ITC can be used for any outward supply, one to one correlation of input with output not required : AAR

APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT

Aristo Bullion (P.) Ltd., In re

M.S. TORAWANE AND SEEMA ARORA, MEMBER

ADVANCE RULING (APPEAL) NO. GUJ/GAAAR/APPEAL/2021/367
IN APPLICATION NO. ADVANCE RULING/SGST&CGST/2021/AR/05

DECEMBER  22, 2021

PROCEEDINGS

1. M/s. Aristo Bullion Pvt. Ltd., B/3, R. B. Chamber, Chanla Ole, Manek Chowk, Ahmedabad [hereinafter referred to as the ‘appellant’] has filed an appeal against the Advance Ruling dated 27-1-2021 passed by the Gujarat Authority of Advance Ruling [‘GAAR’], Goods and Service Tax, Ahmedabad. The only issue involved in this appeal is that whether the Input Tax Credit (‘ITC’) legitimately earned by the appellant and lying as balance in Electronic Credit Ledger can be utilised for payment of GST on an outward supply, which has no nexus with the inputs on which the ITC has been taken. The GAAR has considered this issue and passed a Ruling to the effect the applicant cannot use the Input Tax Credit Balance available in the Electronic Credit Ledger legitimately 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. Being aggrieved, the appellant (who was ‘applicant’ before GAAR) has filed this appeal before us under the provisions of Section 100 of the Central Goods and Services Tax Act, 2017 and Gujarat Goods and Services Tax Act, 2017 [‘CGST Act’ and ‘GGST Act’ for short].
2. The Appellant intends to engage in manufacturing as well as trading of Gold & Silver Bullion including Coins, etc. These activities require Gold & Silver Dore which may be procured domestically or imported as raw materials, on payment of appropriate GST. On outward supply of Gold & Silver items, the appellant intends to pay GST by utilizing ITC or by cash, if no balance of ITC is available. The appellant also intends to engage in the business of trading of Castor Oil Seeds. The appellant intends to purchase Castor Oil Seeds directly from unregistered Agriculturists without payment of GST. The appellant intends to supply the Castor Oil Seeds in domestic market as well as for export. Such supply of Castor Oil Seeds falling under Chapter Heading 1207 attracts CGST @ 2.5% and SGST @ 2.5% or IGST @ 5%, as per Sr.No. 70 of Schedule-I of the Notification No. 01/2017-Central Tax (Rate) dated 28-6-2017; Sr.No. 70 of Schedule-I of the Notification No. 01/2017-State Tax (Rate) dated 30-6-2017; and Sr.No. 70 of Schedule-I of the Notification No. 01/2017-Integrated Tax (Rate) dated 28-6-2017 respectively. No ITC on inward supply of Castor Oil Seeds is available. The appellant intends to utilise ITC taken on inward supply of Gold & Silver Dore/articles and lying in balance, for the purpose of payment of GST on their outward supply of Castor Oil Seeds.
3. As the inward supply and outward supply of Gold & Silver bullion attracts the same rate of GST, the question arises as how there can be a balance of unutilised ITC in Electronic Credit Ledger of the appellant. The appellant has answered this question by example as under:

“The appellant buys Gold Bullion from market at Rs. 50,000/- on 1st Feb 2021 & hedge the same on MCX (commodity exchange) by selling future contract tune to Rs. 51,000/- on the same date by anticipating upward movements of price.

Subsequently, the appellant sells the physical Gold Bullion on 1st Mar 2021 at market price of Rs. 48,000/- and concurrently buys the future contract on the same date on MCX at Rs. 47,000/-.

Hence, turns out to a situation where the appellant incurs loss of Rs. 2,000/-on sale of Gold Bullion and it generated accumulation of Input Tax Credit on physical trade. However, it earned a profit of Rs. 4,000/- on MCX in terms of future contract.

At this juncture, the appellant witnesses the accumulation of Input Tax Credit in the Electronic Credit Ledger.”

From the above situation, it can be seen that in case of selling of bullion at a price lower than the purchase price, there can be accumulation of ITC. However, in the reverse situation where the appellant gets higher sell price than the purchase price, the appellant may require to pay GST on outward supply through cash, after exhausting balance of ITC. The present application for Advance Ruling has been sought for the situation where the appellant may incur loss in physical bullion business (though it can be compensated through hedging on commodity exchange).

4. In the Ruling dated 27-1-2021, the Gujarat Authority for Advance Ruling has referred the provisions of section 16 of the CGST Act, 2017, which prescribes eligibility and conditions for taking input tax credit. The GAAR also referred provisions of section 17(5)ibid, which provisions exclusions on which input tax credit is not available. After referring these provisions, the GAAR has observed and held as follows (underline supplied):

QUOTE

11. On going through the provisions of section 17(5) as mentioned herein above, we find 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.
12. 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, 2017as 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 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.

UNQUOTE

After observing as above, the Gujarat Authority for Advance Ruling has passed the Ruling to the effect the applicant cannot use the ITC legitimately earned on inward supplies (like Gold & Silver Dore bars etc.) towards payment of GST on their outward supply of Castor Oil Sees.

5. M/s. Aristo Bullion Pvt. Ltd. has filed an appeal with us against the aforesaid Ruling under the provisions of section 100 of the CGST and GGST Acts, 2017. In the Grounds of Appeal, the appellant has inter aliasubmitted that the Authority for Advance Ruling has erred in ruling that they have to prove the nexus or connection between the accumulated ITC and Castor Oil Seeds. The appellant has reproduced the provisions of sections 16 (1), 17 and 49 of the CGST Act and definitions of the terms ‘goods’, ‘services’ ‘input tax’, ‘business’, ‘outward supply’ and ‘outward tax’, as given under section 2 of the said Act. The appellant has inter alia contended as follows:

5.1 The raw materials procured in form of Gold & Silver Dore or trading items procured in form of Bullion for further supply being movable property will qualify as “goods”. Thus, tax charged on the invoice in terms of IGST or CGST & SGST stands entitled as input tax pursuant to section 16(1) of CGST Act, 2017.

5.2 The inclusive definition of “business” includes any activity in the nature of trade or commerce. The appellant intends to engage themselves in manufacturing as well as trading of Gold & Silver Bullion including Coins, etc. and also intends to domestically trade in bullion to take advantage of price fluctuations and also further intends to engage in the business of Castor Oil Seeds by purchasing such item from the unregistered person and supplying it domestically in the open market for consideration and hence it is a commercial activity. Thus, the condition of section 16(1) of CGST Act, 2017 that goods or services should be used in the course of furtherance of business is also satisfied.

5.3 The rules in respect of payment of tax through electronic credit ledger are contained in Rule 86 of CGST Rules. There is no provision in such rules which restrict the utilization of electronic credit ledger towards output tax in respect of taxable supply. Thus, electronic credit ledger can be utilized for making payment of any output tax under the GST Acts, which would include taxable supply of another business or business verticals. Therefore, the appellant submitted that they can utilize the balance lying in the Electronic Credit Ledger towards the output tax liability arising out of trading of Castor Oil Seeds. In other words, the Input Tax Credit lying as balance be available for adjustment towards the output tax liability under the GST Acts.

5.4 Once the Input Tax is credited to the Electronic Credit ledger in terms of section 49(2) & (4) of CGST Act 2017, it does not contain any identification for utilizing of such Input Tax Credit. Therefore, there is no requirement under the GST Law to prove the nexus between input & output for the purpose of utilisation of Input Tax Credit towards payment of Output Tax Liability.

5.5 The appellant submitted that it does not fall under the category of Blocked credit or Restricted credit in terms of section 17 of CGST Act 2017. In accordance to section 49(4) of CGST Act 2017, the appellant firmly submitted that there is no restriction to utilise the accumulated Input Tax Credit lying in the Electronic Credit Ledger towards any payment of Output Tax Liability. The appellant does not require to prove any sort of nexus between input & output for the purpose of utilisation of input tax credit.

6. Vide email dated 15-7-2021, M/s. A. D. S. Sheth & Co., Chartered Accounts, on behalf of the appellant, has sent following submissions:

6.1 In the instant case, Authority for Advance Ruling, Gujarat tends to unsettle the settled principle that the input tax credit of various inputs and input services pertaining to various business of the assessee is available as common pool which can be utilized towards discharge of outward tax liability for supply of any goods or services.

6.2 It is very common that an assessee is engaged in supply of goods and services which are registered under one GSTIN and there is practically no need to maintain separate records of input tax credit for each of its business.

6.3 For the purpose of better understanding in the context of the instant case, attention has been drawn to business activity carried out by National renowned organizations i.e. “D mart”, “Big Bazaar”, “Central Mall”, “Croma”, “Star Bazaar”, etc. Theses organization provide various & diverse range of products such as Grocery & Staples, Daily Essentials, Dairy & Frozen, Home & Personal Care, Bed & Bath, Electronics, Home Appliances, Crockery, Footwear, Luggage, Toy & Games, Plastic Containers, Kid’s Apparel, Women’s Apparel, Men’s Apparel, etc. Here the organization runs its business by offering multiple products and avails the Input Tax Credit at the stage of procurement in terms of section 16 (1) of CGST Act 2017. Once the entitlement of input tax credit on the purchased product is fulfilled according to section 16, it transpires to be deposited in a common pool of credits in the books of accounts or credited to Electronic Credit Ledger on the GST portal. Subsequently, when the organization sells its various products to the customer by raising tax invoice, the liability towards GST shall be discharged. Therefore, these organisations as mentioned above may discharge its GST liability on account of outward supplies by utilizing the common pool of credits or credit lying in the Electronic Credit ledger in view of section 49(4) of CGST Act 2017. Hence, under the provision of law, it is very clear that there is no requirement to showcase or to demonstrate the nexus between input or output so as to utilize the Input Tax Credit lying in the pool of credit for the payment of output tax.

6.4 The appellant referred the erstwhile indirect taxation regime, wherein the Cenvat Credit Rules, 2004 were prevalent. Similar issue was considered before the Tribunals wherein the utilisation of credit availed in the capacity of manufacturer towards discharge of service tax liability was questioned by departmental authorities. The appellant contended that it was held by various Tribunals that the cenvat credit is available as common pool which can be either utilized for payment of central excise duty or service tax and there is no need to prove nexus of credit with the final liability discharged by the assessee. The appellant relied upon following judicial pronouncements:—

6.5 The appellant submitted that when the issue as regards the fact that no one to one co-relation is required between inputs/input services and the final product/services was settled by various Tribunals in the erstwhile regime, reviving the said dispute in the GST era does not seem to be a lucrative affair, particularly, the GST Law was introduced with the motto of ‘seamless flow of input tax credit’.

6.6 The appellant further submitted that section 16(1) of the CGST Act only states the eligibility and conditions of taking ITC. It does not impose any restriction on using the legitimately earned ITC available in the electronic credit ledger to be utilized only with respect to the specific outward supply on whose inputs such ITC was availed. Moreover, as per section 16(1) ibid, 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 i.e., entire business and not only for the specific outward supply on whose inputs such ITC was availed.

6.7 Thus, on behalf of the appellant it has been submitted that no nexus is required to be established between input and final product to utilize legitimately earned ITC.

7. Personal Hearing in this matter was held on 20-7-2021 through video conferencing, during which the representative(s) of appellant reitereated the contentions of written submissions.
8. Time limit for filing appeal

8.1 The impugned Ruling has been passed by the GAAR on 27-1-2021, which has been forwarded to the appellant vide letter dated 29-1-2021. In the Form GST ARA-02 regarding Appeal to the Appellate Authority for Advance Ruling, at Sr.No.2, the appellant has shown the date of communication of the Advance Ruling as ’30-1-2021′. Thus, we observe that the present appeal filed on 19-2-2021 has been filed within the prescribed time limit of 30 days from the date of communication of Ruling, as prescribed under section 100(2) of the CGST Act, 2017.

8.2 Even otherwise, the last date for filing appeal stands extended w.e.f. 15-3-2020 in view of the Orders Supreme Court in Cognizance For Extension of Limitation, In re [2020] read with CBIC Circular No. 157/13/2021-GST dated 20-7-2021.

FINDINGS:

9. We have carefully gone through the written and oral submissions made by or made on behalf of the appellant and the Ruling passed by the Gujarat Authority for Advance Ruling. The only question involved in this appeal is as to whether Input Tax Credit validly taken on any ‘input’ can be utilized for payment of ‘output tax’ (GST) on any outward supply, which has no nexus with the inputs on which ITC was taken.
10. Before stating discussion, we reproduce the provision of section 16(1) of the CGST Act, 2017, as under:

“Section 16. Eligibility and conditions for taking input tax credit––(1) Every 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 and the said amount shall be credited to the electronic credit ledger of such person.”

In this case, the inputs like Gold and Silver Dore bars, etc. are undisputedly intended to be used in the course or furtherance of the business of the appellant. Therefore, input tax credit of GST paid on such inputs would be admissible subject to conditions and restrictions, as prescribed.

11. Sub-section (5) of section 17 prescribes that notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the specified supplies like motor vehicles for transportation of not more than thirteen persons, etc., as listed therein. After reproducing the provisions of section 17(5), the GAAR has observed, “we find 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.” [Para 11 of the Ruling refers]. The GAAR agreed to the fact that the inputs such as dores of gold, silver etc. are used in manufacture of various final products of gold and silver. However, after referring to provisions of section 16(1), the GAAR has observed that the applicant is required to prove the nexus/connection between the inputs and the final products manufactured from those inputs. Such inputs like Gold & Silver dore bars etc. have no nexus/connections for supply of Castor Oil seeds. Therefore, the GAAR has observed and held that the basic conditions envisaged in the provisions of section 16(1) have not been fulfilled and so, the appellant is not eligible to utilise the input credit for payment of GST on supply of Castor Oil seeds [Para 12 of Ruling refers].
12. If this logic of the GAAR has been adopted as a principle, taxpayers selling large number of commodities would require to maintain input tax credit accounts in respect of each commodity. Suppose, a Supermarket purchases any commodity from Agriculturists, which attracts Nil rate, and sells the same on payment of applicable GST. In this situation the Supermarket would require to pay GST for that commodity by cash only, even though it has balance of ITC, if this Ruling of GAAR has been applied to other similarly placed taxpayers. However, this would not be according to law. We find that once a taxpayer validly takes ITC on inputs, that ITC merges into common pool of ITC under the Electronic Credit Ledger, which is not being maintained commodity wise. After merging of ITC in the common pool, it would not be always possible to identify that ITC taken on which particular input has been utilised. Thus, we do not agree with the Ruling passed by the Gujarat Authority for Advance Ruling in this case.
13. Though there is no nexus of the inputs like Gold & Silver Dore bars with outward supply of Castor Oil Seeds, there is a nexus of the said inputs with taxable outward supply of Bullion/various forms of Gold & Silver.
14. We note that section 16(1) of the CGST Act only states the eligibility and conditions for taking ITC. It does not impose any restriction on utilisation of the legitimately earned ITC. It does not prescribe that ITC available in electronic credit ledger to be utilized only for the specific outward supply, on whose inputs such ITC was availed.
15. We find that section 16(1) nowhere mandates to prove one-to-one correlation of particular inputs with particular outward supply. In other words, section 16(1) does not require that payment of outward tax on particular outward supply can be made only from the ITC taken on particular inputs, which have nexus or connection with that outward supply. Therefore, weset aside the observation made by the GAAR to the effect, “It can therefore, be seen that even the basic conditions envisaged in the provisions of section 16(1) have not been fulfilled in the instant case.” [Para 12 of Ruling refers]. We find that the requirement of section 16(1) is that the inward supply should be used or intended to be used in the course or furtherance of the business of taxpayer. In this case, it is undisputed that the inward supply of Gold and Dore bars are intended to be used in the course of business of the appellant, i.e. outward supply of Bullion etc. This undisputed fact entitled the appellant to take input tax credit on such inputs. Once such input tax credit is validly taken, it can be utilised for payment of ‘output tax’ [GST] on any taxable or zero rated outward supply of the appellant. Our views are supported by the statutory provisions of sub-section (4) of section 49 of the CGST Act, which are as follows (underline supplied):

“Section 49. Payment of tax, interest, penalty and other amounts.––(4) The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed.

… … … … …”

The definition of the term ‘output tax’, as given in section 2 of the CGST Act, 2017, is as under:

‘(82) “output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis;’

16. Above provisions make it clear that the amount of input tax credit lying in electronic credit ledger can be utilised by appellant for making any payment of output tax payable by him. Needless to say that all provisions regarding determination, restriction and reversal of input tax credit and payment of tax, as prescribed Chapters V and X of the CGST Act and Chapters V and X of the CGST Rules, would be applicable, which are not under covered under the question raised in the application for Advance Ruling in present case.
17. The cases of CESTAT and High Court relied upon by the appellant are related to Central Excise and Service Tax. As we are going to allow the appeal, we do not examine the applicability of those relied upon cases to the present appeal.
18. In view of the foregoing discussion, we allow the appeal filed by M/s. Aristo Bullion Pvt. Ltd., Ahmedabad, by modifying the Answer given in the Ruling No. GUJ/GAAR/R/15/2021 dated 27-1-2021 passed by the Gujarat Authority for Advance Ruling as under:

Question: Can the applicant/appellant use Input Tax Credit Balance available in the Electronic Credit Ledger legitimately earned on the inputs/raw-materials/inward supplies (meant for outward supply of Bullions) towards the GST liability on Castor Oil Seeds which were procured from Agriculturists and subsequently meant for onward supply?

Answer: The applicant/appellant can use the Input Tax Credit Balance available in its Electronic Credit Ledger, which has been legitimately earned on the inputs/inward supplies (meant for outward supply of Bullions) for payment of ‘output tax’ (GST) on its outward supply of Castor Oil Seeds.

In other words, we hold that payment of output tax on Castor Oil Seeds through utilization of Input Tax Credit taken on Gold & Silver Dore Bars etc. cannot be denied merely on the ground that the inputs have no nexus with outward supply.