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2021 (4) TMI 561 - AAR - GSTUtilisation of Input Tax Credit - Balance available in the Electronic Credit Ledger legitimately earned on the inputs/raw-materials/inward supplies(meant for outward supply of Bullions) - whether the balance available can be used towards the GST liability on Castor Oil Seed which were procured from Agriculturists and subsequently meant for onward supply - Castor Oil Seed is intended to be supplied in domestic market or to export it - HELD THAT - For the applicant, to be eligible to take input tax credit on any supply of goods or services, the same has to be used or should be intended to be used in the course or furtherance of his business i.e. the nexus/connection between the inputs and the final products manufactured from these inputs is required to be proved - For example, inputs such as dores of gold, silver etc. procured by the applicant are used in the manufacture of their final product i.e. Gold(including Gold Plated with Platinum) unwrought or in semi-manufactured forms or in powder form, based metal clad with silver, not further worked than semi-manufactured, coin etc. The core issue is that the applicant wants to trade in Castor oil seeds on which the GST liability is 5% and wants to utilise the input tax credit (availed on inputs such as gold dores, silver dores etc.) available with him in his electronic credit ledger for the payment of the said GST. However, for the applicant, to be eligible to avail the input tax credit for the payment of the GST leviable on the Castor oil seeds which they intend to supply domestically or to export it, the applicant has to first prove the nexus or connection between the inputs and the castor oil seeds which he intends to supply, in the terms of sub-section(1) of Section 16 of the CGST Act, 2017 i.e. he has to prove as to how the gold dores or silver dores are used or intended to be used in the course or furtherance of his business of supply of Castor oil seeds. In this regard, firstly, the applicant has not submitted any document/literature etc. in respect of how they wish or intend to carry out the business of supply of castor oil seeds. Secondly, they have not provided/submitted any proof in respect of the input-final product nexus/connection in respect of the inputs i.e. gold and silver dores etc. vis-a-vis Castor oil seeds nor provided any such document/literature in respect of how the inputs i.e. gold dores or silver dores are used or intended to be used in the course or furtherance of their business of supply of Castor oil seeds - Even otherwise, on a plain comparison of the provisions of Section 16(1) of the CGST Act, 2017 with the issue in hand, it can very easily be derived that there is no nexus/connection whatsoever, of the inputs i.e. gold dores or silver dores with the business of supply of Castor oil seeds by the applicant. It can therefore, be seen that the even the basic conditions envisaged in the provisions of Section 16(1) have not been fulfilled in the instant case, it can be undoubtedly concluded that the inputs are not used or intended to be used in the course or furtherance of the business of supply of Castor oil seeds. The applicant cannot use the Input Tax Credit Balance available in the Electronic Credit Ledger legimately earned on the inputs/raw-materials/inward supplies(meant for outward supply of Bullions) towards the GST liability on Castor Oil Seed which were procured from Agriculturists and subsequently meant for onward supply.
Issues Involved
1. Eligibility to use Input Tax Credit (ITC) for GST liability on Castor oil seeds. 2. Nexus between inputs (gold dores, silver dores) and the final product (Castor oil seeds). Detailed Analysis Issue 1: Eligibility to use Input Tax Credit (ITC) for GST liability on Castor oil seeds The applicant, M/s. Aristo Bullion Pvt. Ltd., sought an advance ruling on whether they could use the ITC balance available in their Electronic Credit Ledger, earned on inputs/raw materials meant for outward supply of bullions, to discharge GST liability on Castor oil seeds procured from agriculturists. The applicant argued that the ITC available in the Electronic Credit Ledger is a pool that can be used for any GST liability on outward supplies, as per Section 49(4) of the CGST Act, 2017. They believed that since the ITC was legitimately earned on inputs used in their business, it should be available for offsetting GST on Castor oil seeds. Issue 2: Nexus between inputs (gold dores, silver dores) and the final product (Castor oil seeds) The Authority for Advance Ruling (AAR) examined whether there was a nexus between the inputs (gold dores, silver dores) and the final product (Castor oil seeds). According to Section 16(1) of the CGST Act, 2017, ITC can be claimed only if the inputs are used or intended to be used in the course or furtherance of the business. The AAR found that the applicant did not provide any document or literature to establish a connection between the inputs (gold dores, silver dores) and the business of supplying Castor oil seeds. The AAR emphasized that the inputs must be used in the course or furtherance of the business of supplying the final product, which in this case, was not evident. Conclusion The AAR ruled that the applicant could not use the ITC balance available in the Electronic Credit Ledger, earned on inputs/raw materials meant for outward supply of bullions, to discharge GST liability on Castor oil seeds. The ruling was based on the lack of nexus between the inputs and the final product, as required under Section 16(1) of the CGST Act, 2017. Ruling Question: Can the applicant use Input Tax Credit Balance available in the Electronic Credit Ledger legitimately earned on the inputs/raw-materials/inward supplies (meant for outward supply of Bullions) towards the GST liability on ‘Castor Oil Seed’ which were procured from Agriculturists and subsequently meant for onward supply? Answer: The applicant cannot use the Input Tax Credit Balance available in the Electronic Credit Ledger legitimately earned on the inputs/raw-materials/inward supplies (meant for outward supply of Bullions) towards the GST liability on ‘Castor Oil Seed’ which were procured from Agriculturists and subsequently meant for onward supply, for the reasons discussed hereinabove.
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