2020 (4) TMI 592 - AAR - GST

Input tax credit - supply of port services - Purchase of medicines for employees as prescribed by their doctor from outside on contractual basis - Purchase of movable medical equipment at hospital - AMC for repair and maintenance of residential colony and hospitals and school - Telephones Mobiles at residence of officers and at hospitals - Caretaking /housekeeping services at Guest House - all the expenses are incurred for maintaining its employees. HELD THAT - As per clear reading of Sub Section (1) of Section 16 and sub section (1) of Section 17 of the CGST Act, 2017, it is clear that a registered person is entitled to take credit of input tax charged on supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business only - In that case, the applicant is incurring expenses for providing common facilities to their employees within the residential colony where the quarter has been given on nominal fees i.e. Hospitals, Sports Complex, garden, Guest House for official visitors and school for employee s children and the same is not related to furtherance of their business/output service i.e. port service. Also, the applicant is engaged in supply of port services to various clients. Said expenses are for providing common facilities to their employees within the residential colony and the same are not relates to furtherance of their business/output service i.e. Port Service . It is very clear from the provisions of Sub Section (1) of Section 16 and Sub section (1) of Section 17 of the CGST Act, 2017, that a registered person is entitled to take credit of input tax charged on supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business only - the applicant is not entitled to take credit of input tax charged in respect of above mentioned expenses as the same is not used in furtherance of their business. Credit not allowed.

Summary

Issues Involved:
Eligibility of Input Tax Credit (ITC) for specific expenses incurred by a port trust for maintaining its employees.

Analysis:
The applicant, a port trust, sought an advance ruling regarding the eligibility of Input Tax Credit (ITC) for various expenses incurred in maintaining its employees. These expenses included purchasing medicines, medical equipment, AMC for repair and maintenance, telephones, mobiles, and caretaking services. The applicant argued that these expenses were essential for maintaining its employees, who are crucial for providing output services to clients. The applicant highlighted that as per the Major Port Trust Act, 1963, and ministry directives, there were no Memorandum and Article of Association like other organizations.

The Jurisdictional Additional Commissioner referred to the CGST Act, 2017, specifically Section 16 and Section 17, which outline the conditions for taking input tax credit. Section 16 allows credit for goods or services used in the course or furtherance of business, while Section 17 addresses apportionment of credit for mixed-use purposes. The Commissioner opined that the expenses incurred by the port trust for common facilities within the residential colony were not directly related to the furtherance of their port service business.

The Authority for Advance Ruling agreed with the Commissioner's assessment. They emphasized that the expenses in question, although essential for maintaining employees, were not directly linked to the port service business provided by the trust. As per the provisions of the CGST Act, a registered person is only entitled to take credit for expenses used in the course or furtherance of their business. Therefore, the port trust was deemed ineligible to claim input tax credit for the mentioned expenses.

In conclusion, the ruling stated that the port trust was not entitled to take credit for input tax charged on the specified expenses as they did not directly contribute to the course or furtherance of their business activities. The ruling clarified that for expenses to be eligible for input tax credit, they must be used in connection with the business operations, which was not the case for the expenses related to maintaining employees within the residential colony.