Applicant required to reverse ITC in view of sale of alcohol effected from his premises

The West Bengal Authority of Advance Ruling(WBAAR) has ruled that Applicant required to reverse ITC in view of sale of alcoholic liquor for human consumption effected by it at its premises.

The applicant is engaged in the business of providing restaurant services from its lounge bar called “The GRID” and is also providing catering services as well as banquet renting services. Along with such supplies or on a standalone basis, at times, the applicant is also engaged in selling/serving of alcoholic liquor for human consumption to its customers.

The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application in FORM GST ARA-01:

(i) Whether the Constitution of India has conferred any power onto the Parliament to legislate on sale of alcoholic liquor for human consumption with reference to the Goods and Service tax regime, considering the provision of Article 246A read with Article 366(12A)?

(ii) If the answer to question (1) is in the negative, then whether the Central Goods and Services Tax Act, 2017(CGST Act) can directly or indirectly deal with aspects touching upon sale of alcoholic liquor for human consumption by the applicant either with reference to levy of tax on such sale or with reference to reversal of credit solely because the applicant is effecting sale of such alcoholic liquor?

(iii) Under these circumstances, whether the definition of exempt supply as provided under section 2(47) of the CGST Act, read with definition of the term “non-taxable supply” under section 2(78) can therefore include sale of alcoholic liquor for human consumption by the applicant?

(iv) Whether in order to qualify as non-taxable supply under section 2(78), a transaction must first qualify as supply as defined in section 7 of the CGST Act read with Article 246A and Article 366(12A) of the Constitution and as such therefore, sale of alcoholic liquor for human consumption cannot be said to qualify as a “supply” for the above purposes under the ambit of the CGST Act.

(v) Consequently, whether the applicant is obliged to reverse input tax credit (ITC) under section 17(2) of the CGST Act read with rule 42 of the Central Goods and Services Tax Rules, 2017 (CGST Rules) in view of the sale of alcoholic liquor for human consumption effected by it at its premises under the facts & circumstances of the present case?

The Authority found out that, “the applicant supplies restaurant services, catering services and banquet renting services. Further, the applicant undertakes sale of alcoholic liquor for human consumption along with such supplies or on a standalone basis, as the case may be. It is not in dispute that tax is levied under sub-section (1) of section 9 of the GST Act on intra-state supply of restaurant services, catering services and banquet renting services at such rates as it has been notified by the Government. It is also not in dispute that the aforesaid sub-section specifically excludes levy of tax on the “supply of alcoholic liquor for human consumption”. However, the question on which the advance ruling is sought is not related to taxability of such services rather it is is related to apportionment of input tax credit under sub-section (2) of section 17 of the GST Act read with rule 42 of the Central Goods and Services Tax Rules, 2017/ West Bengal Goods and Services Tax Rules, 2017.”

It Stated, “Section 16 of the GST Act deals with eligibility and conditions for taking input tax credit which entitles a registered person 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. The GST Act allows a registered person to utilize such input tax credit, to the extent of its eligibility, for making payment of output tax. Section 17 of the GST Act, on the other hand, refers apportionment of input tax credit and blocked credits. With a view to appreciate the submissions made before us by the applicant on the issue involved in the instant case, we proceed to decide first whether the item alcoholoc liquor for human consumption can be considered as “goods” under the GST Act and whether sale of this item qualifies as “supply” within the meaning of scope of supply as defined in an inclusive manner in section 7 of the GST Act.”

“As per clause (52) of section 2 of the GST Act, “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. The said definition thus excludes only money and securities meaning thereby only money and securities cannot be treated as goods under the GST Act. In absence of any such exclusion for alcoholic liquor for human consumption, which is undisputedly a movable property, thus qualifies as goods under the GST Act.”

Authority further find that the expression “supply” is defined in section 7 to include all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration in the course or furtherance of business. The expression “supply” thus includes sale of goods. Sale of goods namely alcoholic liquor for human consumption for a consideration by the applicant in the course or furtherance of business, thus, comes under the purview of supply as defined in section 7 of the GST Act.

Therefore, Authority hold that the activities of selling of alcoholic liquor for human consumption by the applicant qualifies as supply under the GST Act. The applicant contends that by virtue of Article 366 (12A), the scope of GST has been restricted, under the Constitution of India, to specifically exclude sale of alcoholic liquor for human consumption. We are unable to accept this proposition. Article 366(12A) of the Constitution as amended by 101st Constitutional Amendment Act, 2016 defines the Goods and Services Tax (GST) as a “tax on supply of goods or services or both, except taxes on the supply of alcoholic liquor for human consumption”. It, therefore, stands to reason that the taxable event under the GST Act is supply i.e., goods and services tax is a tax which is levied on supply of goods or services or both. The specific exclusion delineates that tax shall not be levied on supply of alcoholic liquor for human consumption. Accordingly, section 9 of the GST Act which deals with “Levy and collection” excludes levy of tax on the “supply of alcoholic liquor for human consumption”.

It follows from above that sale of alcoholic liquor for human consumption is a supply under the GST Act on which tax is not leviable. A supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act is defined as “Non-taxable supply” in clause (78) of section 2 of the GST Act. Thus, sale of alcoholic liquor for human consumption shall be treated as non-taxable supply, as discussed. Further, “exempt supply” as defined in clause (47) of section 2 of the GST Act includes non-taxable supply. A conjoint reading of section 2(47) and 2(78) thus denotes clearly that the aforesaid supply would also be treated as “exempt supply” under the GST Act.

On the issue of reversal of input tax credit, authority find that “placing reliance on the maxim Quando aliquid prohibetur fieri, prohibetur ex directo et per obliquum, the applicant contends that reversal of input tax credit would other way mean discharging of GST liability on output supply of alcoholic liquor for human consumption. We do not incline to accept the argument. Sub-section (2) of section 17 of the GST Act restricts the amount of input tax credit as is attributable to the taxable supplies including zero-rated supplies. On a plain reading of the above provisions, it clearly emerges that the statutory scheme, as envisaged under the Act requires reversal of tax which is charged on inward supply of goods or services or both. Input tax is totally different and distinct from outward supply. Since tax is not leviable on supply of alcoholic liquor for human consumption under the GST Act, there cannot be any inward supply to the applicant of the said item on which tax is to be charged by its supplier or the applicant is liable to pay tax under reverse charge mechanism. We reiterate that input tax, in relation to a registered person means the tax which is charged on his input, input services and capital goods while output tax, in relation to a taxable person means the tax chargeable under the GST Act on taxable supply of goods or services or both made by the taxable person. Thus reversal of tax charged on inward supplies which are altogether different from outward exempted supplies of alcoholic liquor for human consumption would no way lead to discharging of GST liability on outward supply.”

RULING

Under the facts & circumstances of the present case, the applicant is required to reverse input tax credit (ITC) in terms of sub-section (2) of section 17 of the GST Act read with Rule 42 of the GST Rules for sale of alcoholic liquor for human consumption.

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