are not liable to tax under the GST regime. Food and beverages supplied at industrial canteen inside the factory premises - HELD THAT - No outdoor caterer is involved. We find that the canteen is in providing services related to supply of food and beverages to their employees and also charging consideration for the same. The service code (Tariff Group/Heading) for such services is 9963 and the same is taxable under GST - The applicant s claim that Sr. No. 6 of the exemption list on supply of services as per notification no. 12/2017- Central tax (Rate), is applicable to them is not acceptable in view of the fact that as discussed above they are not Central Government. Community hall (Multipurpose Hall) provided on rental basis to employees of our organisation - HELD THAT - The applicant has provided Community hall (Multipurpose Hall) on rental basis to their employees which is covered under the definition of supply of services as mentioned above and they are liable to pay GST on the amount charged by them from their employees for supplying such services. For reasons mentioned in the foregoing the applicant is not entitled for any exemption under Notification No. 12/2017-Central Tax(rate) dated 28-06-2017. School bus facility provided to children of the employees - HELD THAT - As per Sr. No. 66 (b) (heading 9992) of Notification No. 12/2017-Central Tax (Rate) dated 28 th June 2017, services provided to an educational institution by way of transportation of students does not attract any GST liability. As the applicant is not an educational institution and the school bus facility is extended to the children of employees and not to an educational institution, the provisions of Sr. No. 66 (b) (heading 9992) of Notification No. 12/2017-Central Tax (Rate) dated 28 th June 2017 is not applicable to them. Conducting exams for various vacancies - HELD THAT - The services by way of conducting exams is available only to educational institutions as per Sr. No. 66 (aa) (heading 9992) of Notification No. 12/2017-CentraI Tax (Rate) dated 28 th June 2017. The applicant is neither an educational institution nor Government as discussed aforesaid and therefore they are liable to pay GST on such services supplied by them. Rent recovered from residential quarters of employees - HELD THAT - Under the provision of GST Laws, renting of immovable property is included in Schedule II of the CGST Act and is taxable. However Entry No. 12 of Notification No, 12/2017 mentioned above, exempts supply of services by way of renting of residential dwelling for use as residence. Input tax credit - expenditure on the goods and services consumed by our organisation - Maintenance of garden inside the factory premises - Maintenance and upkeep activities relating to gardens, parks, playground, factory school for children of employees, hall for recreational activities, residential quarter buildings of employees, roads, footpaths, street lightings and other parts of estate area that are located outside the factory premises but within the factory estate - Medicine purchased by the hospital maintained by our organisation and used for treatment of factory employees and their dependents. Expenditure on maintenance, upkeep and other activities relating to such hospital - Expenditure related to maintenance and upkeep of guest houses maintained by organisation - Expenditure related to purchase of LPG cylinders used within industrial canteen - HELD THAT - As regards maintenance of garden inside the factory premises, the applicant, being a registered person is entitled to take credit of input tax charged on any supply of goods and services or both received by them, which are used or intended to be used in the course of furtherance of their business. Supply in relation to maintenance of garden is not a supply that can be considered as a supply used or intended to be used in the course of furtherance of the business of the applicant which is to manufacture Propellants and Commercial Explosives. Hence the applicant are not eligible to avail ITC of the tax paid by them on the same. The services availed in relation to plantation and gardening within the plant area will not qualify for input tax credit. Maintenance and upkeep activities relating to gardens, parks, playground, factory school for children of employees, hall for recreational activities, residential quarter buildings of employees, roads, footpaths, street lightings and other parts of estate area that are located outside the factory premises but within the factory estate - HELD THAT - The activities listed by the applicant are carried out outside the factory premises. These activities can at best be termed as welfare or social activities and they are not carried out in furtherance of the business and have no nexus to their manufacturing activity. Since these activities are not used or intended to be used by the applicant in furtherance of business ITC on the same are not available to them. Medicine purchased by the hospital maintained by our organisation and used for treatment of factory employees and their dependents - Expenditure on maintenance, upkeep and other activities relating to such hospital - HELD THAT - The hospital/dispensary maintained by the applicant for its employees and their dependents come within the definition of Clinical Establishment as defined under the said Notification at definition mentioned at Sr. No. 2(s) and such supply of service is exempted under Sr. No. 74, heading 9993 of the Notification no. 12/2017-Central Tax(Rate) dated 28 th June 2017. Thus ITC on such exempted supply of services is not available to applicant under sub section (2) of Section 17 of the CGST Act, 2017 in respect of services and goods procured for maintenance of hospitals and pharmacy outlet as such services, being nil rated, fall under exempt supplies. Expenditure related to maintenance and upkeep of guest houses maintained by organisation - HELD THAT - Provision of guest houses is a perquisite for their employees and therefore tax paid on maintenance and upkeep of guest houses cannot be allowed as ITC. Guest houses are generally used for temporary accommodation of employees as well as outsiders. Such provision of guest house cannot be treated as an activity in course or furtherance of its business and related to the applicant s business. Further, we find that the goods, or services, or both pertaining to Guest House are used for personal consumption of the employees/guests and are not used or intended to be used in the course or furtherance of business. As such in view of the provisions of Section 17 (5)(g), no ITC is available to the applicant. Hence, we hold that they are not eligible for ITC on taxes paid for maintenance and upkeep of guest houses. Expenditure related to purchase of LPG cylinders used within industrial canteen - HELD THAT - Their canteen is in providing services related to supply of food and beverages to their employees and also charging consideration for the same and therefore such service is taxable under GST regime. The LPG cylinders are used to provide such services related to supply of food and beverages to their employees and therefore we are of the opinion that they are eligible to avail ITC on the purchase of LPG cylinders. Whether the exemption to a defence formation for preparation and generation of E- way bills is applicable to Ordnance factories other Central Government Public Sector Undertakings(PSU s) that function under the Ministry of Defence, Government of India? - HELD THAT - As per para 14(k) of Rule No. 138 of the CGST Rules, 2018(Notification No. 12/2018 - Central Tax), e-way bill is not required to be generated when any movement of goods is being caused by defence formation under the Ministry of Defence as a consignor or a consignee - the applicant which functions under the Ordnance Factory Board (OFB) which in turn functions under the Department of Defence Production and Supply, Ministry of Defence, Government of India, is causing movement of goods to units of the Indian Armed Forces, proof establishments, DRDO, etc. and are eligible for the benefit under Rule 138 (14) (k) of the CGST Rules. Whether exemption on payment of GST on transport of military or defence equipments through a goods transport agency applicable to goods transported by our organisation? - HELD THAT - As per Sr. No. 21, Heading 9965 or 9967, clause (h) of the Notification No. 12/2017- Central Tax (Rate), Services provided by a goods transport agency, by way of transport in a goods carriage of defence or military equipments are exempt from the levy of GST - the applicant is manufacturing and transporting goods like propellant explosives that are used in the manufacture of ammunition and therefore the said exemption is available to them. Whether Input Tax Credit is to be reversed on finished goods that are destroyed during testing? - HELD THAT - The interpretation as made out by the applicant that reversal of ITC will arise only if the inputs or capital goods are themselves lost, stolen or destroyed etc. and not where the finished goods are lost, stolen or destroyed etc. is not acceptable for the simple reason that Section 16(1) contemplates both the situations i.e. case where the goods are actually used or intended to be used. To arrive at the conclusion that the applicant s submission is not tenable, we find that where inputs are used, they cease to exist and they being destroyed, lost or stolen, etc. will not arise - thus once the inputs are used in the manufacture of final products, which are then sent for testing purposes, then in such a case the said inputs cannot be considered to have been destroyed. Whether proportionate Input Tax Credit has to be reversed in cases where lesser payment is made to the supplier due to deduction on account of liquidated damages from supplier s dues? - HELD THAT - The applicant deducts liquidated damages (L.D) from the payment to be made suppliers in certain cases where there is a delay in supply of goods or services by such supplier. Such deduction will be construed as amount received as compensation for tolerating non-performance of supplier on account of delay in delivery of goods or services and is an activity to be treated as a supply of service as per clause 5(e) of Schedule II to the CGST Act, 2017 on which the applicant will have to discharge GST - ultimately applicant would be paying a lesser amount to their suppliers against supply of goods received, which would result in lesser payment being made by the supplier towards GST - Hence the applicant will be eligible to take ITC proportionally equal to actual payment made to such suppliers and is therefore required to reverse ITC accordingly. Applicability and effect of the notifications - Being a part of the Ministry of Defence, Government of India - N/N. 2/2018- Central Tax (Rate), in relation to services by an arbitrator or an advocate to our organisation - N/N. 3/2018- Central Tax (Rate), in relation to services supplied by our organisation by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 - N/N. 36/2017-Central Tax (Rate), in relation to payment of tax on reverse charge mechanism on sale of used vehicles, seized and confiscated goods, old and used goods, waste and scrap to a GST registered person. N/N. 2/2018- Central Tax (Rate) - HELD THAT - The applicant has submitted that as per Notification No. 2/2018-Central Tax (Rate), services by an arbitrator or an advocate to the Central Government have been exempted. Accordingly, it means that no tax on reverse charge mechanism has to be calculated and paid by them for payments made to arbitrators and advocates from the date of notifications coming into effect. We have in our discussions above held that the applicant is not Governments and therefore the said exemption is not applicable to them. N/N. 3/2018- Central Tax (Rate) - HELD THAT - The applicant has submitted that as per Notification No. 3/2018-Central Tax (Rate), services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 has been covered under reverse charge mechanism. They have submitted that since their organisation is a part of the Central Government, the notification is applicable to them - Renting of immovable property is to be treated as supply of service as per the provisions of Schedule II (Section 7) of CGST Act 2017. The applicant, who is no Government are giving nonresidential property on rental basis to a registered person under the CGST Act 2017, which is covered under the definition of supply of services as defined in CGST Act 2017 as supply of real estate services other than renting of residential dwellings and will be chargeable to tax under the GST regime. N/N. 36/2017-Central Tax (Rate) - HELD THAT - The applicant is not Government and therefore they shall discharge GST in respect of supply of any used vehicles, seized and confiscated goods, old and used goods, waste and scrap. Whether Input Tax Credit on services of passenger vehicles hired by our organisation is available? - HELD THAT - This question has been withdrawn by the applicant.

Summary

Issues Involved:
1. GST liability on various supply of services.
2. Availability of Input Tax Credit (ITC) on specific expenditures.
3. Exemption for 'defence formation' in generating E-way bills.
4. GST exemption on transport of military or defence equipment.
5. Reversal of ITC on finished goods destroyed during testing.
6. Proportionate ITC reversal due to liquidated damages.
7. Applicability of specific GST notifications.
8. ITC on services of passenger vehicles hired (withdrawn).

Detailed Analysis:

1. GST Liability on Various Supply of Services:
- Liquidated Damages: The applicant is not considered 'Government' under Section 2(53) of the CGST Act. Hence, liquidated damages deducted from suppliers' payments are taxable.
- Forfeited Security Deposit: The forfeited security deposit due to non-fulfillment of contract conditions is taxable as it is considered additional consideration.
- Unclaimed Security Deposit: Security deposits left unclaimed and recognized as income after three years are not taxable as they do not constitute consideration for supply.
- Food and Beverages in Canteen: The supply of food and beverages in the industrial canteen is taxable under GST.
- Community Hall Rental: Renting the community hall to employees is taxable as it is considered a supply of service.
- School Bus Facility: The school bus facility provided to employees' children is taxable.
- Conducting Exams: Conducting exams for vacancies is taxable as the applicant is not an educational institution.
- Rent from Residential Quarters: Renting residential quarters is exempt from GST.

2. Availability of Input Tax Credit (ITC):
- Maintenance of Garden Inside Factory Premises: ITC is not available as it is not considered in furtherance of business.
- Maintenance of Estate Area: ITC is not available for maintenance activities outside the factory premises as they are considered welfare activities.
- Hospital Medicines and Maintenance: ITC is not available as the hospital services are exempt under Notification No. 12/2017.
- Guest House Maintenance: ITC is not available as guest houses are for personal use and not in furtherance of business.
- LPG Cylinders in Canteen: ITC is available as the canteen services are taxable.

3. Exemption for 'Defence Formation' in Generating E-way Bills:
- The applicant is considered a 'defence formation' under the Ministry of Defence and is exempt from generating E-way bills under Rule 138(14)(k) of the CGST Rules.

4. GST Exemption on Transport of Military or Defence Equipment:
- The applicant's transport of propellants and explosives used in ammunition is exempt from GST under Notification No. 12/2017.

5. Reversal of ITC on Finished Goods Destroyed During Testing:
- ITC need not be reversed for finished goods destroyed during testing as they are used in the course of furtherance of business.

6. Proportionate ITC Reversal Due to Liquidated Damages:
- ITC must be proportionately reversed if lesser payment is made to the supplier due to liquidated damages.

7. Applicability of Specific GST Notifications:
- Notification No. 2/2018: The applicant is not eligible for exemption as they are not considered 'Government.'
- Notification No. 3/2018: Renting of immovable property for non-residential purposes is taxable.
- Notification No. 36/2017: The applicant must discharge GST on the sale of used vehicles, seized goods, etc.

8. ITC on Services of Passenger Vehicles Hired:
- This question was withdrawn by the applicant and not addressed.

Conclusion:
The judgment comprehensively addresses the GST implications on various services and ITC eligibility for the applicant, an entity under the Ministry of Defence. The applicant is liable for GST on most services provided and must adhere to specific provisions regarding ITC and exemptions.