RECENT ADVANCE RULINGS IN GST (PART-6)

[Dr. Sanjiv Agarwal]

Advance rulings are important in any tax law as it provides a forum for clarification and possible interpretation of statutory provisions. Moreover, it conveys the legislative intention from the revenue’s view point. Provisions of advance ruling are contained in section 95 to 106 of CGST Act, 2017 and State / UT GST enactment. Rules 103 to 107 of also provide for forms, manner, certification etc.

The Authority for Advance Rulings (AAR) have been set up in all the states and we have now over 100 advance rulings on different issues already pronounced by various State Authorities. The appellate mechanism for filing appeals against AAR rulings is also in place and we have about ten such appellate orders already pronounced. One major issue presently being faced is about multiple authorities (equal to number of States), each pronouncing a ruling of its own even if the matter is covered by some other State AAR’s rulings. There would be situations where we may have different rulings on same question(s). GST Council ought to decide on having a Centralized Authority as was there in erstwhile tax regime. The orders of Appellate Advance Ruling Authority have also started pouring in.

The summary of few more recent advance rulings pronounced by State Advance Ruling Authorities are discussed hereunder but these needs to be read in the background of the question involved:

Advance Ruling on classification of goods and rate of GST

Where whole (sheep/goat) animal carcass in its natural shape in frozen state in different weight and size packed in LDPE bags without mentioning the weight and one or two such LDPE bags further packed in HDPE bags being supplied to Army by applicant against tender, it was ruled that such goods shall qualify as product put up in "unit container" and these products will be covered by schedule entry 4 of Notification No. 1-Integrated Tax (Rate) during period 1-7-2017 to 13-11-2017. From 14-11-2017 onwards, the products would be covered under schedule entry 1 of Notification No. 1-Integrated Tax (Rate). [In re Ahmednagar District Goat Rearing & Processing Co-op Federation Ltd., 2018 (5) TMI 1393 - AUTHORITY FOR ADVANCE RULING - MAHARASTRA ].

Advance Ruling on Classification of Goods    

AAR ruled that preparations for the care of the skin namely, Rupam (Pimple Pack) and Pailab (Anti-Crack Cream), in the list submitted by the Applicant of the Application are classifiable as Medicament under Heading 3004 of the Customs Tariff Act, 1975. Preparations listed as Swamajyoti, Sunayana and Tarumitra-60 have not yet come into existence, and, therefore, no rulings are pronounced on their classification. The remaining products mentioned in the list submitted by them are not offered primarily as medicaments and, therefore, not to be included under Heading 3004. This ruling is valid subject to the provisions under Section 103(2) until and unless declared void under Section 104(1) of the GST Act.

It was also observed that medicaments are not defined under GST law or Customs Tariff applicable for goods classification in GST law. Further, for classification of skin care products as medicament, it is not sufficient that such a product manufactured as per authoritative text book, merely helps in controlling skin disease. Its curative or preventive value must be substantial, and product must be manufactured primarily to control or cure a skin-related disease. Further, it must be established that consumers use it primarily for treatment, mitigation, cure or prevention of specific skin disease or skin disorder. Since most of skin care preparations have both uses i.e. medicinal as well cosmetic, essential difference lies in user's perception of a particular product. If user consumes product primarily for cure from or treatment or mitigation of or for prevention of a specific skin disease or disorder, it should be treated as a medicament classifiable under Heading 3004, except when it is specifically included in Heading 3304.

In this case, all preparations manufactured by applicant were skin care products manufactured under valid drug license and following the formula prescribed in the authoritative text­books of Ayurveda. A few ingredients added for preservation of quality is not relevant to decide their Ayurvedic nature. It has to be seen as to whether customer is purchasing product with same belief as manufacturer is selling. [In re Akansha Hair & Skin Care Herbal Unit Pvt. Ltd.  2018 (4) TMI 811 - AUTHORITY FOR ADVANCE RULING , WEST BENGAL ].

Advance Ruling on carry forward of input tax credit of Krishi Kalyan Cess

In the pre-GST regime, the assessee was registered as Input Service Distributor (ISD) for its Head Office to distribute eligible credit to its respective manufacturing units. The assessee wanted to carry forward the accumulated credit of Krishi Kalyan Cess (KKC)appeared in service tax return on June 30, 2017 to the electronic credit ledger under the GST Act. In the post-GST regime, neither there is specific restriction in law regarding admissibility of KKC nor there is any specific provision regarding admissibility of KKC as input tax credit.  

 It filed the application for Advance Ruling regarding admissibility of KKC as input tax credit under the GST Act.       

The Authority for Advance Ruling held that the taxable person is allowed to carried forward the credit to the extent admissible as Input tax credit under GST as per the transitional provisions. But the definition of Input Tax under GST does not include any cess. Further, the KKC credit could be utilized only with KKC liability but there was no levy of KKC under GST. Therefore, KKC credit will not be considered as admissible input tax credit. Hence, the ITC of KKC could not be carried forward under GST. Thus, accumulated credit by way of Krishi Kalyan Cess (KKC) as appeared in the Service Tax return of Input Service Distributor (ISD) on June 30, 2017 which is carried forward in the electronic credit ledger maintained by the company under CGST Act, 2017, will not be considered as admissible input tax-credit. [In re Kansai Nerolac Paints Ltd. (2018) 5 TMI 458 (AAR-Maharashtra);  ].

Being aggrieved, the applicant preferred an appeal u/s 100 of the GST law before Appellate Authority for Advance Ruling (AAAR) which approved the aforementioned ruling of AAR by passing an order u/s 101 of the GST law. The AAAR examined the erstwhile Cenvat Credit Rules, 2004 and formed a view that KKC could be utilized towards payment of KKC only. The KKC cannot be adjusted or cross utilized against the payment of excise duty or service tax. It was made expressly clear that Cenvat credit of input duty specified in the rule 3 i.e. excise duty, additional excise duty cannot be utilized for payment of KKC. Similarly the Cenvat credit in respect of KKC could not be utilized for payment of excise duty or service tax. It could be utilized only for payment of KKC. Thus, the Cenvat rules made an exception in respect of credit of KKC.

Based on these facts, AAAR confirmed the AAR order and held that the accumulated credit by way of Krishi Kalyan Cess (KKC) as appeared in the Service tax return of Input Service Distributor (ISD) on June 30, 2017 which is carried forward in the electronic credit ledger maintained by the Appellant under CGST Act 2017, shall not be allowed to be taken as admissible input tax credit.

Advance Ruling on classification of goods

M/s National Plastics (hereinafter refined to as the applicant) is a company engaged in the manufacture of floor mats made of PVC, known as PVC Carpet Mats. Manufacturing of the same is undertaken in two stages. Stage 1 being PVC monofilament production and carpet piling process and stage 2 being web-lamination and hacking process.

The Authority for Advance Ruling ruled that Customs Tariff Heading 3918 covers floor coverings of plastics, whether or not self-adhesive, in rolls or in form of tiles. The product manufactured by applicant is PVC Floor Mat of running length which is cut into sizes as given/specified by customer. It is non woven and composed only of PVC monofilament yarn and impregnated with liquid PVC. Therefore, impugned product would fall in entry No. 104A of Schedule III, thereby attracting tax rate of 18 per cent. [In re National Plastic Industries Ltd. (2018) 5 TMI 528 (AAR-Maharashtra); ].