CA Manoj Nahata 
1. Whether disposing off assets (no CENVAT/VAT credit availed) fastened to the building on delivering possession to the lessor, on which no consideration will be received, will fall within the ambit of “supply” under GST?
Held: Yes.
In the case of M/s Aquarelle India Pvt. Ltd.-AAR Karnataka, the applicant is a registered dealer having a registered office in Bengaluru where from several departments such as Sales, Marketing, etc. operates. The applicant has taken the said premises on lease. The applicant wishes to vacate the said premises in the near future and intend to hand over the possession of the said premise to the owner along with fixtures to the building. The applicant stated that the fixtures cannot be dismantled on vacating the premise and these fastened assets would be handed over to the building owner in ‘as is where is’ condition without any consideration charged for the assets handed over. The applicant sought an advance ruling on whether the disposal of assets fastened to the building, to the lessee for which no consideration is charged, would be covered within the scope of supply under GST?
The applicant contended that the assets were put to use in the pre-GST regime without availment of CENVAT/VAT credit, the disposal of such assets should not amount to supply and hence not liable to GST.
The Authority stated that in the above case, there is a permanent transfer of business assets and such assets were capitalized in books before the advent of GST and also, no credit was availed on such assets under any earlier law. Hence, the transaction is not covered under entry no.1 of the Schedule-1 of the CGST Act, 2017 and hence, not covered under clause (c) of sub-section (1) of section-7. However, the said transaction would be treated as supply of goods as per entry no.4 (a) of Schedule-II of the GST Act. As per sub section-1A of section-7 of the CGST Act, 2017, entries of Schedule-II can be invoked only where an activity or transaction is qualified as supply under section-7(1).Therefore, Schedule-II only differentiates a supply either as supply of goods or supply or service in case an activity has constituted supply under section-7(1).However, it is pertinent to verify whether the transaction is covered under section-7(1)(a) of the CGST Act,2017?
The transfer of business assets has taken place in the course or furtherance of business. Further, as per section-2(31) of the GST Act, a consideration includes the monetary value of any act or forbearance in respect of any supply of goods or service. The applicant stated that there is no monetary consideration involved in such transaction. Evidently, the writing off the value of such assets in the Balance Sheet by the applicant is an act related to transfer of assets and this monetary value of the act would be considered as consideration for the said supply in terms of section-2(31) of the GST Act.
Hence, the transaction of transfer of business assets fastened to the building, in the course or furtherance of business for a consideration (being monetary value of the act of supply of goods) would constitute supply in accordance with the provisions of section-7(1)(a) of the CGST Act,2017.
2. Whether a registered person under GST can claim eligible ITC on GST paid on input invoices of goods or services procured or availed by such person before its effective date of registration under GST, where such inputs are eligible input credits and for the purpose of furtherance of business?
Held: No
In case of M/s Knowlarity Communications Pvt. Ltd.–AAR Karnataka, the applicant is engaged in the business of providing cloud telephony internet based communication solutions to its customers in different states of India through its offices in such states and has its corporate office in Haryana. It is having centralized accounting system and books of accounts are maintained at the corporate office. In order to render services in any state, it firstly requires to take a virtual office in such state where it can get the telephone number registered which it obtained from a telephone operator. After getting the telephone numbers registered, it gives these numbers to its customers for providing internet services. It sought an advance ruling on whether a registered person can claim ITC on invoices raised on him prior to the effective date of registration under GST?
The applicant contended that section-16 entitles a registered person to take the credit of input tax. The said section does not restrict a registered person from taking input tax credit of invoices which were issued by the suppliers before the effective date of registration of the person claiming such input tax credit under CGST Act,2017. Further, where a registered person complies with the provisions of Rule-36, then the said registered person is entitled to take the credit of input taxes paid. The applicant has also taken the support of the following judgments-
a) The judgement of Hon’ble High Court of Karnataka in the case of mPortal India Wireless Solutions Pvt. Ltd. v Commissioner of Service Tax [(2012) 34 STT 322 (Kar)]
b) The judgement of CESTAT, Chennai Bench in the case of Premedia Global Pvt. Ltd. v Commissioner of Service Tax, Chennai [(2016) 56 GST 487(Chennai-CESTAT)]
The Authority stated that the applicant is registered w.e.f. 01.04.2018 and prior to the effective date of registration, he was an unregistered person. All the provisions quoted by the applicant are applicable to a registered person whose registration is effective and not to a registered person for the period of non-registration. Section-2(94) of the CGST Act,2017 defines registered person as a person who is registered under section-25 of the CGST Act. Further, section-25(11) states that the certificate of registration shall be issued in such form and with effect from such date as may be prescribed. There is no dispute regarding effective date of registration of the applicant i.e. 01.04.2018. Hence, earlier to the effective date, the applicant was not a registered person. Further, Rule-10 of the CGST Rules deals with provisions of effective date of registration.
Hence, a registered person is not entitled to claim the credit of input tax paid on invoices relating to goods procured or services availed, for the period prior to the effective date of registration under GST. However, in case of inputs being goods, the applicant is only eligible to claim input tax credit of the tax paid on such goods lying in the stock on the day previous to the effective date of registration, which are intended to be used in the course or furtherance of business, subject to other conditions and restrictions prescribed in the GST Act and in Rule-40 of the CGST Rules, in case the application for registration has been filed within 30 days from the date on which the applicant became liable for registration under the Act.
3. Whether the activity of procuring goods and services from third parties for upkeep and maintenance of apartments and collecting the monies from its members to pay third party vendors is an activity liable to GST?
Held: Yes
In case of M/s. Prestige South Ridge Apartment Owners Association-AAR Karnataka, the applicant is engaged in providing maintenance and repairs of the common area of the apartments & surrounding areas like corridors, pathways, gardens, swimming pools, etc. It collects contributions from its members calculated on the basis of super built up area owned by the members. In addition, it separately collects contribution towards corpus fund for future contingencies. It procures goods and services from third party vendors for maintenance of the apartments and charges the maintenance charges on its members.
The applicant contended that the association is no different person to the members and instead each of the members taking care of the maintenance of their common area individually, for all practical purposes, the association is formed. The amounts collected by the applicant are restricted only to meet the needs of the members in up keeping and maintaining the common area. Since the association and the members are not separate persons, GST cannot be charged on maintenance charges collected and paid by association on behalf of members. Further, it contended that based on the mutuality concept, one cannot provide services to oneself.
The Authority stated that the applicant is registered as an Association of Persons and has a legal existence separate from its members. As per section-2(17), business includes the provision by a club, association, society or any such body (for a subscription or any other consideration) of the facilities or benefits to its members. Further, section-7 stipulates the scope of supply and includes any form of supply of goods or services made or agreed to be made for a consideration by a person in the course or furtherance of business. From a conjoint reading of the above provision, it becomes clear that the applicant is supplying the services of maintenance of common areas including repairs and upkeep. The applicant is providing a service of maintenance of apartments, buildings and property to all members and this is in the course of business. Hence, this would amount to taxable supply of service.
4. Whether electricity charges paid by an Association of Persons to electricity supply authority for the power consumed towards common facilities and separately recovered from members liable to GST?
Held: Yes
In case of M/s.Prestige South Ridge Apartment Owners Association-AAR Karnataka, the applicant is engaged in providing maintenance and repairs of the common area of the apartments & surrounding areas like corridors, pathways, gardens, swimming pools, etc. Separate electricity meters are installed to record the consumption of electricity of individual flats and each of the units directly pay to the electricity supply corporations. The applicant pays electricity charges and recovers the amount from each of the units for power consumed towards lighting the common area of the apartment, including parks, community hall, security room, sports area committee room, pumping water to various units, etc.
The applicant stated that they propose to recover the actual electricity charges paid to electricity supply corporation from each of the units in the apartments in respect of common area power consumption and proposed to adopt area of unit in sq. feet to the total area in sq. feet to all units as a basis to apportion the common area electricity cost. By this way, it raises debit note indicating the share of charges towards electricity. Since, nothing extra is recovered, it would only be a transaction in money and hence excluded from taxability.
The Authority stated that the electricity bill received in relation to the consumption of electricity for the common utilities is in the name of the applicant. The applicant is not involved in the supply of electrical energy to the members but is involved in providing the service of upkeep and maintenance of the common utilities of the apartments and for this electricity consumed by them becomes an input. Though the electricity bill is distributed to all its members, it is not the consideration for the supply of electrical energy to members, but the value is a part of the consideration for the supply of services of up keeping and maintenance to its members and hence liable to tax at appropriate rates. Hence, this value of electricity charges separately shown in the invoices is to be added to the consideration shown towards the same service of upkeep and maintenance charged to individual members and then the consideration for the supply of services is to be arrived and the taxable value shall be determined.
5. Whether supply of printing service & intermediary service for selling space for advertisement is a composite supply or mixed supply under GST?
Held: Mixed Supply, Taxable @ 18%.
In the case of M/S Infobase Services (P.) Ltd.-AAR West Bengal, the applicant has been engaged by Tollygunge Club Ltd. for supplying the service of printing the ‘Directory of Members 2020’. The applicant also enters into an agreement with the club for marketing of advertisement space for the directory. The applicant will have to finance the project cost of printing the directory from the proceeds from sale of space for advertisements. lf it exceeds the final project cost for printing, the applicant will gain75% of the differential amount. lf it does not cover the cost of such printing, the applicant will have to bear the losses to that extent. The applicant will raise tax invoice on the club for the printing service. However, the club will also raise invoice on the applicant for the amount by which the proceeds from sale of advertisement space falls short of the cost of printing. The Applicant will procure the advertisements and issue proforma invoice with applicable GST in the club’s name on confirmation of the booking space. Based on the proforma invoice, the club will issue the tax invoice after receipt of payment from the advertisers.
The Applicant submits that print media, as defined in clause 2 (zr) of Notification No. 9/2017 -lntegrated Tax (Rate) dated 2810612017, as amended from time to time, includes books, as defined in section (1) (1)of the Press and Registration of Books Act, 1867, but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purpose .The Applicant argues that the Directory is not meant for commercial purpose. It, therefore, is a book and part of the print media as defined under clause 2 (zr) of the above notification.
The Authority stated that apart from supplying printing service and the service as an intermediary on behalf of the club for selling space for advertisement, the applicant has agreed to the obligation to match the cost of financing the project of printing from the proceeds from selling space for advertisement. Consideration for doing it successfully is 75% of the amount by which the proceeds from selling space for advertisement exceed the cost of printing. lf it fails in its obligation; it has to pay the Club the amount by which the proceeds from selling space for advertisement fall short of the cost of printing, as charge for tolerating the failure. It is evident that the applicant is making a bundled supply to the club of printing service and intermediary service for selling space for advertisement on behalf of the club and charging a single price for the bundle as the project cost for printing. The two services are not naturally bundled or supplied in conjunction with each other in the ordinary course of business. They are bound by an obligation discussed above and is a specific feature of the agreement between the applicant and the club. It is, therefore, not a composite supply. Hence, the applicant is making mixed supply and it shall be taxed @ 18% under Sl No. 21 (ii) of Notification No. 11/2017 – CT (Rate) dated 28.06.2017 (corresponding State Notification No. 1135-FT dated 2810612017), as amended from time to time.
6. Whether services supplied to Electricity Distribution Utilities are taxable under GST?
Held: Yes.
In the case of M/s Shirdi Sai Electricals Limited-AAR Andhra Pradesh, the applicant is engaged in the manufacture and supply of transformers, etc. in its manufacturing unit located at Kadapa. They had executed the work of Design, manufacture, test, deliver, install, complete and commission facilities for conversion of existing LT Net Work into High Voltage Distribution System in different divisions of different states on turnkey basis. The purpose of these works were to provide supply to agricultural services up to Bore well/ well/ water source by installing smaller transformers/ poles/ conductors and other related material to give supply at power point. All the said work involved composite supply of material, labour and services. No separate agreements were entered for supply of material, labour and services but, separate price schedules were issued by APSPDCL for supply of material, labour and other services. The applicant sought an advance ruling on the applicability of the Exemption Notification No.12/2017 dated 28.06.2017 as amended from time to time to APSPDCL as well as to itself.
The Authority stated that as per clause (119) of Section 2 of CGST Act, 2017 and APGST Act, 2017defines “works contract” as a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. The composite supply of works contracts as defined at clause (119) of Section 2 of GGST Act 2017 and APGST Act,2017 is treated as supply of service in terms of serial No.6, Schedule II of GGST Act 2017 and APGST Act, 2017. The Exemption Notification clearly stated that the services supplied by Electricity Distribution Utilities attract Nil rate of tax. It does not prescribe any nil rate of tax for services supplied to Electricity Distribution Utilities. Hence, the services supplied by applicant to APSPDCL are taxable at the prescribed rate i.e. 18% whereas the service supplied by APSPDCL attracts Nil rate of tax.
7. Whether ITC is available in respect of the GST paid on goods and services used as inputs in execution of Road work contracts to Govt. Engineering Department?
Held: Yes Eligible.
In case of M/s KSR & Co.–AAR Andhra Pradesh, the applicant is a work contractor executing the works awarded by the Government of Andhra Pradesh, Road & Building Department. The work includes special repairs to feeder road. It includes construction of granular sub base by providing HBG material and spreading uniform layers with motor grader. The applicant sought an advance ruling on the availability of ITC of GST paid on goods and services used as inputs in execution of Road work contracts to Govt. Engineering Department.
The applicant contends that he is eligible to avail full input tax credit of taxes paid on procurement of goods and services during the construction period. It is eligible to avail ITC on all the goods and services being utilized in execution of the works. Further the applicant contends that as per the exclusion clause u/s.17(5)(c) of the CGST Act, 2017where the input services are utilized for further supply of works contract service there is no embargo in availing the ITC on the goods and services utilized in execution of works contracts. It further claims that being a work contractor engaged in the execution of works awarded by the govt. of Andhra Pradesh, the ITC availed by him has to be considered as an input service for further supply of works contract service. The applicant further claims that even as per the provisions of section-17(5)(d), the activity is not falling under this ineligible category, because the works executed by him are for the state of A.P but not for himself. As per the clause (d), if the goods and/or services received by taxable person are utilized for construction of an immovable property (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.
The Authority stated that in terms of section-17(5)(c) of the CGST Act 2017, ITC for works contract can be availed by the applicant as he is in the same line of business and entitled to take ITC on the tax invoices raised by his suppliers as his output is a works contract. Even as per the provision of section 17(5) (d), this authority concurs with the opinion of the applicant that he does not fall under this ineligible category. Hence, the applicant is eligible to avail the entire ITC on the GST paid on goods and services used as inputs in execution of Road work contracts to Govt. Engineering Department.
8. Whether IGST @ 0% is applicable for the invoices raised to SEZ units, even if the accommodation services were rendered outside the SEZ zone?
Held: Yes, if provided are for authorized operations of SEZ units.
In the case of Mrs. Poppy Dorothy Noel-AAR Karnataka, the applicant is engaged in the business of providing accommodation services to various corporate, which include certain SEZ units. The applicant provides services to the employees of SEZ units, for which SEZ units advised them to raise invoices with IGST @ 0%. However, the said services are provided outside the SEZ zone. An advance ruling is sought on whether IGST @ 0% is applicable for the invoices raised to SEZ units, even if the accommodation services were rendered outside the SEZ zone?
The applicant contended that since supply has taken place outside the SEZ zone, the invoices for the accommodation services should be raised @ 18% in accordance with the provisions of section-12(3) of the IGST Act.
The Authority stated that the bookings for accommodation services are made by the SEZ Co. which is also responsible for making the payment for the said services. Therefore, in terms of section-2(93) of the CGST Act, the SEZ unit would be the recipient of service and supplier being the applicant. Also, Circular No.48/22/2018- GST dated 14.06.2018 issued by CBIC clarifies that section-7(5)(b) of the IGST Act, overrides section-12(3)(c) of the IGST Act. Hence, the above transactions shall be treated as an inter-state supply of services. Further, in Circular No.2/2014 dated 25.07.2014 issued by the Development Commissioner, Office of the Zonal Development Commissioner, it is clearly stated that the accommodation services are added to the list of services to enable the SEZ units to avail service tax benefits for their authorized operations. In view of the above, it could be understood that if the SEZ unit is procuring the accommodation services for authorized operations, then the same shall be covered within ‘supply to SEZ’ and hence, would be treated as ‘zero-rated’ supply in accordance with the provisions of section-16(1) of the IGST Act. Whereas, if the said services provided to SEZ units is not for authorized operations, then such supply would not be covered within ‘zero-rated supply’ but still the transaction will be treated as inter-state supply.
