Utilization of ITC cannot be denied merely on the ground that the inputs have no nexus with outward supply

The AAAR, Gujarat in the matter of M/S. Aristo Bullion Private Limited [Advance Ruling No. GUJ/GAAAR/APPEAL/2021/36 dated December 22, 2021] modified the ruling passed by the AAR, and held that, the assessee is entitled to use the Input Tax Credit ("ITC") balance lying in its Electronic Credit Ledger ("ECL"), legitimately earned on the on Gold & Silver Dore Bars etc., for the purpose of paying GST on outward supply on Castor Oil Seeds, and it cannot be denied merely on the ground that the inputs have no nexus with outward supply.

Facts

M/S Aristo Bullion Private Limited ("the Appellant") is a company engaged in the business of manufacturing and importing Gold and Silver Bullion including coins etc. These raw materials were procured domestically or imported as raw materials after paying appropriate Goods and Services Tax ("GST"). The Appellant intended to pay GST by utilising the amount of Input Tax Credit lying in the ECL.

Further, the Appellant is also engaged in the trading of the Castor Oil Seeds and intended to pay GST by utilising the ITClying on the ECL taken on inward supply of Gold & Silver Dore / articles, for the payment of outward supply of Castor Oil Seeds.

This appeal has been filed against the order passed by the AAR, Gujarat in Advance Ruling No. GUJ/GAAR/R/15/2021, dated January 27, 2021, wherein it was held that, ITC balance available in the ECL legitimately earned on the inputs/raw-materials/inward supplies meant for outward supply of Bullions, cannot be used towards the GST liability on ‘Castor Oil Seed’ procured from agriculturists and subsequently meant for onward supply, as there is no nexus/connection between the inputs and final product since the inputs are not used or intended to be used in the course or furtherance of the business of supply of ‘Castor Oil Seeds.

Issue

Whether ITC validly taken on any ‘input’ can be utilized for payment of ‘output tax’ i.e. GST on any outward supply which has no nexus with the inputs on which ITC was taken.

Held

The AAAR in Advance Ruling No. GUJ/GAAAR/APPEAL/2021/36 dated December 22, 2021 held as under:

• Analysed Section 16(1) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") and noted that, the provision nowhere mandates to prove one-to-one correlations of particular inputs of the particular outward supply and it only states the eligibility and conditions for taking ITC and does not impose any restriction on utilisation of the legitimately earned ITC. Further, it does not prescribe that ITC available in ECL to be utilized only for the specific outward supply, on whose inputs such ITC was availed.
• Observed that, though there is no nexus of the inputs with outward supply, there is a nexus of the said inputs with taxable outward supply of Bullion / various forms of Gold & Silver.
• Stated that, once a taxpayer validly takes ITC on inputs, it merges into common pool of ITC under the ECL, which is not being maintained commodity wise. After merging of ITC in the common pool, it would not be always possible to identify that ITC taken on which particular input has been utilised. Thus, once the ITC is taken it can be used for payment of output tax on any taxable or zero-rated outward supply of the Appellant.
• Opined that, the Appellant can use the ITC Balance available in its ECL, which has been legitimately earned on the inputs / inward supplies i.e., meant for outward supply of Bullions for payment of ‘output tax’ on its outward supply of Castor Oil Seeds.
• Modified the ruling passed by the AAR, Gujarat.
• Held that, that payment of output tax on Castor Oil Seeds through utilization of ITC taken on Gold & Silver Dore Bars etc. cannot be denied merely on the ground that the inputs have no nexus with outward supply.

Relevant Provisions

Section 16(1) of the CGST Act

"Eligibility and conditions for taking input tax credit.

(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."