GST Update No 167 on ITC cannot be denied if one of the mixed supplies attracts NIL rate

The taxable event in GST regime is “Supply” as defined u/s 7 of CGST Act, 2017. Not only individual supply but also mixed and composite supply plays an important role related to determining appropriate rate of tax. However, time and again, there had been confusion in the minds of taxpayers in this regard as to whether which supply constitutes mixed supply or composite supply or individual supply. One such issue on the same subject matter was raised in front of Gujarat AAR in the case of Shree Arbuda Transport. However, the outcome of decision was challenged further in Gujarat AAAR. The outcome of decision imparted by AAAR is subject matter of our present update. The petitioner is engaged in providing transportation and logistic services, clearing, and forwarding and other allied services related to export and import of cargo and charges single consolidated rate for entire bundle of services. The appellant raised four questions in this regard i.e.: 1. Whether the services are mixed or composite supply? 2. What will be the HSN code of the supply to determine the tax rate? 3. Whether ITC can be availed by the appellant? 4. Whether the client of the appellant i.e. the exporter is eligible to claim refund of GST paid by the appellant? The appellant submitted that since there are number of services provided for which single consideration is charged, therefore, it shall be treated as mixed supply and therefore, chargeable at highest rate of tax i.e. 18%. Furthermore, it was argued that compliance of relevant sections of Input Tax Credit of CGST Act, 2017 is properly done with and hence, entire ITC can be claimed by them. It was submitted that since the client is engaged in making zero rated supply i.e. export, refund of accumulated input credit as regards to input services should be made available to him. The AAAR did not agreed with the views of AAR since no ruling can be provided in absence of signed agreement. It was held that the purpose of providing advance ruling is to help the applicant to determine the tax liabilities. It was observed that appellant is engaged in providing various services for which single consolidated price is charged. Reference was drawn to a draft agreement submitted by the appellant between both of the parties wherein it was observed that as per Scheme of Classification of Services, GTA services of transportation of rice attracts NIL rate whereas all other services attract 18% GST. However, since it is mixed supply, highest rate i.e. 18% shall be chargeable. Regarding second question of allowing cenvat credit , it was held that since he has paid tax on all services as mixed services, hence the credit shall be allowed. Coming on the last question, AAAR restricted itself from answering the question since the question is not related to the appellant who sought he advance ruling but is related to the exporter. The above ruling is welcoming for the business community. The analogy of the decision is clear that when the tax is paid on complete amount then the credit cannot be denied saying that one part of this mixed supply is exempt. Although it is simple common sense that credit will be allowed when tax is paid on complete amount but department does not move on by logics. Hence, it will be very highly helpful to the assessee. But some taxpayer may use it for tax planning. When they intend to take the credit then they can pay the tax on complete amount saying that it is mixed supply.

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GST Update No 167 on ITC cannot be denied if one of the mixed supplies attracts NIL rate

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