GST Update No 139 ITC available as common pool for utilization

The major driving force of implementing GST was to allow seamless flow of input tax credit in the transaction chain and enable its effective utilization thereby removing the cascading effect of taxes. The provisions formulated with respect to availment, and utilisation of Input Tax Credit is litmus test for Government’s commitment to ensure that there is no disruption in the credit chain. However, at times, interpretation adopted by AARs distort the intention and create confusion. Recently, Gujarat AAR in the case of M/S. ARISTO BULLION PVT. LTD. held that the taxpayer can utilize ITC only if there is direct nexus between inputs and outputs which is totally against the basic principle of credit facility extended to the assessees. This decision was further challenged before the Gujarat AAAR and recently decision has been pronounced by AAAR. The outcome and the reasoning adopted by the AAAR is the subject matter of discussion of our present update. The appellant in engaged in manufacturing as well as trading of Gold and Silver Bullion including coins etc. They intend to utilize ITC available on purchase or import of Gold & Silver Dore against payment of GST on outward supply of trading of castor oil seeds However, it was concluded by AAR that since as per Section 16, assessee shall be entitled to take input tax on supply of goods and services which are intended to be used in the course or furtherance of business and since no one to one correlation exists between the two supplies, appellant shall not be entitled to utilize ITC. The appellant contended before AAAR that raw materials or trading material procured in form of Gold & Silver Dore for further supply will qualify in the definition of “goods”, being movable property. Hence, it amounts to “input tax” as per Section 16(1) of CGST Act, 2017. As per Rule 86 of CGST Rules 2017, there is no provision in rules which restricts the utilization of electronic credit ledger towards output tax in respect of taxable supply. Thus, credit ledger can be utilized to make payment of output tax liability of other business verticals as well. Further, as per Section 49(2) & (4), credit ledger does not contain any identification for utilization of Input Tax Credit. The inputs are available as a common pool which can be utilized to discharge output tax liability. The appellant quoted the illustration of nationally renowned organizations such as “D mart”, “Big Bazar” etc. which provide a diverse range of products and avails ITC as per Section 16. Once the condition of availment of credit is fulfilled as per Section 16, it transpires to be deposited in a common pool of credits which can be subsequently utilized against output tax liability. Reliance was placed on the similar issues which came across Courts in Pre-GST regime. The courts held that there is no requirement to prove existence of direct nexus between inputs and output. Reliance was placed on decisions rendered in the case of Tally Solutions (P.) Ltd. v. CCE, Pipavav Shipyard Ltd. v. CCE & ST, Nitin Spinners Ltd. v. CCE, Entraco Power Systems (P.) Ltd. v. CCE, CCE v. Graphite India Ltd, Coca Cola India Pvt. Ltd. v. Commissioner of Central Excise, Pune-III, and CCE, Coimbatore v. Lakshmi Technology and Engineering Industries Ltd. The AAAR held that section 17(5) does not impose any restriction on availing ITC on gold bars. The AAAR held that even if logic of AAR is adopted, taxpayers who are selling large number of commodities would require to maintain input tax credit accounts in respect of each commodity which is impossible and is nowhere prescribed in the law. It was held that once the taxpayer validly takes ITC on inputs, that ITC merges into common portal which is not maintained commodity wise. Further, it was held that Section 16(5) does not mandate assessee to prove one to one correlation between inputs and output. It only prescribes that inward supply should be used in the course or furtherance of business. Since, it is undisputed fact that the inward supply of Gold and Silver Dore bars are used in the course of business of the appellant, input tax is validly taken and it can be utilized against payment of outward taxable or zero rated supply. Therefore, it was concluded that Input Tax Credit balance available in its Electronic Credit Ledger which has been legitimately earned on the inputs can be utilized for payment of outward supply of castor oil seeds. The GST law has subsumed various indirect taxation law but it appears that the points of dispute raised in the erstwhile tax regime are also carried forward in the new regime. The issue regarding proving one-to-one correlation of inputs used for the purpose of outward supplies was also litigated in earlier laws but the matter was settled in favour of the assessee that no nexus is required to be established for inputs and output for the purpose of utilisation of credit by numerous decisions rendered by CESTAT. It is appreciated that similar view was taken by AAAR and the order passed by the AAR was rectified by reversing the same.

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GST Update No 139 ITC available as common pool for utilization

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