2022 (7) TMI 443 - AAAR - GST

Scope of advance ruling application - Input Tax Credit - common input services utilized for both taxable as well as exempted supply - CISF Township Security Services - Maintenance of Water Treatment Plant - Horticulture - Maintenance of residential Quarters - Maintenance of Information System (Computers, Software Electronic Equipment) - Maintenance of Sewage Treatment Plant - method followed by the applicant in connection with claiming of input tax credit is in accordance with the provisions of law or not - turnover of which financial year to be considered in Rule 42 of the CGST Rules, 2017 while calculating ineligible ITC for the invoices which were accounted in the books of accounts in the FY 2019-20, however ITC was claimed during April to September 2020-21 as per Section 16(4) of the CGST Act, 2017. Whether the ITC can be claimed on certain common input services which are used by them in the printing press as well as the ink manufacturing unit for both taxable and exempted supplies? - HELD THAT - This question is well within the scope of Section 97(2)(d) since the admissibility of input tax credit on the common input service will depend on whether the same are used in the course or for the furtherance of his business and whether the services are blocked under Section 17(5). The lower Authority has failed to answer this question stating that Section 97(2) does not cover situations governed by Section 17(2) of the CGST Act. It is found that the lower Authority has not appreciated the question in the proper perspective. In their application for advance ruling, the Appellant has stated that certain input services are used by them both in the manufacturing of ink and rupee notes as well as in the residential quarters in the township. In this context, the Appellant has sought a ruling whether the credit on such commonly used services can be availed. This question undoubtedly involves examining the admissibility of credit on the common input services which are used by them in their Mysuru unit in the course or for the furtherance of business - The lower Authority was incorrect in not giving a ruling on this question. We will however, not go further and decide this question on merits as this Authority is not empowered to do so in appeal proceedings. Section 101(1) of the CGST Act empowers the Appellate Authority to pass such orders either confirming or modifying the ruling appealed against. In this case, since no ruling has been given by the lower Authority on the merits of the question, the Appellate Authority cannot give a ruling ab initio in appeal proceedings. Whether the method followed in connection with claiming of ITC is in accordance with the provisions of law? - HELD THAT - This question is not within the scope of an advance ruling. The correctness or otherwise of the method followed by the Appellant in claiming input tax credit is not a subject covered under Section 97(2) of the CGST Act. Such questions are to be raised before the assessing officer who is the proper officer to decide whether the method adopted by the Appellant in complying with the provisions of Rule 42 of the CGST Rules is correct or not. Which financial year is to be considered for calculating the ineligible ITC as per Rule 42? - HELD THAT - This question is also not within the scope of an advance ruling. An advance ruling can be sought on matters or questions specified in Section 97(2) which are in respect of supplies being undertaken or proposed to be undertaken by the applicant. In this case, the question does not fall within the scope of any of the matters listed in Section 97(2). Moreover, we find that the question relates to input tax credit which has already been availed by the Appellant in FY 2020-21. The application filed in August 2021 seeking a ruling on an action which has already been done in the past is not covered under the advance ruling mechanism. In terms of Section 98(2), the lower Authority has to examine after hearing the applicant, whether the application for advance ruling can be admitted or rejected. If the application is rejected, an order must be passed under Section 98(2) citing the reasons for such rejection. The order passed under Section 98(2) rejecting the application is not appealable before the Appellate Authority in terms of Section 100 of the CGST Act. If the application for advance ruling is admitted, then a ruling must be passed in terms of Section 98(4) of the CGST Act. A ruling given under Section 98(4) alone is appealable before the Appellate Authority in terms of Section 100 of the said Act - the lower Authority has passed an order under Section 98(4) of the Act which means that the application has been admitted. Appeal disposed off.

Summary

Issues Involved:
1. Whether ITC can be claimed on common services utilized for both taxable and exempted supplies.
2. Whether the method followed in claiming ITC is in accordance with the law.
3. Which financial year's turnover should be considered for calculating ineligible ITC under Rule 42 of CGST Rules.

Issue-wise Detailed Analysis:

1. Whether ITC can be claimed on common services utilized for both taxable and exempted supplies:
The Appellant sought a ruling on whether ITC can be claimed on common services such as CISF & Township Security Services, Maintenance of Water Treatment Plant, Horticulture, Maintenance of residential quarters, Maintenance of Information System, and Maintenance of Sewage Treatment Plant, which are used for both taxable and exempted supplies. The lower Authority refrained from giving a ruling, stating that the question was not covered under Section 97(2) of the CGST Act. However, the Appellate Authority found that the admissibility of ITC on common input services falls within the scope of Section 97(2)(d) since it involves examining whether the services are used in the course or furtherance of business and whether they are blocked under Section 17(5). The lower Authority was incorrect in not giving a ruling on this question. The Appellate Authority did not decide on the merits but remanded the matter back for a ruling.

2. Whether the method followed in claiming ITC is in accordance with the law:
The Appellant questioned the correctness of the method followed in claiming ITC. The lower Authority held that this question is not within the scope of an advance ruling under Section 97(2) of the CGST Act. The Appellate Authority agreed, stating that the correctness of the method adopted in compliance with Rule 42 of the CGST Rules should be decided by the assessing officer, not through an advance ruling. Therefore, no ruling can be given on this question.

3. Which financial year's turnover should be considered for calculating ineligible ITC under Rule 42 of CGST Rules:
The Appellant sought clarity on which financial year's turnover should be considered while calculating ineligible ITC under Rule 42 when the inward supply invoices were accounted for in one financial year but ITC was claimed in the subsequent financial year. The lower Authority held that this question is not within the scope of an advance ruling as it does not fall under any matters listed in Section 97(2) and relates to ITC already availed in the past. The Appellate Authority agreed with this finding, concluding that no ruling can be given on this question.

Conclusion:
The Appellate Authority modified the order of the Advance Ruling Authority, holding that the question on whether ITC can be claimed on common services is admissible for advance ruling. However, it upheld the lower Authority's findings that the questions regarding the method of claiming ITC and the financial year's turnover for calculating ineligible ITC are not within the scope of an advance ruling. The appeal was disposed of on these terms.