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Blocked Input Tax Credit (ITC) under GST: Key Points You Need to Know

editor — Thu, 25 Apr 2024 05:48:46 +0000

In the realm of Goods and Services Tax (GST) in India, understanding Input Tax Credit (ITC) is crucial for businesses to ensure compliance and optimize their tax liabilities. However, not all GST paid on purchases can be claimed as ITC. There are certain scenarios where the Input Tax Credit is blocked, preventing businesses from claiming it against their output tax liability. In this comprehensive guide, we delve into the concept of Blocked Input Tax Credit under GST, highlighting key points and recent rulings.

What is Blocked Input Tax Credit (ITC)?

Blocked Input Tax Credit, as per GST laws, refers to specific goods and services on which GST is paid but businesses are ineligible to claim them as Input Tax Credit. These items are deemed ineligible because they are not considered as inputs directly utilized in the production or provision of taxable goods or services.

Recent Rulings and Clarifications:

Introduction:

In the complex landscape of Goods and Services Tax (GST) in India, the eligibility of Input Tax Credit (ITC) plays a significant role for businesses. The recent ruling by the Maharashtra Appellate Authority for Advance Ruling regarding Las Palmas Co-Op. Housing Society sheds light on crucial aspects of ITC denial. Let’s delve into the details to understand the implications of this ruling.

Facts of the Case:

Las Palmas Co-Op. Housing Society sought to avail Input Tax Credit for lift installation charges paid to the lift contractor. However, the Maharashtra Appellate Authority upheld the ruling of the Maharastra Advance Ruling Authority, denying the society’s eligibility for ITC. Citing sections 16(2)(b), 17(5)(c), and 17(5)(d) of the CGST Act, 2017, the authority emphasized that ITC would only be available for tax paid on works contract services when such services are utilized as input for further supply of works contract service.

Issue:

The central issue revolves around the eligibility criteria for Input Tax Credit under the CGST Act. The appellant, Las Palmas Co-Op. Housing Society, failed to fulfill the conditions outlined for availing ITC on works contract services. The authority highlighted that the society, not being a works contract service provider, did not provide any works contract service to its members, thereby rendering it ineligible for ITC.

Held:

The Maharashtra Appellate Authority for Advance Ruling affirmed the decision of the Maharastra Advance Ruling Authority, ruling that Las Palmas Co-Op. Housing Society is not eligible to avail Input Tax Credit in respect of the GST paid on lift installation charges. The authority emphasized that the appellant did not meet the criteria outlined in sections 16(2)(b), 17(5)(c), and 17(5)(d) of the CGST Act, 2017. Consequently, the appeal filed by the appellant was deemed not maintainable and liable to be rejected.

Introduction

The case of Malabar Cements Limited, brought before the Authority for Advance Ruling in Kerala, sheds light on the complexities surrounding input tax credit under the Goods and Services Tax (GST) regime in India. This case revolves around the eligibility of Malabar Cements Limited to claim input tax credit on the GST charged by a service provider for hiring buses or motor vehicles with a seating capacity of more than 13 persons for employee transportation. Understanding the outcome of this case is crucial for businesses navigating the nuances of GST regulations.

Facts of the Case

Malabar Cements Limited, a government-owned Public Sector Company in Kerala, sought an advance ruling regarding the admissibility of input tax credit on GST charged by a service provider for providing transportation facilities to its employees. The company operates its factory round-the-clock in remote areas where public transportation is limited. To ensure the commuting needs of its employees are met, Malabar Cements Limited engages a service provider to provide non-air-conditioned buses with a seating capacity exceeding 13 persons. The service provider levies a GST of 5% on the hiring charges, leading to the question of whether Malabar Cements Limited can avail input tax credit on this GST.

Issue

The central issue in this case is twofold. Firstly, it concerns the eligibility of Malabar Cements Limited to claim input tax credit on the GST charged by the service provider for hiring buses or motor vehicles with a seating capacity exceeding 13 persons for employee transportation. Secondly, it delves into the extent to which the input tax credit can be availed by Malabar Cements Limited, particularly considering the portion of the transportation cost borne by the company itself.

Held

Upon thorough examination of the relevant legal provisions and the arguments presented by Malabar Cements Limited, the Authority for Advance Ruling concluded that the company is indeed eligible to avail input tax credit on the GST charged by the service provider. However, the extent of this credit is restricted to the cost of transportation borne by Malabar Cements Limited. This ruling provides clarity on an important aspect of GST compliance for businesses engaged in employee transportation services and underscores the need for meticulous adherence to statutory provisions.

Introduction

The recent ruling by the Authority for Advance Ruling (AAR) in Madhya Pradesh has significant implications for businesses in the amusement park industry, particularly regarding Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime. The case of Atriwal Amusement Park sheds light on the eligibility criteria for claiming ITC on various components and services utilized in the construction of water parks, offering crucial guidance to businesses operating in this sector

Facts of the Case

Atriwal Amusement Park, a company specializing in the construction of water parks, sought clarification from the AAR regarding the eligibility of Input Tax Credit (ITC) on several aspects of its construction activities. The key components and services under scrutiny included the purchase of water slides, site development services, and the construction of swimming pools or wave pools, all of which are subject to taxation under GST regulations.

Issue

The central issue in this case pertains to the eligibility of Atriwal Amusement Park to claim Input Tax Credit (ITC) on specific components and services utilized in the construction of water parks. The inquiry seeks clarification on whether these elements qualify as ‘Plant and Equipment’ under GST provisions, thus enabling the applicant to avail of ITC benefits.

Held

Upon careful consideration of the facts and legal provisions, the Authority for Advance Ruling (AAR) in Madhya Pradesh arrived at the following decisions:

Water Slides: The AAR ruled in favor of Atriwal Amusement Park, affirming its eligibility to claim Input Tax Credit (ITC) on the purchase of water slides made from durable PVC material. This decision is based on the classification of water slides as ‘apparatus, equipment, and machinery,’ thereby meeting the criteria for ITC under GST regulations.

Site Development Services: However, the AAR denied ITC claims on goods and services related to site development and preparation where water slides are installed. The rationale behind this decision lies in the exclusion of land-related services from the definition of ‘Plant and Equipment’ eligible for ITC benefits.

Swimming Pools or Wave Pools: Similarly, the AAR ruled against the eligibility of ITC on the construction of swimming pools or wave pools. Despite being integral components of amusement parks, these structures were deemed civil in nature and not considered part of the supportive framework or foundation of the plant, thus falling outside the scope of ‘Plant and Equipment’ for ITC purposes.

Introduction

The integration of solar power systems has become increasingly common as businesses seek to adopt sustainable and eco-friendly energy solutions. This article examines a specific case, the ruling in the matter of Unique Welding Products Pvt. Ltd. vs. GST AAR Gujarat, to explore the eligibility of Input Tax Credit (ITC) for the installation and commissioning of a roof-top solar system.

Facts of the Case

Unique Welding Products Pvt. Ltd., a welding wires manufacturing and sales company based in Anand, Gujarat, installed a roof-top solar system with a capacity of 440 KW on its factory roof for captive power generation. The company sought clarification on its eligibility for ITC under the Central Goods and Services Tax (CGST) Act, 2017.

Issue

The main issues raised in the case were whether Unique Welding Products Pvt. Ltd. is eligible for ITC on the purchased roof-top solar system with installation & commissioning and whether the roof-top solar system, along with its installation and commissioning, constitutes plant and machinery, making it eligible for ITC under section 17(5) of the CGST Act.

Held

The ruling authority concluded that unique Welding Products Pvt. Ltd. is eligible to avail ITC on the roof-top solar system with installation & commissioning under the CGST/GGST Act and the roof-top solar system, with installation and commissioning, qualifies as plant and machinery for the company, making it eligible for ITC under section 17(5) of the CGST/GGST Act.

Introduction

The West Bengal Appellate Authority for Advance Ruling recently tackled the question of Input Tax Credit (ITC) eligibility concerning the construction of immovable property subsequently leased out for commercial purposes. This article provides an overview of the ruling, its implications, and the legal context surrounding it.

Facts of the Case

M/s. Mindrill Systems and Solutions Private Limited, hereinafter referred to as “the Respondent,” constructed a warehouse and leased it to a commercial entity. GST was duly paid on this supply of service. Subsequently, the Respondent sought an Advance Ruling from the West Bengal Authority for Advance Ruling (WBAAR) regarding the availability of Input Tax Credit (ITC) for capital expenses incurred during the warehouse’s construction. The question pertained to whether these expenses could offset tax liabilities arising from renting out the warehouse.

Issue

The central issue at hand revolved around whether Input Tax Credit (ITC) could be claimed in relation to the construction of immovable property subsequently let out for commercial purposes.

Held

The West Bengal Appellate Authority for Advance Ruling, in Appeal No. 04/WBAAAR/Appeal/2023, deliberated on the matter. It observed that clauses (c) and (d) of sub-section (5) of Section 17 of the Central Goods and Services Act, 2017 (“the CGST Act”), dictate that ITC is not available for works contract services or goods or services received for the construction of immovable property. Therefore, such transactions fall within the purview of blocked credit.

Furthermore, the Authority noted that the explanation provided in clause (d) of Section 17 specifies that credit is also blocked for reconstruction, renovation, additions, alterations, or repairs capitalized in the books of accounts. However, it clarified that the condition of capitalization in the books of accounts applies solely to the mentioned activities related to immovable property.

In conclusion, the West Bengal Appellate Authority for Advance Ruling held that no Input Tax Credit (ITC) is available concerning the construction of the warehouse subsequently leased out by the Applicant.

Introduction

The recent ruling by the GST AAAR Tamilnadu has shed light on a crucial aspect of Input Tax Credit (ITC) concerning structural support for overhead cranes within an ‘Integrated Factory’ building. Coral Manufacturing Works India Private Limited brought forth an appeal challenging the existing orders of the Advance Ruling Authority, Tamil Nadu, seeking clarification on the applicability of ITC in this scenario.

Facts of the Case

Coral Manufacturing Works India Private Limited constructed a warehouse and let it out for commercial purposes, paying GST on the service provided. The company filed an application for Advance Ruling, questioning whether ITC could be availed for the capital expenses incurred on the construction of the warehouse. The West Bengal Authority for Advance Ruling held that ITC was not admissible for expenses capitalized in the books of account. Dissatisfied with this ruling, the Revenue Department appealed against it.

Issue

The primary issue revolved around the eligibility of Input Tax Credit (ITC) concerning structural support erected for overhead cranes within an ‘Integrated Factory’ building. Coral Manufacturing Works India Private Limited sought clarification on whether the Integrated Factory Building itself could be considered as plant and machinery under the CGST Act.

Held

The GST AAAR Tamilnadu held that while the overhead crane and its structural support qualified as plant and machinery, the Integrated Factory Building itself did not. Consequently, Coral Manufacturing Works India Private Limited was only eligible for an ITC proportional to the structural support for the overhead crane, but not for the construction of other civil structures like the building’s side walls and roof.

Introduction

In the case of Raminfo Limited, the GST AAR Telangana has made a significant determination regarding the eligibility of Input Tax Credit (ITC) on the purchase of a 7-seater vehicle, which will be converted into an ambulance for onward supply. This article explores the details of the ruling, its implications, and the broader context of GST regulations.

Facts of the Case

Raminfo Limited has secured a work order from the Government of Tripura to supply ambulances, specifically Mobile Common Service Centres. To fulfill this order, they are procuring Maruti Suzuki Eeco (7 seater) vehicles and modifying them in their workshop located in Hyderabad, Telangana State. Seeking clarity on GST rates and ITC admissibility, Raminfo Limited filed an advance ruling before the AAR Telangana.

Issue

The primary issue at hand is whether Raminfo Limited is eligible to claim Input Tax Credit (ITC) on the purchase of Maruti Suzuki Eeco (7 seater) vehicles, which will be transformed into ambulances for onward supply to the Government of Tripura.

Held

The AAR Telangana, in its order TSAAR Order No.02/2023, concluded that Raminfo Limited is indeed eligible to avail ITC on the purchase of vehicles used for further supply. Citing Section 17(5)(a) of the CGST Act, the AAR noted that ITC on such purchases is not blocked. Therefore, Raminfo Limited can claim ITC on the tax paid for the purchased vehicles. Additionally, the AAR clarified that GST at the rate of 28% will be applicable on the supply of ambulances to the Government of Tripura.

Understanding Blocked Input Tax Credit under GST is paramount for businesses to avoid unnecessary tax liabilities and ensure compliance. By staying updated with recent rulings and clarifications, businesses can make informed decisions regarding their tax planning strategies. It’s imperative to consult with tax experts to navigate the complexities of GST laws effectively.

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Income tax refund will be available soon and the seized properties will also be returned

editor — Sat, 13 Apr 2024 10:52:23 +0000

If you pay tax then it is a matter of relief for you. The Income Tax Department will dispose of the appeals related to TDS payment and tax from the current financial year i.e. 2024-25 as soon as possible. With this you will also get income tax refund soon. The department is preparing an action plan for this, which will be implemented soon. The Central Board of Direct Taxes (CBDT) has asked the Income Tax Department to prepare an action plan by which possible tax-related issues are identified and resolved immediately. In this scheme, there will be a fixed time limit for returning the seized property. The department said that such properties will be returned by June 30, 2024. It aims to finalize pending compounding proposals by March 31, 2024, and dispose of at least 150 appeals by June 30.

You can file a case before the Assessing Officer: Under the new decision of the Income Tax Department, taxpayers will now have to file an application for pending refund before the Assessing Officer. Processing of applications for nil/reduced TDS or TCS certificates under section 195/197/206C will be expedited. They will be resolved within a month of receipt of applications from April 1, 2024.

Priority for disposal of appeals filed before April 1, 2020: The department said that disposal of appeals filed before April 1, 2020 will be given priority. After this, appeals filed after April 1, 2020 will be disposed of. This decision is an important step towards increasing administrative efficiency. Immediate measures have been initiated for resolution of complaints through e-redressal and CPGRAMS platforms.

Source: https://www.internationalnewsandviews.com/income-tax-refund-will-be-available-soon-and-the-seized-properties-will-also-be-returned/

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GST Implications on Lump Sum Transfer Charges for Leasehold Rights

editor — Sat, 06 Apr 2024 04:51:43 +0000

In a recent ruling by the Uttar Pradesh Authority for Advance Rulings (AAR), Remarkable Industries (P.) Ltd. sought clarification regarding the GST implications on lump sum upfront premium paid as transfer charges for leasehold rights. The case, identified as Advance Ruling No. UP/ADRG/41/2023, offers significant insights into the classification and applicable GST rate concerning the transfer of leasehold rights.

Facts of the Case:

Remarkable Industries (P.) Ltd. ("the Applicant") operates in the manufacturing and selling of various products.
The Applicant acquired an industrial plot from the Noida Authority under a lease deed for a 99-year period.
The lease involved the payment of a lump sum upfront premium and subsequent annual lease charges.
After utilizing the plot for manufacturing purposes, the Applicant decided to transfer its leasehold rights to M/s S K Industries ("the Assignee") for consideration.
The transfer process required permission from the Noida Authority, payment of transfer charges by the buyer, and the execution of a fresh lease deed with the Assignee.
Notably, the transfer did not entail sub-leasing or creation of fresh benefits from the land; it solely involved the transfer of existing leasehold rights for consideration.

Issue:

Whether the activity of transferring leasehold rights by the Applicant constitutes sub-leasing and, if not, what is the appropriate classification and applicable GST rate for the said activity?

Held:

The Uttar Pradesh, AAR in Advance Ruling No. UP/ADRG/41/2023 held as follows:

The activity of the Applicant is akin to agreeing to transfer one's leasehold rights and does not amount to sub-leasing.
The transfer represents compensation for agreeing to transfer the leasehold rights to the Assignee without creating additional benefits from the land.
As per the CGST Act and Schedule II, the transaction is classified as a service rather than a transfer of immovable property.
The Applicant's right under the lease deed is extinguished after assignment, and there is no creation of fresh benefits from the land.
The transaction falls under "Other miscellaneous service" (SAC 999792) and is taxable at an 18% GST rate as per Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017.

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High Court of Gujarat Rules on GST Case

editor — Thu, 04 Apr 2024 04:44:00 +0000

In a significant legal development, the High Court of Gujarat has recently issued a noteworthy ruling in the case of OTSUKA PHARMACEUTICAL INDIA PVT LTD versus UNION OF INDIA. This ruling addresses a crucial aspect pertaining to the Goods and Services Tax (GST) regime, particularly focusing on the retrospective application of amendments to Rule 108 of the CGST Rules, 2017. The case, denoted as R/SPECIAL CIVIL APPLICATION NO. 13209/210/212/213/215 of 2023, reached its culmination on 27th March 2024.

Facts of the Case:

The petitioner, OTSUKA PHARMACEUTICAL INDIA PVT LTD, contested against the UNION OF INDIA, asserting that Rule 108(3) of the CGST Rules should not be applicable in their situation. They contended that their online appeals were based on the Order-in-Original made available by the adjudicating authority.
The crux of the issue revolved around the requirement for the petitioner to submit the decision or order being appealed against within seven days of filing the appeal under sub-rule (1) of Rule 108, and the subsequent issuance of a final acknowledgment by the appellate authority indicating the appeal number.

Held:

The High Court determined that the petitioner was indeed obligated to adhere to the stipulated timeline for submitting the decision or order appealed against, as outlined in Rule 108.
While acknowledging the justifiability of the appellate authority's rejection of appeals due to delays, the Court referenced the Minutes of the 48th Meeting of the GST Council. This documented the Council's acceptance of recommendations put forth by the Law Committee.
According to these recommendations, when an order subject to appeal is issued or uploaded on the common portal and is accessible to the appellate authority, the necessity for the appellant to furnish a certified copy of such an uploaded order becomes inconsequential due to its online availability.
Consequently, the retrospective effect of the amendment to Rule 108, effective from 26th December 2022, was affirmed by the Court as being clarificatory in nature.
In light of this clarification, the impugned order passed by the appellate authority rejecting the appeal on grounds of delay was deemed untenable. Therefore, the High Court proceeded to quash and set aside the impugned order.

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Assessment Order not sustainable when vague in nature

editor — Sat, 23 Mar 2024 05:37:30 +0000

In the legal case of Rainbow Stones (P.) Ltd. versus Assistant Commissioner (ST), as documented in Writ Petition No. 4510 of 2024 dated February 26, 2024, the Madras High Court responded by granting the writ petition. This decision was based on the assertion that the Assessment Order lacked clarity and proper justification.

Facts of the case:

Rainbow Stones (P.) Ltd. initiated a writ petition contesting an assessment order issued on December 31, 2023 (referred to as “the Impugned Order”), which centered around disparities between the Input Tax Credit (ITC) claimed in GSTR-3B and that reflected under GSTR-2A. The petitioner argued that the Impugned Order, issued by the Revenue Department (referred to as “the Respondent”), lacked specificity. The sole observation noted in the Impugned Order was the rejection of the petitioner’s response.

Held:

The Madras High Court, in Writ Petition No. 4510 of 2024, overturned the Impugned Order. The court held that the order lacked specificity, which was the basis for confirming the demand for tax, interest, and penalty. The High Court directed that the matter be reconsidered and a fresh order issued after affording the petitioner a reasonable opportunity to be heard.

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