2019 (2) TMI 1527 - AAAR - GST

Input Tax credit - inputs and input services used by for maintenance of its township/residential colony, guest house/transit house/training hostel, hospital, horticulture and maintenance security service in townships - Challenge to AAR Decision - Held that - The ruling of the AAR that inward supplies received by the Appellant-I by way of management, repair, renovation, alteration or maintenance service or goods received for furnishing the residential colony shall not qualify for input tax credit is found to be correct. Expenditure incurred by the Appellant-I towards construction, reconstruction, renovation, additions or alterations or repairs to the residential colony is not eligible for input tax benefit if the said expenditure has been capitalized. Moreover, provision of housing to its employees by the Appellant-I is nothing but a perquisite. As clarified by the CBIC vide its Press Release dated 10.10.2017, referred to by the Appellant-I, perquisites are not subjected to GST. Therefore, since the perquisites are outside the scope of GST, input tax credit shall not be available to the Appellant-I in respect of tax paid on goods and services procured by it for management, repair, renovation, alteration or maintenance services (including watch and ward services, security services, Plantation/Gardening/Landscaping services, etc.) pertaining to residential accommodation for its employees in township/colony. Input and input services for maintenance of guest house, transit house and trainee hotel - Held that - The guest house of the Appellant-I is used for temporary accommodation of its employees as well as non employees. Thought the provision of guest house may not be treated as a perquisite, it cannot also be treated as an activity integrally related to the business of the Appellant-I. That means, the guest house service provided by the Appellant-I to its employees as well as non-employees cannot be treated as an activity in course or furtherance of its business - the tax paid on inward supplies of goods and services in connection with the guest house cannot be allowed the benefit of input tax credit - Decided against assessee (Appellant-1) Services availed in relation to plantation and gardening within the plant area including mining area and the premises of other business establishments - Held that - Creation and maintenance of green area/zone inside plant/mining/office premises is a business necessity for controlling pollution as well as atmospheric temperature. It is also a requirement for preventing soil erosion. This is also mandated in various laws under which the Appellant-I conducts its business such as the Forest Conservation Act, the Environment Protection Act, etc. Therefore, such activities are integral to the business activity of the Appellant-I and hence can be treated as activities in course or furtherance of its business. - Credit allowed - Decided against Revenue (Appellant-11) It is established that to claim input tax credit, an input service must be integrally connected with the business of manufacturing the final product Cost of an input service forming part of the cost of final product alone cannot be a condition to allow the benefit of input tax credit. The appeal filed by M/s.National Aluminium Company Ltd (Appellant-I) fails, whereas the appeal filed by the Commissioner of CX GST, Bhubaneswar (Appellant-II) succeeds partially - The ruling of the Odisha Authority for Advance Ruling in RE M/S. NATIONAL ALUMINIUM COMPANY LTD., (NALCO) 2018 (10) TMI 748 - AUTHORITY FOR ADVANCE RULING, ODISHA allowed in part.

Summary

Issues Involved:
1. Entitlement of input tax credit (ITC) on inputs and input services used for maintenance of township, security services, and horticulture.
2. Legality of allowing ITC for services utilized for maintenance of guest house, transit house, and trainee hostel.
3. ITC eligibility for services utilized for plantation and gardening within the plant area and other business premises.

Issue-Wise Detailed Analysis:

1. Entitlement of ITC on Inputs and Input Services for Township Maintenance:
The appellant argued that activities like management, maintenance, or repair of townships are integral to their business and should qualify for ITC. They claimed that these activities are carried out in furtherance of business and cited Section 16 of the CGST Act, 2017, which allows ITC on supplies used in the course or furtherance of business. However, the AAR ruled that residential accommodation is an exempt supply under Section 17(2) of the CGST/OGST Act, and hence, ITC is not available for goods and services used for township maintenance. The appellate authority upheld this ruling, stating that residential colonies are perquisites for employees and outside the scope of GST, and thus, ITC cannot be claimed.

2. Legality of Allowing ITC for Services Utilized for Maintenance of Guest House, Transit House, and Trainee Hostel:
The AAR had allowed ITC for maintenance services of guest houses, transit houses, and trainee hostels but excluded food and beverages. The appellant argued that these facilities are necessary for business operations and should qualify for ITC. However, the appellate authority disagreed, stating that these accommodations are also perquisites and ITC on such services cannot be allowed. The authority emphasized that activities for employee welfare do not qualify as business activities under GST law, referencing the Bombay High Court's decision in the case of Commissioner of Central Excise, Nagpur vs. M/s Manikgarh Cement.

3. ITC Eligibility for Services Utilized for Plantation and Gardening:
The AAR had ruled that services related to plantation and gardening within the plant area, including mining areas and other business premises, qualify for ITC. The appellant supported this, arguing that such activities are necessary for business operations and compliance with environmental laws. The appellate authority upheld this part of the AAR's ruling, recognizing that maintaining green areas is integral to business operations for pollution control and compliance with statutory requirements. Therefore, ITC on such services is justified.

Conclusion:
The appeal by M/s. National Aluminium Company Ltd. (Appellant-I) was largely dismissed, while the appeal by the Commissioner of CX & GST, Bhubaneswar (Appellant-II) was partially upheld. The ruling of the Odisha Authority for Advance Ruling was modified to disallow ITC for maintenance of guest houses, transit houses, and trainee hostels, but upheld ITC for plantation and gardening services within business premises. The decisions not challenged by the appellants remain valid, and both appeals were disposed of accordingly.