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section 49 of cgst act

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No interest for tax paid under wrong head – Jharkhand HC

No interest for GST tax paid under wrong head – Jharkhand HC

The GST law was implemented from July 1, 2017. The GST replaced multiple taxes which were levied earlier. GST law has a varied of provisions which could be considered complex in certain situations.

Lack of knowledge about the procedures of GST could lead to certain mistakes. IGST tax is payable on inter-state supplies, while CGST and SGST/UTGST in payable on intra state supplies. Will there be an interest liability if IGST is wrongly deposited under CGST? Let us refer to the case of Shree Nanak Ferro Alloys Pvt. Ltd. Vs Union of India (Jharkhand High Court) to find out the same.

Facts of the Case:-

  • The petitioner was a company registered under the provisions of the CGST Act and the IGST Act.
  • The dispute related to the month of September, 2017, i.e., soon after the implementation of the aforesaid Acts, wherein the petitioner filed its GSTR-1. Subsequently, the petitioner submitted its GSTR- 3B.
  • However, in the liability shown under the IGST there was a deficient liability amounting to Rs.41,98,642.42, whereas in CGST the excess was shown to the tune of Rs.41,98,643.71 and the tax were also paid accordingly.
  • This remained unnoticed for a period of about one year, and subsequently by a letter, the petitioner Company was informed that in course of audit, it was observed after the scrutiny of GSTR-I and GSTR-3B filed by the petitioner, that the petitioner had short paid IGST to the tune of Rs.41,98,842 and accordingly, the petitioner was asked to make the payment along with the interest.
  • The said letter was replied by the petitioner Company by a letter whereby it was informed that the Company had actually paid the amount of the IGST of Rs.41,98,643, but inadvertently it was paid under the head of CGST, instead of IGST, and as such it was not a case of short payment, rather, it was the case of payment of IGST under a different head.
  • It was also stated in the letter that this mistake had occurred in the early phase of implementation of the GST, and accordingly, the adjustment of the said amount may be made in the appropriate head.
  • The petitioner aggrieved by the letter issued by the Superintendent (CGST), whereby the petitioner was saddled with the liability to pay the short paid IGST, amounting to Rs.41,98,642, along with due interest, failing which, appropriate action under the Provisions of the Central Goods & Services Tax Act, 2017, and the Rules framed there under, was to be initiated against the petitioner for recovery of the IGST amount along with due interest filed a petition before the HC.

Observations of HC on the provisions of law

Having heard learned counsels for both the sides, we think it appropriate to quote some of the necessary provisions which have been referred to, by learned counsels for the parties

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Section 49 of CGST Act pertains to payment of tax, interest, penalty and other amounts

According to Section 49:-

  • Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit, debit cards, NEFT, RTGS or by such other mode and subject to such conditions and restrictions as may be prescribed, shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed.
  • The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41 or section 43 to be maintained in such manner as may be prescribed.

Section 77 of CGST Act explains Tax wrongfully collected and paid to Central Government or State Government:-

According to Section 77:-

  • A registered person who has paid the CGST and SGST or, as the case may be, the CGST and the UTGST on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.
  • A registered person who has paid IGST on a transaction considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall not be required to pay any interest on the amount of CGST and SGST or, as the case may be, the CGST and the UTGST payable.

Section 19 of the IGST Act pertains to tax wrongfully collected and paid to Central Government or State Government

According to Section 19:-

  • A registered person who has paid IGST on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of IGST so paid in such manner and subject to the conditions as may be prescribed.
  • A registered person who has paid CGST and SGST or UTGST, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of IGST payable.

According to Rule 92(1) of the CGST Rules, where upon an examination of the application, the proper officer is satisfied that a refund under section 54(5) is due and payable to the applicant, he shall make an order in FORM GST RFD-06 sanctioning the amount of refund to which the applicant is entitled, mentioning therein the amount, if any, refunded to him on a provisional basis under section 54(6), amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable.

Observations of HC of the present case

  • HC found that the petitioner Company had discharged their tax liability under the IGST head, but inadvertently had deposited the amount under the CGST head.
  • The petitioner had not concealed the transaction or had not committed any fraud in discharging its tax liability.
  • It was a plain case in which the tax was paid by the petitioner to the Central Government, but not under the IGST head, rather under the CGST head.
  • The contention of counsel for the CGST was that there was some ulterior motive behind the deposit of tax under the CGST head, which was evident from the fact that the petitioner had filed its GSTR-1 in which the tax liability was correctly shown, showing the supply to be the inter-State supply, but the stand was changed in the form GSTR-3B.
  • From the letter, issued by the Superintendent (CGST), it was apparent that for discharging his liability of tax, the petitioner had deposited cash in its electronic cash ledger.
  • It was the claim of the petitioner that this happened due to the fact that it was the initial stages of the GST regime that the cash was deposited in the electronic cash ledger of CGST head.
  • There appeared to be substance in the submission of the petitioner, as by deliberately depositing the cash in the electronic cash ledger for the CGST head instead of IGST head, possibly no benefit was going to be derived by the petitioner.
  • According to HC, they were not in a position to doubt the authenticityof the petitioner, as due to the initial stage of the CGST regime, there might be some confusion, and the cash was wrongly deposited in the wrong electronic cash ledger
  • However, HC found from the plain reading of Section 49(3) and (4) of the CGST Act, that counsel for the CGST may be right in his contention that under Section 49 (3) of the CGST Act, the ‘electronic cash ledger’ may be used for making the payment of the tax and the other liabilities under this Act only, i.e., CGST Act.
  • There was no provision of cross utilization of the fund as in case of ‘electronic credit ledger’ under Section 49 (4) of the CGST Act.
  • However, Section 77(1) of the CGST Act, read with Section 19(2) of the IGST Act, clearly laid down that a registered person who had paid the CGST, treating the transaction to be intra-State supply, as in the case of the petitioner, but which turned out to be inter-State supply, was entitled to the refund of the amount of tax so paid, under Section 77 (1) of the CGST Act, and at the same time such person cannot be saddled with the liability of interest in view of the provision of Section 19(2) of the IGST Act.
  • The contention of the counsel for the CGST was that these provisions were for the persons acting bona fide, may also be accepted, but there was nothing on the record of this case to show that the petitioner had not acted bona fidely, particularly in view of the fact that the transaction related to the early stages in which the GST regime had been implemented, and there might be some confusion prevailing at that initial stage.

HC did not find any plausible reason whatsoever, to deny the petitioner Company the benefit of the provisions of Section 77 (1) of the CGST Act, read with Section 19(2) of the IGST Act

HC directed the petitioner to deposit the amount of Rs. 41,98,642 under the IGST head within 10 days, towards the liability of September, 2017. The petitioner shall not be liable to pay any interest on the said amount. The petitioner shall also be entitled to get the refund of the amount of Rs.41,98,644 deposited by them under the CGST head, or they may get the amount adjusted against their future liabilities, in accordance with law, as they may choose.

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Would GST ITC on construction of Lift be available to Hotel as it is used in course of business?

Would GST ITC on construction of Lift be available to Hotel as it has been used in the course or furtherance of business?

Introduction

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax.

According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Section 17(5) pertains to blocked credit under CGST Act which states the situations where input tax credit shall not be available.

Certain situations when ITC cannot be claimed:-

1,A person cannot avail ITC wherein the given motor vehicle is used to transport people and has a seating capacity of less than or equal to 12 +1 (driver)

2. A person cannot claim ITC for the tax paid for the following:-

i. Food and beverages

ii. Outdoor catering

iii. Beauty treatment

iv, Health services

v. Cosmetic and plastic surgery

3. Services of general insurance, servicing, repair and maintenance

4. Sale of membership in a club, health, fitness centre

5. Rent-a-cab services, life insurance, health insurance

6. Travel, benefits extended to employees on vacation such as leave or home travel concession.

7. Works contract services for construction of immovable property

8. Construction of immovable property on own account

9. Composition scheme

10. Non residents

11. Supply for personal use

12. Free samples and goods destroyed

13. Restaurant services

Now, an important point mentioned above for which ITC will not be available will be the Works contract services for construction of immovable property. To elaborate on this point further, ITC is not available on works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service. That means that ITC will be available on works contract service when supplied for construction of other than an immovable property or plant and machinery.

Will construction of a lift/elevator be considered as an immovable property (where ITC is not available) or movable property or Plant & machinery (where ITC is available)?

Let us refer to the advance ruling in the case of Jabalpur Hotels Private Limited (Madhya Pradesh AAR) where a similar issue was raised.

Facts of the Case:-

  1. Jabalpur Hotels Private Limited was incorporated with an object to construct Hotel in Jabalpur.
  2. Company started construction of Hotel and completed a major part of its work.
  3. The Hotel was in construction stage and the promoters of the hotel had some doubt on the issues of ITC and hence preferred to file Advance Ruling before the Authority.
  4. This application sort advance ruling for input credit on Lift used in hotel.
  5. The applicant sought ruling on availability of ITC of tax paid on Lift purchased and installed by the applicant in the hotel building, particularly with reference to blocked credit as defined under the provisions of Section 17(5) of the GST Act.

Submissions by Applicant:-

  1. The hotel is a multi-storeyed building and, thus, the provision of lift was essential for running the business.
  2. It was also mentioned that the room tariff of some of the rooms is proposed to be more than Rs.7500 and therefore the restaurant would be paying GST @18% and availing ITC on goods and services used in course or for furtherance of business.
  3. The application mentions that the said Lift is being capitalized in the books of the company and depreciation as per the Income Tax Act, 1961 is charged on the cost of lift less eligible credit of GST.
  4. Hence no depreciation is being applied on the GST portion credit of which is eligible in accordance with the provisions of section 16 of CGST Act 2017.
  5. Section 17(5) blocks credit of works contract and goods or services received by a taxable person for construction of an immovable property (other than plant and machinery)
  6. As Lift is machinery it does not fall in the restriction of section 17(5) of CGST Act 2017.
  7. It was therefore pleaded that the lift in question be termed as ‘Plant & machinery’ and hence out of purview of blocked credit in terms of Section 17(5)(d) as ‘Plant & Machinery’ has been excluded from the definition of immovable property.

Proceedings of Authority of Advance Ruling (AAR)

Is ITC available for construction of hotel building?

  1. According to Section 17(5)(d), Goods, services or both received by a Taxable person for construction of an immovable properly (other than plant and machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
  2. Thus, the intent of the legislature is clear that it intends to restrict ITC on any goods or services which are used or intended to be used in construction of an immovable property, even when such goods or services or both are used in the course of furtherance of business.
  3. Any goods or services used in construction of an immovable property shall not qualify for availment of ITC in terms of this section 17(5).
  4. To avoid the event of blocking of credit in terms of Section 17(5)(d), the applicant argued that ‘Lift’ merits classification as ‘Plant and Machinery’ and since ‘Plant and Machinery’ is excluded from the term ‘immovable property’, for the purpose of Section 17(5)(d), the applicant shall be entitled to ITC of tax paid on such Lifts.
  5. The applicant essentially seeks to avail ITC on lifts which are purchased and installed in the building which would be used as a Hotel for providing taxable service.
  6. Thus, the lifts are sought to be considered as ‘input’ for hotel building.
  7. That being the case, the ITC is blocked clearly in terms of Section 17(5)(d), even when ‘such goods or services or both are used in the course or furtherance of business’
  8. To be more precise, hotel building being an immovable property, any input or input service going into its construction shall not be available for availment of ITC.

Can the lift be said to a part of a building or is it distinct from a building?

  1. A lift comprises of components or parts (goods) like lift car, motors, ropes. rails, etc. and each of them has its own identity prior to installation and they are assembled/installed to create the working mechanism called lift.
  2. The installation of these components/parts with immense skill is rendition of service and without installation in the building, there is no lift.
  3. Lifts are assembled and manufactured to suit the requirement in a particular building and are not something sold out of shelf and, in fact, the value of goods and the cost of the components used in the manufacturing and installation of a lift are subject to taxation while the element of labour and service involved cannot be treated as goods.
  4. Parts of the lift are assembled at the site in accordance with its design and requirement of the building which may include the floor levels and the lift has to open on different floors or otherwise depending upon the requirement.
  5. It has to synchronize with the building and each door has to open on the level of each floor.
  6. The lift therefore becomes part of the building and is not a separate thing per se. A lift does not have an identity when removed from the Building.
  7. Therefore, the lift cannot be said to be separate from a Building.
  8. A lift is not an item that is purchased and sold. It is a customized mechanism for transportation, designed to suit a specific building. Upon piece by piece installation, it becomes an integral part of the building.

Can the lift be considered as Plant & Machinery?

  1. In the instant case, the applicant had procured the customized lift and gotten it installed piece by piece in the building resulting in the mechanized transportation system called lift.
  2. The explanation below Section 17(6), relating to the expression “plant and machinery” includes foundation and structural support.
  3. It has also been stated that such foundation and structural support are used for fixing apparatus, equipment and machinery.
  4. Further the definition has excluded land and building and any other civil structure from the definition of the “plant and machinery”.
  5. Prima facie, there seems to be contradiction in the inclusion of “such foundation and structural supports” and exclusion of “building or any other civil structures”.
  6. This apparent contradiction is however negated by the fact that the exclusion of the building or civil structure is for plant and machinery per se, while the inclusion is for foundation and structure is only to the extent that such foundation and structure is used to fasten the apparent, equipment or machinery to earth.
  7. Thus, if the plant and / or machinery is fixed / fastened to the earth by a foundation or civil structure then such foundation or civil structure shall be included in plant and machinery.
  8. Accordingly, in the explanation relating to Plant and Machinery, beneath Section 17(6), while providing the meaning of the term plant and machinery, it has been clearly stated that Buildings and Civil Structures shall not be covered under the term Plant.
  9. However, while so clarifying, it was accepted and understood that plant and machinery many a times requires support structure and / or foundation for installation and cannot work otherwise. Thus, civil structures and foundation as supporting structure for fastening of plant and machinery to earth has been included as part of plant and machinery.
  10. In the instant case, the lift has become part of the building and thus falls under the exclusion from plant and machinery

Reference to an identical case

  1. AAR found that an identical issue had been decided by AAR Karnataka in the matter of M/s. Tarun Realtors Pvt. Ltd, Bengaluru.
  2. AAR Karnataka had ruled that Lift, along with, several other such items, shall not be entitled for input tax credit when used in construction of immovable property since they take the character of Building itself.

In the instant case based on the above observations, the AAR thus held that the applicant shall not be entitled to avail input tax credit of tax paid on procuring the lift to be installed in the hotel building, as the same is blocked in terms of Section 17(5)(d) of the CGST Act 2017, as the lift become an integral part of the building.

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