Key learnings from GST advance rulings: Not all that 'bad'

There have been 280 advance rulings and 40 orders from Appellate Authority of Advance rulings in various states

It has been nearly 540 days since the introduction of goods and services tax (GST) and we already have around 280 advance rulings and 40 orders from Appellate Authority of Advance rulings in various states. Given the design of the advance ruling mechanism under GST wherein such authorities are effectively being manned by senior tax officers, several advance rulings have gone against the assessees and there are strong murmurs of a deep pro-revenue bias of the advance ruling mechanism.  

Nonetheless, some well-reasoned rulings have indeed come up in 2018. In line with the positive spirit of Christmas, I will try to encapsulate the key learnings from some such ‘good’ advance rulings below. After all, the ‘bad’ and the ‘bizarre’ advance rulings have already received their share of ‘bad press’ and commentary.

(1) Authority for Advance Ruling (AAR), Maharashtra, in Sonkamal Enterprises (2018-VIL-309-AAR): When an importer of chemicals, registered in Maharashtra, seeks to import through Haldia port in West Bengal, no separate registration is required for the importer in West Bengal. Since the importer is registered in Mumbai, the place of supply for such imports through Haldia shall also be Mumbai, Maharashtra, and the Mumbai GST number can be used.

(2) AAR Rajasthan in Habufa Meubelen B. V. (2018-VIL-98-AAR): The head office (“HO”) located in the Netherlands established the applicant liaison office (“LO”) in India. The LO does not undertake any activity of trading, other than liaison work. No consideration/commission is charged by the LO for liaison activities rendered to the HO; the HO merely reimburses expenses incurred by the LO. In other words, the LO is solely dependent on the HO and does not have any other source of income.

Basis the foregoing facts, the AAR held that the HO and the LO cannot be treated as separate entities since there is no flow of services between them and no consideration towards any service -- the LO need not get registered in India under GST.

(3) AAR Uttar Pradesh in GE Diesel Locomotive Private Limited (2018-VIL-78-AAR): The applicant engaged in import and manufacturing of rail locomotive engines for supply to the Indian Railways and provides comprehensive annual maintenance service of the said locomotives, which may involve the incidental supply of spare parts/ goods. 

The AAR held that as per the maintenance contracts, the supply of maintenance service is for a fixed price with or without the supply of spare parts/goods. The supply of service and goods is made in conjunction with each other in the ordinary course of business. Therefore, it is a composite supply of service wherein the ‘principal supply’ is that of the maintenance service inasmuch as the supply of goods is merely incidental to the maintenance obligation in the given facts and circumstances.

(4) AAR Kerala in Ernakulam Medical Centre (2018-VIL-179-AAR): The AAR observed that health care services provided by a ‘clinical establishment’ are exempted and distinguished between inpatient and outpatient services in the hospital as per below:

• For inpatients, medicines and allied goods supplied are indispensable and it a composite supply to facilitate health care services and such supplies of medicines etc will be exempt from GST. 
• For outpatients, the patient has full freedom to follow the prescription and procure the medicines or allied items from outside -- it is an individual supply of medicines and allied goods and not covered under the ambit of health care services, hence separately taxable.

(5) AAR West Bengal in IIM, Calcutta (2018-VIL-249-AAR): There are two separate exemption entries in GST -- entry 66 (a general exemption for ‘educational institutions’) and entry 67 (a specific one for specific IIM courses which specifically excluded executive development programmes like “Executive Post Graduate Programme in Management (EPGP)”). The AAR held that even though the executive development programmes are specifically excluded from entry 67, the exemption will be available under the general entry 66 (since when two benefits are available, the assessee can choose between them).

• Unfortunately, AAR Madhya Pradesh and AAR Karnataka have given contrary and adverse rulings. 

(6) AAR Maharashtra in Jotun India (2018-VIL-274-AAR): The supply of goods which are moved from a place located outside India and delivered at a place outside India (for example, sale by an Indian entity of goods located in Germany to a customer in France), would not be liable to GST in India. 

While such transactions are technically ‘inter-state’ supplies, as per proviso to Section 5(1) of the IGST Act, such transactions can only be taxed under GST through the Customs Act, which does not get triggered when goods do not enter India. 

The author is partner - tax controversy management & contract documentation, Advaita Legal