2022 (1) TMI 1056 - AAAR - GST

Utilisation of Input Tax Credit - outward supply of Gold Silver bullion - payment of output tax on Castor Oil Seeds - Whether the Input Tax Credit (ITC) legitimately earned by the appellant and lying as balance in Electronic Credit Ledger can be utilised for payment of GST on an outward supply, which has no nexus with the inputs on which the ITC has been taken? - time limit for filing appeal - HELD THAT - The appellant has shown the date of communication of the Advance Ruling as 30.01.2021 . Thus, it is observed that the present appeal filed on 19.02.2021 has been filed within the prescribed time limit of 30 days from the date of communication of Ruling, as prescribed under Section 100(2) of the CGST Act, 2017 - Even otherwise, the last date for filing appeal stands extended w.e.f. 15.03.2020 Whether Input Tax Credit validly taken on any input can be utilized for payment of output tax (GST) on any outward supply, which has no nexus with the inputs on which ITC was taken? - HELD THAT - Section 16(1) of the CGST Act only states the eligibility and conditions for taking ITC. It does not impose any restriction on utilisation of the legitimately earned ITC. It does not prescribe that ITC available in electronic credit ledger to be utilized only for the specific outward supply, on whose inputs such ITC was availed - Section 16(1) nowhere mandates to prove one-to-one correlation of particular inputs with particular outward supply. In other words, Section 16(1) does not require that payment of outward tax on particular outward supply can be made only from the ITC taken on particular inputs, which have nexus or connection with that outward supply. The requirement of Section 16(1) is that the inward supply should be used or intended to be used in the course or furtherance of the business of taxpayer. In this case, it is undisputed that the inward supply of Gold and Dore bars are intended to be used in the course of business of the appellant, i.e. outward supply of Bullion etc. This undisputed fact entitled the appellant to take input tax credit on such inputs. Once such input tax credit is validly taken, it can be utilised for payment of output tax GST on any taxable or zero rated outward supply of the appellant - the amount of input tax credit lying in electronic credit ledger can be utilised by appellant for making any payment of output tax payable by him. Needless to say that all provisions regarding determination, restriction and reversal of input tax credit and payment of tax, as prescribed Chapters V and X of the CGST Act and Chapters V and X of the CGST Rules, would be applicable, which are not under covered under the question raised in the application for Advance Ruling in present case. The payment of output tax on Castor Oil Seeds through utilization of Input Tax Credit taken on Gold Silver Dore Bars etc. cannot be denied merely on the ground that the inputs have no nexus with outward supply.

Summary

Issues Involved:
1. Utilization of Input Tax Credit (ITC) for payment of Goods and Services Tax (GST) on outward supply.
2. Nexus requirement between inputs and outputs for ITC utilization.
3. Applicability of Section 16 and Section 17 of the CGST Act, 2017.
4. Interpretation of Rule 86 of CGST Rules regarding ITC utilization.
5. Time limit for filing the appeal.

Detailed Analysis:

1. Utilization of ITC for Payment of GST on Outward Supply:
The appellant, engaged in manufacturing and trading Gold & Silver Bullion and Castor Oil Seeds, sought to utilize ITC earned on inputs like Gold & Silver Dore bars for paying GST on the outward supply of Castor Oil Seeds. The GAAR ruled against this, stating that ITC earned on inputs meant for Bullion cannot be used for Castor Oil Seeds due to lack of nexus.

2. Nexus Requirement Between Inputs and Outputs for ITC Utilization:
GAAR emphasized the need for a direct connection between inputs and outputs for ITC utilization, as per Section 16(1) of the CGST Act. The ruling stated that the appellant failed to prove the nexus between Gold & Silver Dore bars and Castor Oil Seeds. However, the Appellate Authority disagreed, stating that once ITC is validly taken, it merges into a common pool and does not require a commodity-wise nexus for utilization.

3. Applicability of Section 16 and Section 17 of the CGST Act, 2017:
Section 16(1) allows ITC for inputs used in the course or furtherance of business. Section 17(5) lists exclusions for ITC. GAAR acknowledged that Gold & Silver Dore bars are not excluded under Section 17(5) but insisted on proving the nexus under Section 16(1). The Appellate Authority clarified that Section 16(1) does not mandate one-to-one correlation between inputs and specific outward supplies and that ITC can be used for any taxable or zero-rated outward supply.

4. Interpretation of Rule 86 of CGST Rules Regarding ITC Utilization:
The appellant argued that Rule 86 does not restrict ITC utilization for specific outputs and that ITC in the Electronic Credit Ledger can be used for any output tax liability. The Appellate Authority agreed, stating that the common pool of ITC can be used for any taxable supply, and there is no requirement to demonstrate a nexus between specific inputs and outputs.

5. Time Limit for Filing the Appeal:
The appeal was filed within the prescribed 30-day limit from the date of communication of the GAAR ruling. The Appellate Authority confirmed the appeal was timely, considering the extensions provided by the Supreme Court due to COVID-19.

Findings:
The Appellate Authority found that ITC validly taken on inputs merges into a common pool in the Electronic Credit Ledger. ITC can be utilized for any output tax liability, and there is no requirement to prove a nexus between specific inputs and outputs. The ruling of GAAR was set aside, and it was held that the appellant can use ITC earned on Gold & Silver Dore bars for paying GST on Castor Oil Seeds.

Conclusion:
The appeal was allowed, modifying the GAAR ruling. The appellant can use the ITC balance for payment of GST on Castor Oil Seeds, and ITC utilization cannot be denied based on the lack of nexus between inputs and outputs.