EXEMPTION FROM INTEGRATED TAX

[Mr. M. GOVINDARAJAN]

Exemption

Section 6(1) of the Integrated Goods and Services Tax Act, 2017  provides that where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification.

Exceptional nature

Section 6 (2) of the Act provides that where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by special order in each case, under circumstances of an exceptional nature to be stated in such order, exempt from payment of tax any goods or services or both on which tax is leviable.

Explanation

Section 6(3) of the Act  provides that the Government may, if it considers necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2), insert an Explanation in such notification or order, as the case may be, by notification at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be.

Not to levy tax           

The explanation to section 6 provides that where an exemption in respect of any goods or services or both from the whole or part of the tax leviable thereon has been granted absolutely, the registered person supplying such goods or services or both shall not collect the tax, in excess of the effective rate, on such supply of goods or services or both.

The provisions relating to exemption under CGST Act are not applicable to integrated tax but the provisions of the integrated tax act in regard to exemption are more or less similar to CGST Act.

Case laws

Some of the Advance Rulings given by the Authority for Advance Ruling as well as Appellate Authority for Advance Ruling are furnished as below-

Navigability of the river bed and channels

IN RE: ARIHANT DREDGING DEVELOPERS PRIVATE LIMITED - 2019 (6) TMI 1342 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL, the applicant has been awarded by the Orissa Construction Corporation Limited a  contract for sectioning of Sunamuhin Drainage Channel and from Pond Near Harachandi mouth to outfall of Chilika in Orissa. 

The applicant sought for an advance ruling on the taxability of his supply in terms of Notification No.08/2017 - Integrated Tax (Rate), dated 28.06.2017 and the exemption notification, as the case may be, and as amended from time to time.

The Authority for Advance Ruling observed that from the description of the work that the applicant improves the navigability of the river bed and channels – an activity towards development of irrigation and waterways.  It is therefore an activity in relation to the function listed under Sl. No. 5 of the Eleventh Schedule, as entrusted a Panchayat under Article 243G of the Constitution.  The Authority for Advance Ruling ruled that-

• The supply of the applicant is taxable @ 18% under Sl. No. 3(vii) of Notification No.08/2017 - Integrated Tax (Rate), dated 28.06.2017 till 12.10.2017.
• The supply was taxable @ 5% under Sl. No. 3(vii) of Notification No. 08/2017 -Integrated Tax (Rate), dated 28.06.2017 as amended by Notification No.39/2017 -Integrated tax (rate), dated 13.10.2017 with effect from 13.10.2017 to 24.01.2018. 
• The supply has been exempted under Sl. No. 3A of Notification No. 09/2017 -Integrated Tax (Rate), dated 28.06.2017, as amended by Notification No. 02/2018-Integrated tax (R ate), dated 25.01.2018.

Binding of GST Council’s decision

IN RE: M/S. INDIAN INSTITUTE OF SCIENCE EDUCATION AND RESEARCH - 2019 (2) TMI 1526 - AUTHORITY FOR ADVANCE RULINGS, ODISHA, the applicant sought for advance ruling on whether the decision of the GST Council granting the exemption is binding on the Department in the absence of non issuance of corresponding notification by the Central/State Government to give effect to such decision of the Council.  

The Authority for Advance Ruling ruled that the scope of issuing a ruling under section 98 of the CGST Act is limited to the extent prescribed in section 97(2) of the CGST/ OGST Act.  A ruling on whether the decision of the GST Council granting exemption is binding on the Department in the absence of non issuance of corresponding notification by the Central/State Government is not within the competence and mandate of the Authority for Advance Ruling.

The applicant filed appeal before the Appellate Authority for Advance Ruling against the ruling given by the Authority for Advance Ruling IN RE: M/S. INDIAN INSTITUTE OF SCIENCE EDUCATION AND RESEARCH - 2019 (7) TMI 47 - APPELLATE AUTHORITY FOR ADVANCE RULING, ODISHA. 

The Appellate Authority for Advance Ruling upheld the decision of the Authority for Advance Ruling and dismissed the appeal filed by the appellant.

Dredging activities

IN RE: M/S. DREDGING AND DESILTATION COMPANY PRIVATE LIMITED - 2019 (6) TMI 549 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL the applicant has been awarded a contract by the West Bengal Fisheries Corporation Limited for up gradation of Jalda Kuti Landing Center by protection to Mandarmani River and up-gradation of navigability by dredging of Mandarmani River and up-gradation of navigability by dredging of Mandarmani River in Purba Medinipur. 

The applicant sought for an advance ruling as to whether an exemption under Sl. No 3A of Notification No. 09/2017 - Integrated Tax (Rate), dated 28.07.2017 as amended vide Notification No. 02/2018 - Integrated Tax (Rate), dated 25.01.2018 applies to the above supply. 

The Authority for Advance Ruling observed that the recipient is engaged in development of fisheries.  The work awarded to the applicant is having direct nexus with fisheries Department.  The development of fisheries is the function listed under Sl. No.4 of 11^th Schedule and therefore entrusted to a Panchayat under Article 243G of the Constitution of India. 

The Authority for Advance Ruling ruled that the applicant is eligible for exemption under Sl. No. 3A of the Notification No. 09/2017 - Integrated tax (Rate) as amended by Notification No. 02/2018-Integrated Tax (Rate).

Poultry feed supplements

IN RE: M/S. UTTARA IMPEX PRIVATE LIMITED - 2018 (12) TMI 141 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA, the applicant is engaged in trading of various poultry feed products.  These products for consumption are as poultry feed only and not capable of being used for any other use.

The applicant sought for classification of the products he sold.  The applicant contended that the above products are feed supplements for poultry and therefore covered under Entry No. 102 of exemption Notification No. 2/2017 - Integrated Tax (Rate) which reads as – ‘Aquatic feed including shrimp feed and prawn feed, poultry feed and cattle feed, including grass, hay & straw, supplement & husk of pulses, concentrates and additives, wheat brain and de-oiled cake.  The benefit is not open ended and covers those goods that are falling under Headings 2301, 2302, 2304, 2305, 2308 and 2309 of Customs Tariff Act, 1975 which satisfy the description of goods as animal fees, supplement, concentrate and additives. 

The Authority for Advance Ruling found that the product referred to in the application would fall under heading description in Customs Tariff as follows-

• DL Methionine – 29304000;
• Sodium Bicarbonate – 28363000;
• Betaine HCL – 29239000;
• Tryptophan – 29224990;
• Threonine – 29225090;
• Lysine HCL – 29224100;
• Sodium Sulphate – 28331990;
• Lysine Sulphate – 29224100;
• Mono calcium Phosphate – 29352610.

These products are covered under Schedule III and they would be liable to tax @ 18% integrated tax. 

The Authority for Advance Ruling ruled that the products referred under the application are not covered under Entry No. 102 of the Notification No. 02/2017 - Integrated Tax (Rate), dated 28.06.2017 except Di Calcium Phosphate (28352610) of animal feed grade, which is covered under Entry No. 105 of Notification No. 02/2017 - Integrated Tax (Rate).  The rest of products would fall under Schedule III and would be liable to GST 18% tax.

Paying Guest Accommodation

IN RE: M/S. SRI. TAGHAR VASUDEVA AMBRISH - 2020 (4) TMI 692 - AUTHORITY FOR ADVANCE RULING KARNATAKA the applicant is engaged in the business of providing affordable residential accommodation to students on a long term basis (starting from 3 to 11 months).  The applicant along with four others collectively has let out a Residential complex to D. Twelve Spaces Private Limited is engaged in the business of providing affordable residential accommodation to students on a long term basis (starting from 3 to 11 months). Along with such accommodation, the Company is also engaged in providing a host of other services such as maintenance, food, Wi-Fi etc., generally called as a Paying Guest Accommodation.

The applicant sought for advance ruling on the following questions-

• Whether exemption prescribed under entry number 13 of Notification No. 9/2017- Integrated Tax (Rate), dated 28.06.2017 can be sought and the lessors (here Ambrish Vasudeva and 4 others) need not charge GST while issuing the invoice for the lease service to DTwelve Spaces Private Limited?
• Whether the lease service falls under the Exemption prescribed and can be described as ‘Services by way of renting of residential swelling for use as residence’ as listed in the aforesaid Notification?

The Authority for Advance Ruling observed that the applicant is not providing the service in its individual capacity to the lessee, but as a part of the group of lessors. The applicant has not provided any details of registration or constitution of the group, whether they have entered into a partnership or association etc., and hence the taxability of the transaction needs to be examined in this background.  Entry 13, Heading 9963 or Heading 9972, is related to ‘renting of residential dwelling’ ‘for use as residence’. The contract of the applicant group with the Company is verified and found that what is given is an immovable property consisting of only rooms with attached toilets as per the Layout of the leased premises annexed to the Lease agreement and does not fit into the meaning of a dwelling which means a house. They are like hotel rooms and the entire leased premises have 42 rooms, which can by no imagination be termed as a residential dwelling.

The Authority for Advance Ruling ruled that-

• The exemption prescribed under entry no. 13 of Notification No. 9/2017 - Integrated tax (Rate) dated 28.06.2017 cannot be sought and the lessors (as an entity) have to charge GST while issuing the invoice for the lease services to DTwelve Spaces Private Limited, provided they are registered under the GST Act.
• The lease services does not fall under the exemption ‘Services by way of renting of residential dwelling for use as residence’ as listed in entry 13 of Notification No. 9/2017 - Integrated tax (Rate), dated 28.06.2017.

The applicant filed an appeal against the ruling given by the Authority for Advance Ruling before the Appellate Authority for Advance Ruling [IN RE: M/S. SRI. TAGHAR VASUDEVA AMBRISH - 2020 (9) TMI 354 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA].   The appellant contended that since the Authority for Advance Ruling had pronounced its ruling beyond 90 days of filing application, said ruling not sustainable.   The Appellate Authority for Advance Ruling observed that the applicant filed the application manually.  Taking date of manual filing as relevant date of filing application cannot be faulted though ruling was pronounced beyond 90 days from this date also.  Further, passing of ruling beyond stipulated time does not render ruling null and void or unsustainable.  The Appellate Authority for Advance Ruling upheld the ruling given by the Authority for Advance Ruling.  However the Appellate Authority for Advance ruling ruled that in the impugned order, observations of Authority in Para 8(b) regarding nature of transaction as between group of individuals as lessors and lessee Company expunged same being beyond ambit of question on which ruling.

Human Leukocyte Antigen (TILA) testing services 

IN RE: M/S. DKMS BMST FOUNDATION INDIA - 2020 (4) TMI 871 - AUTHORITY FOR ADVANCE RULING, KARNATAKA, the applicant is facilitating the treatment of blood cancer and other blood disorders by promoting awareness and encouraging people to register as a potential blood stem cell donors as well as facilitating the process of blood stem cell donations.

The applicant sought for advance ruling on the following questions (modified)-

• from the overseas laboratory falls under the definition of health care services by a clinical establishment, thereby exempt from the tax leviable thereon and accordingly not taxable in the hands of DKMS-BMST.
• Notwithstanding the outcome of the above Question, whether in the facts and circumstances of the case, DKMS BMST Foundation India (‘IDKMS BMST’) is liable to pay integrated tax on the testing services performed by the overseas laboratory outside India on the Human Buccal Swabs sent by DKMS BMST from India?

The Authority for Advance Ruling observed that the service of HLA (Human Leukocyte Antigen) typing is to identify the potential donors and is related directly to a transplantation to be done on a future date to a patient requiring such transplant. Analogous to testing of Blood Group, HLA typing identifies the alleles of the donor and these alleles are matched with the alleles of the recipient of transplant. The applicant gets the HLA of the potential donors typed and uploaded to the databases for the doctors to identify the potential donors. Hence the service is received only to shortlist the potential donors and increase chances of getting the perfect donors from a big list of potential donors and going through the entire process of testing ab initio and matching between the patient and the donor individually. Other than for obtaining an organ from a potential donor, this HLA testing is not done for any other purpose in clinical set up and hence this is a for the treatment of an illness, the same is covered under ‘health care services’ as per the definition given to it.

It is seen that the HLA testing involves various tests which are for the identification of the alleles of the donor cells and also the suitability of the potential donor for treatment of a patient of illness, i.e., blood cancer and other blood disorders. Hence any institution which does these investigative services would be covered under the definition of ‘clinical establishment’ as contemplated in the said definition. Hence, the LSL DE is a clinical establishment under the meaning given to it. Hence the services provided by LSL DE to the applicant in the form of HLA Typing would be covered under ‘Health Care Services by a Clinical Establishment’ and hence is exempt from tax under the IGST Act.

The Authority for Advance Ruling ruled that since the service itself is exempt, the applicant is not liable to pay tax on the services obtained in the form of HLA testing and typing from LSL DE on reverse charge basis.