Payment of output tax on Castor Oil Seeds can be made through utilization of ITC taken on bullions: Gujarat AAAR modifies order of Gujarat AAR

In recent order by the Gujarat Appellate Authority For Advance Ruling in the matter of M/s. Aristo Bullion Pvt. Ltd., the Authority modifying the order of Gujarat Authority For Advance Ruling [M/s. Aristo Bullion Pvt. Ltd. [Advance Ruling No. GUJ/GAAR/R/15/2021, dated January 27, 2021] ruled out that “we hold that payment of output tax on Castor Oil Seeds through the utilization of Input Tax Credit taken on Gold & Silver Dore Bars, etc. cannot be denied merely on the ground that the inputs have no nexus with outward supply.”

As per Authority Section, 16(1) of the CGST Act only states the eligibility and conditions for taking ITC. It does not impose any restriction on utilization of the legitimately earned ITC. It does not prescribe that ITC available in electronic credit ledger to be utilized only for the specific outward supply, on whose inputs such ITC was availed.

Also, Section 16(1) nowhere mandates to prove one-to-one correlation of particular inputs with particular outward supply. In other words, Section 16(1) does not require that payment of outward tax on a particular outward supply can be made only from the ITC taken on particular inputs, which have nexus or connection with that outward supply. Therefore, we set aside the observation made by the GAAR to the effect, “It can, therefore, be seen that even the basic conditions envisaged in the provisions of Section 16(1) have not been fulfilled in the instant case.” [Para 12 of Ruling refers]. We find that the requirement of Section 16(1) is that the inward supply should be used or intended to be used in the course or furtherance of the business of the taxpayer. In this case, it is undisputed that the inward supply of Gold and Dore bars are intended to be used in the course of business of the appellant, i.e. outward supply of Bullion etc. This undisputed fact entitled the appellant to take an input tax credit on such inputs. Once such input tax credit is validly taken, it can be utilized for payment of ‘output tax’ [GST] on any taxable or zero-rated outward supply of the appellant.

Ruling:

Question: Can the applicant/appellant use Input Tax Credit Balance available in the Electronic Credit Ledger legitimately earned on the inputs/ raw- materials/ inward supplies (meant for outward supply of Bullions) towards the GST liability on Castor Oil Seeds which were procured from Agriculturists and subsequently meant for onward supply?

Answer: The applicant/appellant can use the Input Tax Credit Balance available in its Electronic Credit Ledger, which has been legitimately earned on the inputs / inward supplies (meant for outward supply of Bullions) for payment of ‘output tax’ (GST) on its outward supply of Castor Oil Seeds.

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