To claim input tax credit, an input service must be integrally connected with business of manufacturing final product; and cost of an input service forming part of cost of final product alone cannot be a condition to allow benefit of input tax credit
• The appellant company NACL was a manufacturer of aluminium metal through its refinery. It had townships for its employees. It was also running hospitals for its employees and had guest houses for touring employees and guests. The applicant sought an advance ruling on question that whether input tax credit was to be allowed on inputs and input services used by it for maintenance of their township, security services and horticulture meant for township.
• Inward supplies received by the appellant by way of management, repair, renovation, alteration or maintenance service or goods received for furnishing the residential colony shall not qualify for input tax credit. Expenditure incurred by the appellant towards construction, reconstruction, renovation, additions or alterations or repairs to the residential colony is not eligible for input tax benefit if the said expenditure has been capitalized. Moreover, provision of housing to its employees by the appellant is nothing but a perquisite. The perquisites are outside the scope of GST, input tax credit shall not be available to the appellant in respect of tax paid on goods and services procured by it for management, repair, renovation, alteration or maintenance services (including watch and ward services, security services, Plantation/Gardening/Landscaping services, etc.) pertaining to residential accommodation for its employees in township/colony.
• The appellant is not entitled to input tax credit of the tax paid on inward supply of input and input services for maintenance of guest house, transit. The provision of residential accommodation through transit house/trainee hostel is also a perquisite in favour of the employees and hence tax paid on inward supplies of goods and services for the transit house/trainee hostel cannot be allowed the benefit of input tax credit. The guest house of the appellant is used for temporary accommodation of its employees as well as non employees. Though the provision of guest house may not be treated as a perquisite, it cannot also be treated as an activity integrally related to the business of the appellant. That means, the guest house service provided by the appellant to its employees as well as non-employees cannot be treated as an activity in course or furtherance of its business. Hence, tax paid on inward supplies of goods and services in connection with the guest house cannot be allowed the benefit of input tax credit .
• Services availed in relation to plantation and gardening within the plant area including mining area and the premises of other business establishments will qualify for input tax credit. Creation and maintenance of green area/zone inside plant/mining/office premises is a business necessity for controlling pollution as well as atmospheric temperature. It is also a requirement for preventing soil erosion. This is also mandated in various laws under which the appellant conducts its business such as the Forest Conservation Act, the Environment Protection Act, etc. Therefore, such activities are integral to the business activity of the appellant and hence can be treated as activities in course or furtherance of its business. To this extent, the appeal filed by the appellant is not sustainable and hence liable to be rejected.
• From the above, it is established that to claim input tax credit, an input service must be integrally connected with the business of manufacturing the final product. Cost of an input service forming part of the cost of final product alone cannot be a condition to allow the benefit of input tax credit.