2023 (7) TMI 1221 - AAR - GST

Scope of Advance Ruling application - supplies undertaken prior to the date of filing of the application for advance ruling - Input Tax Credit - GST paid on the advertisement expenses like calendars t-shirts pens open bags etc. printed with company name/logo and distributed in business meetings workshops for advertisement business promotion marketing and to build up and maintain public image of the company - mandatory minimum percentage of the value of loan that should be charged by the directors from the company in lieu of giving personal bank guarantee for sanctioning loan/credit limits to the company or not - HELD THAT - From the provisions of Section 95 it is seen that this authority is constituted to decide on matters or questions specified in sub-section (2) of Section 97 in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. On going through the facts of the case the applicant has not disclosed the practice already being followed by him in previous period. It is observed that applicant filed their application before the Rajasthan Authority for Advance Ruling (RAAR) on 15.10.2022 i.e. much later from the discharging his GST liability It is also found that Section 17(5) (g) 17 (5) (h) on question no one Section 15 (1) Section 15(5) on question no 2 and Section 18 (6) on question no 3 are very much clear and there is no ambiguity in these section. We observe that the applicant is well aware about the sections and discharging his tax liability in accordance to them. The scope of the ruling for Authority for Advance Ruling (AAR) is limited to the transactions being undertaken or proposed to be undertaken on the matters which are not sorted out. In the instant case the application seeking advance ruling was filed on 15.10.2022 before the RAAR with respect to supplies already being undertaken GST being paid and GST returns has been submitted. Hence the case is out of the purview of the Advance Ruling.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions presented for consideration in this judgment are:

(i) Whether Input Tax Credit (ITC) is eligible on the GST paid for advertisement expenses such as calendars, t-shirts, pens, and bags printed with the company name/logo and distributed for business promotion and marketing.

(ii) Whether there is a mandatory minimum percentage of the value of a loan that directors should charge from the company for providing a personal bank guarantee, and whether the consideration charged by the director constitutes the value of supply of services.

(iii) Whether the applicant is permitted to pay tax on the transaction value of rolling mill metal rolls used in the production process of TMT bars under the proviso of sub-section (6) of section 18 of the GST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Eligibility of ITC on Advertisement Expenses

- Relevant Legal Framework and Precedents: Section 16(1) of the CGST Act, 2017 allows ITC on goods or services used in the course or furtherance of business. However, Section 17(5)(g) & (h) blocks ITC on goods given as gifts or for personal use.

- Court's Interpretation and Reasoning: The court observed that items distributed like t-shirts and pens do not directly contribute to the business's furtherance and are distributed free of cost, thus falling under blocked ITC.

- Key Evidence and Findings: The applicant failed to demonstrate how these promotional items directly furthered their business operations.

- Application of Law to Facts: The court applied Section 17(5) to block ITC as the items were deemed gifts or for personal use.

- Treatment of Competing Arguments: The applicant argued that these expenses were for business promotion, but the court held that the nature of distribution as free items negated this claim.

- Conclusions: ITC is not eligible for the GST paid on such advertisement expenses.

Issue (ii): Personal Bank Guarantee by Directors

- Relevant Legal Framework and Precedents: Section 9(3) & 9(4) of the CGST Act, 2017, along with Notification No. 13/2017, mandates GST on services supplied by directors to the company under Reverse Charge Mechanism (RCM).

- Court's Interpretation and Reasoning: The court determined that providing a personal guarantee is a taxable service under financial services, attracting GST at 18%.

- Key Evidence and Findings: The court noted that directors and the company are related persons, making the transaction taxable even without consideration under Section 7(1)(c).

- Application of Law to Facts: The court applied the provisions of RCM, requiring the company to pay GST on the director's service of providing a bank guarantee.

- Treatment of Competing Arguments: The applicant's discretion argument was countered by the court's reliance on statutory provisions mandating GST under RCM.

- Conclusions: The transaction of providing a bank guarantee by directors is taxable, and GST must be paid by the company under RCM.

Issue (iii): Tax on Transaction Value for Rolling Mill Metal Rolls

- Relevant Legal Framework and Precedents: Section 18(6) of the CGST Act, 2017, allows tax on the transaction value of capital goods if they are supplied as scrap.

- Court's Interpretation and Reasoning: The court found that rolling mill metal rolls, being consumables, do not qualify as capital goods.

- Key Evidence and Findings: The applicant's classification of these rolls as consumables negated their treatment as capital goods.

- Application of Law to Facts: The court applied Section 18(6) to determine that tax should be paid on the transaction value as the rolls are not capital goods.

- Treatment of Competing Arguments: The applicant's argument for classification as capital goods was dismissed based on their own description of the rolls as consumables.

- Conclusions: The applicant is eligible to pay tax on the transaction value of rolling mill metal rolls.

3. SIGNIFICANT HOLDINGS

- Verbatim Quotes of Crucial Legal Reasoning: "Items distributed free of cost and for personal use are block ITC under Section 17(5)(g) & (h)." "The transaction of providing guarantee by the directors to the banks for the Taxpayer's loans is a taxable transaction."

- Core Principles Established: ITC is blocked for promotional items distributed free of cost. Services provided by directors to their company are taxable under RCM. Consumables cannot be treated as capital goods for tax purposes.

- Final Determinations on Each Issue: ITC is not eligible for advertisement expenses. GST must be paid under RCM for director's bank guarantees. Tax on rolling mill metal rolls should be on the transaction value.

In conclusion, the court did not pronounce a ruling on the questions as they pertained to past transactions, which are outside the purview of advance rulings. The applicant's queries were deemed related to supplies already undertaken, and thus, no advance ruling was provided.