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Odisha Authority for Advance Ruling -GST has issued an important order in case of Advance Ruling sought by M/s National Aluminium Company Ltd {‘NALCO’} in respect of its entitlement to take credit of ITC on various goods and services used for maintenance of applicant’s township, guest house, hospital, horticulture in its ordinary course of business.

About NALCO:-

NALCO is a Government of India Enterprise and is engaged in manufacturing of calcined alumina. Produced alumina is used for the production of aluminium cold rolled sheets and coils.

What was the ruling sought for:-

As part of its business, NALCO is having townships and residential colonies at various ‘production’ sites along with Hospitals. Further, it also has guest houses for touring employees and guests. They maintain parks and green areas in factories and townships. NALCO is receiving various services like repair and maintenance, cleaning, plantation, security, waste disposal, etc. NALCO provides a list of 56 such services

Now the question was, whether or not, NALCO is eligible to claim ITC on various expenses in relation to operation and maintenance of these townships, residential colonies, hospitals, guest houses or horticulture or other like facilities.

NALCO’s  Representation over facts and opinion :-

  1. Services of management, maintenance and repair in its townships, residential colonies, hospitals, guest houses or horticulture or other like facilities are being used in the course of furtherance of its business and it has direct nexus in its business interest.
  2. It serves the business interest of NALCO to keep employees residing in its townships/residential colonies near to its factories and offices.
  3. Applicant was not into the business of providing dwelling services, accommodation services and health services etc and are provided as perquisites to employees where cost of such services included in CTC.
  4. Hospital services and infrastructure has been created in lieu of EIC Contribution. It is statutory obligation under EIC Act and is discharged by establishing the hospital and maintaining the same.
  5. Further, these infrastructures are necessary for the applicant to run its large-scale business of manufacturing.

Counter submissions of GST Department :-

  1. Expenses on such facilities have no direct nexus to the manufacturing activity. Said activities may be welfare activities undertaken while carrying on the business.
  2. The residential colonies/townships are located outside any factory.
  3. The prime purpose of maintaining guest house is welfare of touring employees.
  4. Supplies provided by hospitals are exempt under GST. So, any expense incurred for supply of exempt service is not eligible for Input Tax Credit.

Observations of Authority :-

Expenses incurred in respect of residential colony/townships:-

  1. Input goods or services (expenses) listed by ‘NALCO’ are partly of business use, partly of non-business use, some of expenses are exclusively in relation to the residential colonies.
  2. Undeniably, ‘NALCO’  is providing services to its employees by way of residential accommodation (temporary or regular in guest house and colonies respectively), health care services and other facilities.
  3. These services are covered in the definition of ‘Supply’ under Schedule-I.
  4. However, As per press release of CBIC of 10.07.2017, perquisites provided to employees in terms of employment agreement are not chargeable to GST and are exempt under GST.
  5. As per NALCO, facilities provided to employees are part of their ‘CTC’ under employment agreement.
  6. Hence, all the services provided in residential colonies/townships are purely exempt services provided to its employees. Consequently, ITC on expenses incurred on such colonies/townships is not eligible under GST.
  7. Goods/Services which are received partly for plant area and partly for residential colony, ITC will be available to the extent allowed under section 17(2) of CGST Act in respect of plant area only.

Expenses incurred in respect of Hospitals:-

  1. Establishment of hospital infrastructure and maintenance of same may be for discharging of statutory obligation under EIC Act by the Employer. But dispensing medical services to the employees and others is a supply of service by the employer. Such service is being nil rated and will fall under exempt supplies.
  2. Consequently, ITC on such expenses (incurred for exempt supplies) is not eligible under GST.

Maintenance of Guest House, training hostels, Landscaping by way of Gardening or otherwise

Establishment of Guest Houses, Landscaping by way of Gardening or otherwise is neither a perquisite nor a statutory obligation. However, it is a business requirement to maintain such facilities and accordingly the applicant is entitled to input tax credit of tax paid on inward supply of input and input services for maintenance of guest house, transit house and training hostels but excluding those which are exclusively blocked under section 17(5) like food and beverages.

Plantation services

  1. It was found that plantation services are availed both inside the plant area as well as outside the plant area.
  2. Some of contracts are for urban plantation and annual plantations.
  3. Such services are definitely not in the course of or for furtherance of business. It  may be obligatory but not a business requirement.
  4. Hence, plantation and maintenance of such plantation outside plant area, or, within residential areas, would not qualify for ITC.
  5. However, plantation and maintenance of such plantation and gardens inside the plant area, and other business establishments like administrative building and guest houses, mining area will qualify for ITC.

Copy of AAR >>>> Odisha AAR-02-2018 Dtd 19.09.18-NALCO

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