GST Judgement Update

In the recent precedent of High Court (TRI), restriction imposed by department on credit usage from Electronic Credit Ledger after expiry of period of one year has been lifted, held that no scope of extension of time limit in Rule 86A of CGST Rules. Furthermore, AAR Maharashtra in the advance Ruling of Nagpur Waste Management Pvt. Ltd. held Royalty paid to Nagpur Municipal Corporation (a Local Authority) for rights received for water supply to Mahagenco is liable to GST under reverse charge mechanism. The summaries of rulings are as follows:

Sahil Enterprises vs. UOI, TS-509-HC(TRI)-2021-GST: Restrictions on credit usage in electronic-ledger ceases after one-year; lifts attachment

Facts of the Case :

• The petitioner is a trader and on purchases made by him he has already paid the GST and in turn seller doesn’t deposit that tax with the Gov’t in resulted to which department imposed restriction on utilisation of said unpaid credit from electronic credit ledger as per Rule 86A w.e.f. 21st May, 2020. Moreover, department refused to lift the imposition even after expiry of one year.

• Therefore, challenged the vires of Section 16(2)(c) of the CGST Act, 2017.

Held:

• HC observes that as per Sub-rule (3) of Rule 86A states that restriction imposed shall be cease to take effect automatically after a period of one year and there is no scope of extension of this time limit.

• Where in case department wants to permanently disallow credit of accumulated amount in the ledger of a dealer, it must adjudicate the issue and pass an order after bi-parte hearing.

Nagpur Waste Water Management Pvt Ltd., TS-510-AAR(MAH)-2021-GST : Royalty paid to Nagpur Municipal Corporation for right received for Tertiary Treated Water supply to Mahagenco, not exempt

Facts of the Case :

• The Applicant, M/s Nagpur Waste Water Management Private Limited is registered under Companies Act as well as in GST Act.

• Nagpur Municipal Corporation (NMC) is Constituted under Nagpur Corporation Act, 1948 which makes NMC a Local authority enters into a contract with applicant for operation and maintenance of entire plant for treatment of sewage water for a period of 30 years for which consideration will be paid by the NMC on which GST is also leviable. The applicant also got the special rights to sell the treated water to Mahagenco subjected to the payment of Royalty to NMC by applicant as per the agreement.

• The applicant sought advance ruling on following:

  • Whether royalty paid by the applicant to NMC for supplying ‘ tertiary treated water’ to Mahagenco by treating sewage water supplied by MNC is liable to tax under GST laws?

  • Whether GST liable to pay under RCM by Applicant or under Forward Charge by NMC?

  • Whether ITC available to the Applicant on tax paid on royalty?

Held:

• AAR observes that there is a transfer of rights to sell treated water to Mahagenco, from NMC to the applicant, where NMC is supplier and recipient is applicant and it is covered under “supply of services”. Hence, GST is payable on royalty amount.

• Further, as per Notification No. 13/2017- Central Tax (rate) dated 28.06.2017, services supplied by CG, SG or any local authority to a business entity, in that case, the liability is liable to pay tax is on recipient on RCM basis. Hence, Applicant is liable to pay tax under RCM.

• ITC is available to Applicant on tax paid under RCM subject to conditions of Section 16 of CGST Act.