CA Manoj Nahata 
1. Whether recovery of 50% amount of Parental Health Insurance premium from employees amounts to supply of services under GST?
Held: No.
In the case of M/s Jotun India Private Limited-AAR Maharashtra, the applicant is a manufacturer, supplier and exporter of paints and powder coatings. It has introduced an optional parental insurance scheme under which it initially pays the entire premium along with taxes to the Insurance Company. In case of the employees who opt for the scheme, the applicant recovers 50% of the premium in one to three installments from the salary and the balance 50% is borne by the applicant. The moot point before the Authority is that whether GST is payable on recovery of such 50% of the premium from the salary of employees?
The applicant mentioned that in order to constitute “supply” under GST, the following elements are required to be satisfied-
a) There should be supply of ‘goods’ or ‘services’ or both,
b) Supply is for consideration, and
c) Supply is made ‘in the course or furtherance of business’
The applicant stated that it is engaged in manufacture of paints and powder coatings. Providing parental medical insurance service is not the business of it. The service of insurance is actually provided by the Insurance Company for which it is charging GST. Secondly, providing parental insurance cover is not a mandatory requirement under any law for the time being in force and therefore, non-providing of parental insurance cover would not affect its business. Therefore, the activity of recovery of 50% of the cost of insurance premium cannot be treated as supply in terms of supply.
The Authority stated that section-7 of the GST Act defines the scope of supply. From a plain reading of the section, it is clear that the activity undertaken by the applicant like providing of parental insurance policy through insurance company does not satisfy the conditions of section-7 of the GST Act. Further, it is not covered under the term “business” of section-2(17) of the GST Act.
Hence, the recovery of 50% of parental health insurance premium from employees does not amounts to ‘supply of service’ under GST.
2. Whether receipt of prize money from horse race conducting entities, in the event horse owned by the applicant wins the race, amounts to supply under GST and if it is supply, then whether taxable or not?
Held: Yes
In case of M/s Vijay Baburao Shirke –AAR Maharashtra, the applicant owns horses which are participated in races organized at different clubs. The applicant under the erstwhile law paid service tax on the amount of stake/ prize money. The applicant continued paying taxes under GST under bona fide belief the stake/ prize money qualifies as supply under GST and also utilized input tax credit as available. The applicants now advised that no GST is payable and other competitors are also not paying. Thus he put a question- Whether stake/ prize money won in horse races are liable to GST or not?
The applicant is of the view that in order to constitute “supply” under GST, the following elements are required to be satisfied-
Supply is made by one person to another,
a) Supply is for consideration, and
b) Supply is made ‘in the course or furtherance of business’
c) According to the applicant, all the ingredients are satisfied to qualify as supply under GST.
The Authority contented that the race club/ organizer is the recipient of the horses for participating in the race. If the horse wins, a consideration in the form of money is paid to the applicant for participating and winning the race. Hence, activity of applicant enables the organizer to arrange an event which the public may attend and media undertakings may broadcast. These horses are well trained and maintained in a specific manner. Thus the activity of the applicant is providing the services of specialized and trained horses for race. Both the race organizer and the horse owner receive a direct and individual benefit from this activity. The Authority made a reference of section -7 and section-2(17) of the GST Act and accordingly concluded that the activity of the applicant falls within the ambit of “supply” under GST as the prize money received by the applicant is nothing but a consideration for the service and also the activity falls within the definition of “business” [clause (a) of section-2(17)]. Hence, the activity of the applicant is a supply of services. Also, it is taxable under GST @ 18% as it is not covered under the Exemption Notification No. 12/2017 CT (Rate).
3. To what extent and in what proportion, ITC is admissible on capital goods used for both taxable & exempt supplies?
Held: In the manner prescribed under Rule 43 of the CGST Act.
In case of M/s Metro Dairy Ltd.-AAR West Bengal, the applicant has set up a manufacturing facility for UHT milk, milkshake, curd and lassi. Some of the goods are taxable, and others exempted under the GST Act. The applicant has procured capital goods and input services that are common to the production of both taxable and exempted goods. The Applicant wants to know to what extent and in what proportion the input tax credit is admissible on such capital goods and input services?
The Applicant submitted that the apportionment of input tax credit should be based on the provisions under section 17(2) & (3) of the GST Act read with rules 42 and 43 of the GST Rules. The input tax credit is, therefore, restricted to the credit attributable to taxable supplies and its determination is prescribed in rule 43. The useful life of capital goods is taken as five years from the date of invoice under rule 43(1)(c) of the GST Rules. The applicant submitted that the formula prescribed under rule 43 of the GST Rules is applicable only after the commencement of commercial production. The useful life of the capital goods should, therefore, be calculated from the date of the beginning of the commercial production. In terms of rule 42(1)(i) of the GST Rules, the amount of input tax credit attributable to exempt supplies shall be computed every month. After that, the input tax credit for the financial year shall be finally calculated in terms of rule 42(2) of the GST Rules before the due date for furnishing return for the month of September following the end of the financial year to which such credit relates.
The concerned officer from the Revenue submits that apportionment of the input tax credit on the capital goods used for manufacture of both the taxable and the exempted goods should be made in the manner prescribed under proviso to rule 43(1)(d) of the GST Rules and other related clauses of rule 43(1). The Applicant purchased capital goods that were used for producing taxable goods UHT milk. On a subsequent date the same capital goods are going to be used for manufacturing both taxable and non-taxable goods. The amount of input tax on each of such capital goods is denoted by ‘A’ and shall be credited to the electronic credit ledger in terms of rule 43(1)(c) of the GST Rules. The value of ‘A’ is arrived at by reducing the input tax at 5% rate for every quarter or part thereof. In other words, input tax on such capital goods as were initially used for producing taxable goods only, but subsequently used for manufacturing both taxable and exempted goods, are to be attributed at 5% rate for every quarter or part thereof to production of taxable goods during the period when they were used for production of taxable goods only. The balance amount, if any, available when the production of exempted goods begins, will be the amount ‘A’. The aggregate of the amounts of ‘A’ are added to the corpus of input tax called ‘Tc’ for apportionment in accordance with rule 43(1)(e), (f) & (g) of the GST Rules. It submitted that input tax credit on input services should be apportioned in the manner prescribed under rule 42 of the GST Rules. The Applicant is eligible for credit of the entire input tax on input services till the production of exempted goods begins.
The Authority agrees with the concerned officer from the Revenue on the mechanism for apportionment of input tax credit on capital goods that were used for manufacturing taxable goods but are going to be used subsequently for production of both taxable and exempted goods. The amount of input tax on each of such capital goods shall be credited to the electronic credit ledger in terms of rule 43(1)(c) of the GST Rules, which also prescribes sixty months from the date of invoice as the useful life of such capital goods. Rule 43(1) provides the mechanism for apportionment of the input tax available in the corpus Tc over the balance period of the useful life. The Proviso to rule 43(1)(d) of the GST Rules answers how much of the input tax credit should be attributed to the period when such capital goods were used for manufacturing taxable goods and Rule 43(1)(e), (f) and (g) of the GST Rules answer how the balance amount of the input tax should be apportioned after production of the exempted goods commences.
4. Whether a Co-operative Society which is not established by any government is liable to deduct TDS under GST?
Held: No.
In the case of M/s. Karnataka Co-operative Milk Producers Federation Limited-AAR Karnataka, the applicant is a registered society under Co-operative Societies Act, 1959 and is engaged in processing of milk and milk products. The applicant sought an advance ruling on whether they are liable to deduct TDS under GST on payments made to suppliers?
The applicant stated that the Govt. of Karnataka or any other State or Central Govt. does not hold any shares or holding with the applicant. It is of the presumptions that since few of the directors are from government, they would be coming under the purview of section-51 of GST Act. It also stated that it is not established by the Central Government or State Government or a local authority under Societies Registration Act, 1860.
The Authority stated that the applicant was formed and registered under Co-operative Societies Act, 1959 where District Co-operative Milk Unions are shareholders of the applicant organization. It is not a department or an establishment of Central Govt./ State Govt./ local authority. Hence, the applicant is not covered under clauses (a) & (b) of section-51(1) of the GST Act. It is also not a notified person under clause (d) of section-51(1). Also the applicant has not been established under national, regional or local governments but is registered under Co-operative Society Act, 1959, which mandates certain supervisory / participation from the relevant department of Karnataka State Government. The applicant has not been tasked with any responsibilities by the Govt. of Karnataka. The Directors have been nominated only to safeguard the funds of the said society. Therefore, the applicant is not covered under clause (c) of section-51(1) of the GST Act.
Hence, the applicant is not liable to deduct TDS under section-51(1) of the GST Act on payments made to suppliers.
5. Whether GST is applicable on the job work charges charged for manufacturing of cattle feed/ poultry feed on job work basis?
Held: Yes, taxable @ 5%
In the case of Gupta Steel Udyog-AAR Punjab, the applicant is engaged in manufacturing of cattle feed and poultry feed on job work basis. The total raw materials are supplied by the Principal Manufacturer.
The applicant made a reference to the Notification No.11/2017 CT (Rate) wherein the support services to agriculture, forestry, animal husbandry are NIL rated and activity of the applicant is falling under it. Further they also submitted that carrying out an intermediate production process as job work in relation to cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food , fiber , fuel , raw materials or other similar products or agriculture produce is also NIL rated.
The Authority stated that the applicant undertakes the supply of services by way of processing the goods supplied by the principal for a consideration and hence, the same is covered under supply. The Authority also stated that the crucial term which determines the issue is “intermediate production process” used in the Notification No.11/2017 CT(Rate). The applicant’s activity of manufacturing of cattle feed and poultry feed is not an activity of carrying out an intermediate production process as job work in relation to cultivation plants and/or rearing of all life forms. The services of the applicant are not covered under SAC 9986. The activity carried out by the applicant falls under Heading 9988 and not under 9986 as contended by the applicant. In such a case, the applicant has the liability to pay any tax liable on the job work charges.
Thus, the activity of manufacturing of cattle feed and poultry feed on job work basis is not ‘Support services to agriculture, forestry, fishing, animal husbandry.’ It is thus taxable @ 5% under GST.
6. Whether service of loading and unloading of imported raw whole yellow peas is exempt under Sl No.54(e) of the Exemption Notification?
Held: No
In the case of M/s TP Roy Chowdhury & Company Pvt. Ltd- AAR West Bengal, the applicant is acting as a stevedore and handles imported raw whole yellow peas. It seeks a ruling on whether such imported yellow peas are ‘agricultural produce’ and services by way of handling of it is eligible for exemption under Sl No. 54(e) of Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017?
The applicant submitted that it handles imported raw whole yellow peas in bulk that contains 1.45% broken grain and 10.86% split kernel. The Applicant argues that the percentage of broken grain or split kernel is insignificant and occurred in the course of the handling of the cargo and does not alter its character as raw whole yellow peas. It should, therefore, be treated as ‘agricultural produce’ as defined in clause 2(d) of the Exemption Notification and, therefore, the service of loading and unloading of the cargo should be exempt in terms of Sl No. 54(e) of the Exemption Notification.
The Authority stated that Services relating to the cultivation of plants, inter alia, for agricultural produce are exempt under Sl No. 54 of the Exemption Notification and classified under SAC 9986. They include, among others, loading, unloading, packing, storage or warehousing of agricultural produce[clause 54(e) of the Exemption Notification]. The agricultural produce means any produce out of cultivation of plants etc. “for food, fiber, fuel, raw material or other similar products on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market. The scope of such support services extends to post-harvest crop services such as preparation of crops for the primary markets. ln sync with it ‘agricultural produce’ is so defined as to include processes as may be done to make the produce marketable in the primary market without altering its essential characteristics. Circular No. 16/16/2017-GST dated 1511112017 of CBIC clarifies that the process of dehusking or splitting of pulses is usually not carried out by farmers or at the farm level but by the pulse millers and, therefore, such products are not to be considered ‘agricultural produce’. The emphasis, therefore, is on the processes and services that are applied till the goods are at the farmer’s hand. As soon as they leave the farmer’s hand and the primary market, the services rendered thereafter are not to be considered related to cultivation of the plant and classifiable under SAC 9986.
Hence, the supply of service by way of service of loading and unloading of imported raw whole yellow peas is not covered under the Exemption Notification and accordingly, it is a taxable supply.
7. Whether printing of advertising material is supply of service or supply of goods?
Held: Composite supply, service of printing is the principal supply.
In the case of M/s. Macro Media Digital lmaging Pvt Ltd.-AAR West Bengal, the applicant is engaged in the business of printing of trade advertisement material. It prints the content provided by the recipient on the base of polyvinyl chloride cloth, paper etc. The Applicant provides the printing ink and the base material. It seeks a ruling on whether such printing is a supply of goods or service?
The applicant argued that ‘service’, as defined under section 2(102) of the GST Act, includes the residual transactions that cannot be treated as supply of goods, money or securities. It means, leaving aside money and securities, every transaction should first be examined on the yardstick of ‘goods’, as defined under section 2(52) of the GST Act. lf it fails the test; the transaction may qualify as a supply of ‘service’. The essential condition to classify anything as ‘goods’ is that it should be a movable property and Printed trade advertising material, being a movable property, is to be treated as ‘goods’. The Applicant argued that it is transferring the title to the goods as printed advertising material. The transaction, therefore, amounts to the supply of goods. The Applicant admitted that printed advertising material is a composite supply. It includes the supply of goods in the form of printed PVC material and supply of the service of printing the content provided by the recipient. The question of what constitutes the predominant element of the composite supply? The Applicant further argued that the element of printing is ancillary to the supply of goods in the form of trade advertisement. The Applicant merely loads the content in the digital image printer, which does not involve any special skill or artwork.
The Authority stated that Applicant’s supply is a composite contract – a transaction involving both services and transfer of property in goods, and the two are inseparable in the execution of the contract. ln its Circular No. 11111l2017-GST dated20l1Ol2O17, the CBIC clarifies the treatment of various composite printing contracts. ln all these contracts, the recipient provides the content for printing and the printer supplier the physical inputs. All the printed goods are classifiable under Chapters 48 and 49 of the Tariff Act. The difference, however, lies in the customer contemplating or not separate rights and use arising out of the supply of the goods. ln case of printing of books, pamphlets, annual reports, etc., the goods have no-better utility than carrying the printed matter. The recipient provides on a digital media the content in the form of image/text/trade monogram and retains usage right on such intangible inputs. The Applicant loads the content in a digital image printer, prints the image on the PVC material, and supplies the printed material. The goods so supplied have no utility other than displaying the printed content. Service of printing, therefore, is the predominant element of the composite supplies the Applicant is making.
Hence, the applicant is making a composite supply, where the service of printing is the principal supply. The goods supplied, having no use other than displaying the printed matter, is ancillary to the principal supply of printing.
8. Whether accommodation services to employees of SEZ units are liable to CGST and SGST or IGST? If the accommodation services to SEZ are covered under IGST Act, could these be treated as zero rated supplies?
Held: IGST, Zero rated supply
In the case of M/s Carnation Hotels Pv.t Ltd.-AAR Karnataka, the applicant proposed to operate hotels and rent out rooms to the employees of the SEZ units. The services rendered by the applicant are entirely consumed at the premises itself.
The applicant contended that section-12(3) of the IGST Act, 2017 provides that the place of supply of service by the way of lodging accommodation of the hotel shall be the location at which immovable property located. Since, supplier being hotel, the location of the supply is also the location of the hotel. Services rendered by the hotels are intra-state as the location of the supplier and the place of supply is in the same state. Accordingly, accommodation services attract CGST and SGST, irrespective of the fact that the receiver of the service is located in the same state or other than the state where the hotel is located. Further, the applicant stated that section-7(5)(b) of the IGST Act provides that supplies of goods or services or both to SEZ will be treated as IGST supplies and proviso to section-8(2) states that Intra state supply of services shall not include services to SEZ developer or unit. Accordingly, services rendered to SEZ will be treated as interstate supplies and liable to IGST u/s 5(1) of the IGST Act and not u/s 9(1) of the CGST Act. Therefore, the applicant sought an advance ruling on whether the accommodation services to employees of SEZ units are liable to CGST and SGST or IGST and if the accommodation services to SEZ are covered under IGST Act, could these be treated as zero rated supplies?
The Authority stated that on a plain reading of section-16(1)(b) of the IGST Act and Rule-46 of the CGST Act, it becomes clear that the supply of goods or services or both towards the authorized operations only shall be treated as supplies to SEZ developers/ SEZ units. The Authority made a reference to the Circular issued by the Central Government bearing No.48/22/2018 dated 14.06.2018 in which it is clarified that as per section-7(5)(b) of the IGST Act, supplies of goods or services or both to SEZ will be treated as IGST supplies. It is also clarified in the same circular that in case of apparent conflict between two provisions, the specific provision shall prevail over the general provision. In the applicant’s case, section-7(5)(b) is the specific provision relating to supplies of goods or services or both made to a SEZ developer/unit and section-12 of the CGST Act is a general provision. It is therefore clear that the accommodation service proposed to be provided to SEZ units or developers shall be treated as interstate supply. Also as per conjoint reading of the provisions of section-16(1) and 16(3) of the IGST Act, it becomes clear that supplies to a SEZ developer/ unit shall be treated as zero rated supply and the supplier shall be eligible for refund of unutilized input tax credit or IGST paid, as the case may be, only if such supplies have been received by the SEZ developer or unit for authorized operations.
Hence, the accommodation service proposed to be provided to SEZ units or developers shall be treated as interstate supply and it is a zero rated supply.
