The Gujarat Authority for Advance Ruling (AAR) in its recent ruling in the case of M/s. Aristo Bullion Pvt. Ltd. has held that the nexus/connection between the inputs and the final products manufactured from these inputs is required to be proved before utilizing the eligible input tax credit (ITC) and in absence of such nexus such ITC cannot be utilised for payment of output tax liability.
Facts of the Case:
- The applicant M/s. Aristo Bullion Pvt. Ltd. is a company engaged in supply of Gold (including Gold Plated with Platinum) that involves some manufacturing process also and in the said activities various inputs viz. Gold dore, silver dore are required. The Applicant intends to procure the said inputs domestically on payment of GST at appropriate rate and sometimes from overseas market by discharging applicable duty and tax. The Applicant intends to avail ITC on the inputs procured domestically on payment of GST at appropriate rate which will be used in the manufacturing process of their final products and discharge GST on the outward supplies at applicable rate through electronic credit ledger as well as through electronic cash ledger in the case if balance available in electronic credit ledger is not adequate.
- The Applicant also intends to procure ‘Castor Oil Seeds’ directly from the agriculturists who produce the same in their farms and after procuring them, the Applicant intends to supply it in the domestic market as well as intend to export the same.
Issue raised before AAR:
When the applicant procures Castor oil seeds it does not attract GST; that however, it attracts GST when it is supplied by the applicant; that simultaneously, the applicant is having input tax credit earned on the inward supply viz. Gold meant for manufacture and its supply gold semi-finished silver etc. out of unwrought or in semi-manufactured forms or in powder form and base metal and the same are lying as Balance in Electronic Credit Ledger of the applicant.
In this back drop, the applicant wants to know whether GST on Castor oil seed can be discharged through the input tax credit balance available in the Electronic Credit Ledger of the applicant and has asked the following question seeking Advance Ruling on the same:
“Can the applicant use Input Tax Credit Balance available in the Electronic Credit Ledger legimately earned on the inputs/raw-materials/inward supplies(meant for outward supply of Bullions) towards the GST liability on ‘Castor Oil Seed’ which were procured from Agriculturists and subsequently meant for onward supply?”
Order of AAR: Deliberation and Ruling
- For the applicant, to be eligible to take input tax credit on any supply of goods or services, the same has to be used or should be intended to be used in the course or furtherance of his business i.e. the nexus/connection between the inputs and the final products manufactured from these inputs is required to be proved. For example, inputs such as dores of gold, silver etc. procured by the applicant are used in the manufacture of their final product i.e. Gold(including Gold Plated with Platinum) unwrought or in semi-manufactured forms or in powder form, based metal clad with silver, not further worked than semi-manufactured, coin etc. It can, therefore, be derived from the above that the aforementioned inputs are used in the course or furtherance of their business i.e. supply of Gold, Gold plated with platinum etc.
- The applicant wants to trade in Castor oil seeds on which the GST liability is 5% and wants to utilise the input tax credit (availed on inputs such as gold dores, silver dores etc.) available with him in his electronic credit ledger for the payment of the said GST.
- We find that firstly, the applicant has not submitted any document/literature etc. in respect of how they wish or intend to carry out the business of supply of castor oil seeds. Secondly, they have not provided/submitted any proof in respect of the input-final product nexus/connection in respect of the inputs i.e. gold and silver dores etc. vis-a-vis Castor oil seeds nor provided any such document /literature in respect of how the inputs i.e. gold dores or silver dores are used or intended to be used in the course or furtherance of their business of supply of Castor oil seeds.
- Even otherwise, on a plain comparison of the provisions of Section 16(1) of the CGST Act, 2017 with the issue in hand, it can very easily be derived that there is no nexus/connection whatsoever, of the inputs i.e. gold dores or silver dores with the business of supply of Castor oil seeds by the applicant.
In view of above deliberations the Gujarat AAR held that the applicant cannot use the Input Tax Credit Balance available in the Electronic Credit Ledger legimately earned on the inputs/ rawmaterials / inward supplies (meant for outward supply of Bullions) towards the GST liability on ‘Castor Oil Seed’ which were procured from Agriculturists and subsequently meant for onward supply.
Our view:
In our view the above ruling is litigative and no nexus may be required to be established between input and final product to utilize eligible ITC reflecting in electronic credit ledger. This view finds support from the governing Section 16(1) of the CGST Act,2017 which only states the eligibility and conditions of taking ITC. This Section does not mandate any restriction on using the eligible ITC available in the electronic credit ledger i.e. it is to be utilized only towards the specific outward supply on whose inputs such ITC was availed.
Further, if we dig deep we find that as per Section 16(1), for the assessee to be eligible to take ITC on supply of goods or services or both to him, inputs should be used or intended to be used in the course or furtherance of his business , thus it covers all the business carried by tax payer under a single GSTIN and it would be an absurd preposition to say that ITC would be allowed to be utilised only for the specific outward supply on whose inputs such ITC was availed.
READ / DOWNLOAD ORDER:
Follow us for free tax updates : facebook Twitter
***
Subscribe our portal and get FREE Tax e-books , quality articles and updates on your e-mail.
Resolve your GST queries from national level experts on GST free of cost.
Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
