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January 31, 2022

Input Tax meant for outward supply of Bullions cannot be claimed against Castor Oil Seed

by Mahesh Mara in Income Tax

Input Tax meant for outward supply of Bullions cannot be claimed against Castor Oil Seed

Fact and Issue of the case

The applicant M/s. Aristo Bullion pvt.ltd., R.B.Chamber, B/3. Chanla Ole, Manek Chowk, Ahmedabad-380001 has submitted that they recently registered as a private limited company with effect from 25.07.2020 for which Certificate of Incorporation is issued by the Registrar of Companies; that they intend to engage in supply of 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; that it involves some manufacturing process also and in the said activities various inputs viz. Gold dore, silver dore are required; that the said inputs will be procured domestically on payment of GST at appropriate rate; that sometimes the applicant may import raw materials/inputs from overseas market and will be discharging applicable duty and tax including IGST; that the input tax credit has to be availed in terms of Section 16 of the CGST Act, 2017 and Rules made thereunder; that they will also avail input tax credit of GST paid on the goods procured domestically as well as from overseas market and the applicant will have to discharge GST on their outward supplies at applicable rate; that the said taxes will be discharged 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 has submitted that they also intend to procure Castor oil seeds directly from the Agriculturists who produce the same in their farms and after procuring the said Castor oil seeds they intend to supply in the Domestic market as well as intend to export the same; that as per their understanding, as of now “Agriculturists” are not required to obtain registration under Section 23 of the CGST Act, 2017; that ‘Castor oil seeds’ is also not covered in the Notification No.4/2017-Central Tax issued under Section 9(4) of the CGST Act, 2017 as amended from time to time.

The applicant has submitted his view of the aforementioned issue stating that as per his understanding that input tax credit available as balance in the Electronic Credit Ledger is legitimately earned on the various inputs and raw materials used by them in their outward supplies; that the input tax credit available is claimed in GSTR-3B and consequently the same will be reflected in their Electronic Credit Ledger; that in other words, Electronic Credit Ledger is an input tax credit pool and once amount is credited, it works as deemed cash balance without linkage with inward supply and therefore the balance available in this pool account or say in Electronic Credit Ledger maintained on the GSTN Portal which can be used for payment of GST on the outward supplies in terms of Section 49(4) of the CGST Act, 2017.

The applicant has stated that according to aforesaid understanding, they are of the view that in the given scenario, they can use input tax credit available as Balance in the Electronic Credit Ledger for payment of GST on the Castor oil seed out of the input tax credit earned on the inputs/raw-materials/inward supplies viz. Gold dore, silver, dore which are used in the manufacture of outward supplies viz. Gold and Silver bars along with gold coins of various purities. The applicant has given additional submission vide their letter dated 24.12.2020 stating that during the course of personal hearing, the Hon’ble Advance Ruling Authority had asked them to submit a note on the business understanding and the reasons for accumulation of input tax credit and accordingly they have submitted.

Observation of the Court

Based on the submissions of the applicant, we find that the moot issue to be decided is whether the applicant can use the Input Tax credit available in the Electronic Credit Ledger towards the GST liability on ‘Castor Oil Seed’ which they intend to supply in domestic market or to export it. For the said purpose, we find it absolutely necessary to refer to the provisions of Section-16 of the CGST Act, 2017 which pertains to the eligibility and conditions for taking input tax credit. We would also be required to refer to Section 17(5) of the said Act which contains the list of inputs/services on which input tax credit is not available, in order to confirm whether the inputs on which the applicant intends to avail input tax credit is eligible as per the said provisions or otherwise. Section 16 of the CGST Act, 2017.

On going through the provisions of Section 17(5) it is found that the inputs i.e. gold dores and silver dores on which the applicant intends to avail input credit are not covered under the excluded provisions of the said section. Further, on going through the provisions of the Section-16 as mentioned above, we find that sub-section(1) specifically mentions that the registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. This means that, 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. In this context, even a layman can make out that dores of gold and silver are indeed used as inputs in the manufacture of the aforementioned final products (made up of gold) and are therefore used or intended to be used in the course or furtherance of the business of supply of gold and we certainly do not need the services of an expert to know that.

Now, the core issue is that 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. However, we find that, for the applicant, to be eligible to avail the aforementioned input tax credit for the payment of the GST leviable on the Castor oil seeds which they intend to supply domestically or to export it, the applicant has to first prove the nexus or connection between the aforementioned inputs and the castor oil seeds which he intends to supply, in the terms of sub-section(1) of Section 16 of the CGST Act, 2017 as discussed above i.e. he has to prove as to how the gold dores or silver dores are used or intended to be used in the course or furtherance of his business of supply of Castor oil seeds. In this regard, 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. It can therefore, be seen that the even the basic conditions envisaged in the provisions of Section 16(1) have not been fulfilled in the instant case and we can therefore, undoubtedly conclude that the aforementioned inputs are not used or intended to be used in the course or furtherance of the business of supply of Castor oil seeds. In view of the facts mentioned above, and the non-submission of the aforementioned document/literature as mentioned above, by the applicant, we conclude that the applicant is not eligible to utilise the input credit available in their Electronic Credit Ledger (earned on the inputs/raw-materials/inward supplies meant for outward supply of Bullions) for payment of GST liability on supply of Castor oil seeds.

Ruling

Question: 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? HELD The applicant cannot use the 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

Answer: The applicant cannot use the 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, for the reasons discussed hereinabove.

Read the full order from below

Input-Tax-meant-for-outward-supply-of-Bullions-cannot-be-claimed-against-Castor-Oil-Seed

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