2021 (7) TMI 654 - AAR - GST

Requirement of audit by a Chartered Accountant or Cost Accountant under section 35(5) of the CGST Act, 2017 - F.Y 2017-18 - F.Y. 2018-19 succeeding Financial years - Ordnance factories other Central Government Public Sector Undertakings (PSU s) that function under the Ministry of Defence, Government of India - Applicability of exemption to a defence formation for preparation and generation of E-way bills - goods transported - applicability of exemption on payment of GST on transport of military or defence equipments through a goods transport agency - Input Tax Credit on inputs input services relating - main business activity of manufacturing - food and beverages consumed in industrial canteen - manpower services hired for industrial canteen and LPG cylinders refilled for use in industrial canteen - medicines purchased in factory hospital and other inputs and input services used in factory hospital. HELD THAT - The applicant factory is a unit of Ordnance Factories Board (OFB) functioning under the Department oi Defence Production and Supply of Ministry of Defence. Government of India. The applicant manufactures various types of ammunitions and explosive and non-explosive components and supplies the same, mainly to Indian defence and military forces and also to sister Ordnance factories that use such goods for their production and manufacturing process - when the output is transferred to sister Ordnance factories units of armed Forces as per order, the consideration for transfer is fixed by OFB and is booked in the financial accounts of OFCh organization and the adjustment is done through book transfer. Money consideration is involved only for a small portion of the produce, where the goods are sold directly to units under Ministry of Home affairs, paramilitary forces like BSF. units of state police. defence PSU s and private entities. The Applicant is fulfilling all the conditions stipulated for being Central Government , as provided under clause (8) of section 3 of the General Clauses Act. 1897 read with Article 53 Article 77 of the Constitution of India, since the Applicant is functioning under the Department of the Defence Production. Ministry of Defence. Government of India, and all its activities are carried out for and on behalf of the President of India. OFB Procurement Manual clearly shows that all defence contracts are in the name and on behalf of the President of India only. Thus, it is adequately evident that the Applicant is covered under the provision of section 2(53) of the CGST Act. 2017 read with clause (8) of section 3 of the General Clauses Act, 1897 read with Article 53 Article 77 of the Constitution of India. Requirement of audit by a Chartered Accountant or Cost Accountant under section 35(5) of the CGST Act, 2017 - HELD THAT - This issue has been voluntarily withdrawn by the applicant vide written submissions made on 30.12.2019. Whether the exemption to a defence formation for preparation and generation of E-way bills is applicable to Ordnance factories other Central Government Public Sector Undertakings (PSU s) that function under the Ministry of Defence, Government of India? - HELD THAT - During the course of the hearing it was informed by the applicant that the question pertained only to themselves. Rule 138 of the GST Rules. 2017 provides for information to be furnished prior to commencement of movement of goods and generation of E -way bill. As per para 14(k) of Rule No. 138 of the CGST Rules 2018 (Notification No. 12/2018 (Central tax) e-way bill is not required to be generated when any movement of goods is being caused by defence formation under the Ministry of Defence as a consignor or a consignee - Since the applicant is functioning as a defence formation under the Ministry of Defence we are of the opinion that applicant is eligible for the benefit under Rule 138(14) (k) of the CGST Rules. It is not necessary to issue e-way bills for their supplies whenever movement of goods is being caused by them as a consignor or a consignee. Whether exemption on payment of GST on transport of military or defence equipments through a goods transport agency applicable to goods transported by our organization? - HELD THAT - Applicant is supplying the subject goods i.e. military or defence equipment through a goods transport agency to the different units of Government. We find that as per clause (h). Heading 9965 or 9967. of Sr. No. 21 of Notification No. 12/2017- Central Tax (Rate) dated 28.6.2017 - In the subject case, the applicant is manufacturing and transporting goods like propellant explosives that are used in the manufacture of ammunition. The aforesaid goods manufactured by the applicant are rightly covered under Entry Sr. No. 21. Heading 9965 or 9967. clause (h) of the Notification No. 12/2017-C.T.- (Rate) dated 28.6.2017 and therefore the said exemption is available to applicant s transaction in respect of transport of military or defence equipments. Whether availing of eligible Input Tax Credit on inputs input services relating to the main business activity of manufacturing is allowed against GST liability on renting of immovable property (which is an ancillary business activity)? - N/N. 3/2018 Central fax (Rate) dated 25.1.2018 - HELD THAT - Considering the notification and activity and status of the applicant as a Government , it has no liability to pay GST on said supply which is liable to be paid under reverse charge mechanism by the recipient of the service. As there are no taxes payable on outward supply the question of availing ITC does not arise as per the provisions of ITC under Sections 17(2) of the CGST Act. 2017. Therefore, the Applicant is not entitled to avail ITC in respect of such expenditures. Whether Input Tax Credit is allowable in respect of food and beverages consumed in industrial canteen? - HELD THAT - The Applicant s activities of supply of food and beverages at the industrial canteen inside the factory premises would attract NIL rale of GST. The said supply is held to be exempt supply in terms of Sr. No. 6 of the N/N. 12/2017-C.T.(Rate) dated 28.06.2017. Since the subject supply has been held to be exempt supply by the Applicant, the ITC in respect of the food and beverages consumed in industrial factory canteen of the Applicant will not be available in terms of section 17(2) of the CGST Act. 2017 - in the present case, the applicant s outward supply is exempted by notification. Therefore, provisions of newly amended Section 17 (5) (b) of CGST ACT is not applicable to these specific transactions of applicant. Hence ITC is not available on this transaction to the applicant. Whether Input Tax Credit is allowable in respect of manpower services hired for industrial canteen and LPG cylinders refilled for use in industrial canteen? - HELD THAT - The Applicant s activities of the supply of food and beverages at the industrial canteen inside the factory premises will attract NIL rate of GST. i.e. since the said supply is exempt supply in terms of Sr. No. 6 of the Notification no. 12/2017- Central Tax (Rate) dated 28.06.2017. Since the subject supply is exempt supply, the ITC in respect of the manpower services hired for industrial canteen and ITC on LPG cylinders refilled for factory canteen of The Applicant will not be available in terms of section 17(2) of the CGST Act, 2017. Similarly the newly amended provision of section 17 (5) (b) of CGST ACT are also not applicable to the transactions of applicant because in the subject case the applicant s outward supply is exempted from taxes and is therefore not taxable - applicant is not eligible for ITC on the inputs and input services (used for exempt outward supply) in industrial canteen i.e. on hired man power services and refilled LPG cylinder. Whether Input Tax Credit is allowable in respect of medicines purchased in factory hospital and other inputs and input services used in factory hospital? - HELD THAT - Considering the amended provision of Section 17(2) of CGST Act. ITC would be available in respect of medicines purchased in factory hospital and other inputs and input services used in factory hospital with effect from 01.02.2019.

Summary

Issues Involved:
1. Applicability of audit by a Chartered Accountant or Cost Accountant under section 35(5) of the CGST Act, 2017.
2. Exemption for preparation and generation of E-way bills for Ordnance factories and other Central Government & Public Sector Undertakings (PSUs) under the Ministry of Defence.
3. Exemption on payment of GST on transport of military or defence equipment through a goods transport agency.
4. Eligibility of Input Tax Credit (ITC) on inputs and input services related to manufacturing against GST liability on renting of immovable property.
5. Allowability of ITC in respect of food and beverages consumed in the industrial canteen.
6. Allowability of ITC in respect of manpower services hired for the industrial canteen and LPG cylinders refilled for use in the industrial canteen.
7. Allowability of ITC in respect of medicines purchased for the factory hospital and other inputs and input services used in the factory hospital.

Detailed Analysis:

Issue 1: Applicability of Audit
Question Withdrawn: The applicant withdrew the question regarding the applicability of audit by a Chartered Accountant or Cost Accountant under section 35(5) of the CGST Act, 2017.

Issue 2: Exemption for E-way Bills
Affirmative Ruling: The exemption under Rule 138(14)(k) of the CGST Rules, 2018, which states that no e-way bill is required for any movement of goods caused by a defence formation under the Ministry of Defence, is applicable to the applicant. The applicant, functioning under the Ordnance Factory Board (OFB) and the Ministry of Defence, qualifies for this exemption.

Issue 3: Exemption on GST for Transport
Affirmative Ruling: The exemption from GST on the transport of military or defence equipment through a goods transport agency, as per Notification No. 12/2017-Central Tax (Rate), is applicable to the applicant. The applicant's transportation of goods like propellant and explosives used in ammunition manufacturing qualifies for this exemption.

Issue 4: ITC on Inputs and Input Services for Renting Immovable Property
Negative Ruling: The applicant is not entitled to avail ITC on inputs and input services related to the main business activity of manufacturing against the GST liability on renting immovable property. Since the applicant is considered a "Central Government" entity, the GST on renting immovable property is payable under reverse charge mechanism by the recipient of the service, not by the applicant.

Issue 5: ITC for Food and Beverages in Industrial Canteen
Negative Ruling: ITC is not allowable for food and beverages consumed in the industrial canteen. The supply of food and beverages to employees is considered an exempt supply, attracting a NIL rate of tax as per Notification No. 12/2017-Central Tax (Rate). Consequently, ITC is not available under Section 17(2) of the CGST Act, 2017.

Issue 6: ITC for Manpower Services and LPG Cylinders in Industrial Canteen
Negative Ruling: ITC is not allowable for manpower services hired for the industrial canteen and LPG cylinders refilled for use in the industrial canteen. The supply of food and beverages to employees is exempt from tax, and thus ITC on inputs and input services used for this exempt supply is not available under Section 17(2) of the CGST Act, 2017.

Issue 7: ITC for Medicines and Other Inputs in Factory Hospital
Affirmative Ruling (Post 01.02.2019): ITC is allowable for medicines purchased for the factory hospital and other inputs and input services used in the factory hospital from 01.02.2019 onwards. This is due to the amendment in Section 17(5)(b) of the CGST Act, 2017, which allows ITC where the provision of health services is obligatory for the employer under any law. However, ITC is not available for the period prior to 01.02.2019.

Conclusion:
The judgment provided clear rulings on each issue, affirming exemptions and ITC eligibility where applicable and denying ITC in cases of exempt supplies. The detailed analysis ensures compliance with the CGST Act and relevant notifications.