Karnani FNB Specialities LLP {AUTHORITY FOR ADVANCE RULINGS, WEST BENGAL}

Karnani FNB Specialities LLP {AUTHORITY FOR ADVANCE RULINGS, WEST BENGAL} :

Date of Order : 09-02-2023

simplified explanation of the rulings by the Authority for Advance Rulings (AAR) in West Bengal regarding Input Tax Credit (ITC) reversal related to the sale of alcoholic liquor for human consumption under GST:

1. Classification of Alcoholic Liquor for Human Consumption

• Nature of Supply: Alcoholic liquor for human consumption is classified as goods under GST. However, its sale is considered a non-taxable supply because GST is not levied on alcoholic liquor for human consumption as per the provisions of GST law.
• Exempt Supply: Even though alcoholic liquor is goods, its sale falls under the category of exempt supply. Exempt supply includes non-taxable supplies under GST regulations.

2. Input Tax Credit (ITC) Reversal

• ITC Provisions: Section 17(2) of the West Bengal Goods and Services Tax (WBGST) Act, similar to CGST Act, specifies that ITC cannot be claimed for inputs or input services used in making exempt supplies.
• Rule 42 of WBGST Rules: According to Rule 42 of the WBGST Rules, if inputs or input services are used for both taxable and exempt supplies, ITC attributable to exempt supplies must be reversed.
• Decision: The AAR ruled that since the sale of alcoholic liquor for human consumption qualifies as exempt supply, any ITC claimed on inputs or input services directly used for such sales must be reversed as per the formula prescribed in Rule 42 of the WBGST Rules.

3. Distinction Between Input Tax and Output Tax

• GST Application: GST is not applicable on the outward supply (sale) of alcoholic liquor for human consumption. Therefore, there is no input tax charged by suppliers nor any output tax payable by recipients under GST or Reverse Charge Mechanism (RCM).
• Distinct Taxes: Input tax refers to the tax paid on inputs, input services, and capital goods used in business operations, while output tax is the tax payable on taxable supplies of goods or services.
• Reversal Mechanism: The reversal of ITC for exempt supplies does not equate to discharging GST liability on output supplies because input tax and output tax are separate and distinct under GST law.

Conclusion

These rulings clarify that while alcoholic liquor for human consumption qualifies as goods under GST, its sale is considered a non-taxable supply and falls under the category of exempt supply. Therefore, any ITC claimed on inputs or input services used in relation to such exempt supplies must be reversed. This ensures compliance with the provisions of Section 17(2) of the WBGST Act and Rule 42 of the WBGST Rules, which mandate the reversal of ITC attributable to exempt supplies.