ITC available in electronic credit ledger accruing from inputs of bullion cannot be utilized towards payment of GST liability on supply of castor seed oil

Question: Can the applicant use ITC 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 Seed’ which were procured from agriculturists and subsequently meant for outward supply?

Answer: The answer is negative.

Facts of the case:

• The applicant intends to engage in supply of gold that involves some manufacturing process and in the said activities various inputs namely gold dore, silver dore are required. The inputs required for the manufacturing will be procured domestically or by way of import on payment of GST. They will avail ITC of GST so paid on inward supplies as above.
• They also intend to procure castor oil seeds from agriculturists (unregistered) and intend to sale it in domestic and export market. They need not pay any GST on procurement of such castor oil seeds from unregistered agriculturists under forward or reverse charge. So, the question of availing ITC does not arise on such purchase. However, further sale of castor oil seed attracts GST @ 5%.
• In background of the above facts, the above question was put before the authority that can the applicant use ITC available on bullion inputs towards payment of GST liability towards sale of castor oil seeds.

Submission by the applicant:

• Electronic Credit Ledger is an input tax credit pool and once amount is credited, it works as deemed cash balance without linkage with inward supply and therefore the balance available in this pool account can be used for payment of GST on the outward supplies in terms of Section 49(4) of the CGST Act, 2017 which provides that: -

“The amount available in the electronic credit ledger lay be used for making any payment towards output tax under this Act or under the IGST Act in such manner and subject to such conditions and within such time as may be prescribed.”

• So, they are of the view that they can use ITC available for payment of GST on castor oil seed out of the ITC earned on the inputs/ raw-materials/ inward supplies namely gold dore, silver dore which are used in the manufacture of outward supplies namely gold and silver bars along with gold coins of various purities.

Observation of Authority:

• The Authority referred the provisions of section 16(1) “Eligibility and conditions for taking ITC” and section 17(5) “Blocked credit”
• On going through the provisions of section 16, we find that sub-section (1) specifically mentions that the registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, specified in section 49, be entitled 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.
• Thus, the nexus/ connection between the inputs and the final products manufactured from these inputs is required to be proved. Since, the applicant has not provided any document or information which might prove any nexus/ connection between supply of castor oil seeds with inputs/ raw-material from gold dores or silver dores, we conclude that the applicant is not eligible to utilize the ITC available in their credit ledger earned on the inputs/ raw-materials/ inward supplies meant for outward supply of bullions) for payment of GST liability on supply of castor oil seeds.

Author’s Note:

Under GST law, there is no requirement of establishing one to one co-relation between inputs/ input services and final output. Any eligible ITC can be utilized for payment of tax on any taxable outward supply. The wordings of section 16(1) are:

Section 16(1): “Every registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, specified in section 49, be entitled 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 and the said amount shall be credited to the electronic credit ledger of such person.”

The use of words “any” and “his business” clearly suggests that there is no need to establish nexus between the input and the final output. So, in our opinion, the ITC in this case should be admissible to be utilized as pleaded by the applicant. The above ruling shall be certainly tested by the Hon’ble judiciary in the case of same applicant or in any other case.

Click the link fo detailed order:- Aristo Bullion Pvt. Ltd.