CMS Info Systems Ltd., In re

The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as "the CGST Act and MGST Act"] by M/s. CMS Info. Systems Limited, the applicant, seeking an advance ruling in respect of the applicability of GST on:

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act/MGST Act would be mentioned as being under the "GST Act".

FACTS AND CONTENTION - AS PER THE APPLICANT

The submissions, as reproduced verbatim, could be seen thus—

Statement of relevant facts having a bearing on the question(s) raised:

The applicant is having cash management network pan-India. During the course of providing cash management services, the applicant is engaged in following activities:

Such transportation of cash is done through security vans popularly known as cash carry vans The applicant purchases raw motor vehicles and with the requisite fabrications, gets it converted to cash carry vans. The applicant also pays GST on fabrication. For this purpose, the applicant purchases motor vehicles and pays GST (Goods and Services Tax). Credit of such GST is not availed by the Applicant presently. While purchasing cash carry vans under pre-GST era, the applicant had paid Central Excise Duty as well as Value Added tax

When these vans cannot be used further, the applicant sells these motor vehicles as scrap. In certain cases, instead of purchasing motor vehicles, the applicant prefers to hire these motor vehicles.

Statement containing the applicant's interpretation of law and/or facts, as the case may be. in respect of the aforesaid question(s) (i.e. applicant's viewpoint and submissions on issues on which the advance ruling is sought):

The applicant presents its interpretation of law for each of the above questions hereunder. The applicant hereby submits that each of the following submission is without prejudice to each other:

Question I.

Whether supply of such motor vehicles as scrap after its usage can be treated as supply' in the course or furtherance of business and whether such transaction would attract GST? If yes, please provide the rate of GST and/or Compensation Cess.

The applicant is supplying motor vehicles as scrap after using the same. Therefore, the issue raised is whether such transaction can be considered to be supply' in the eyes of GST Law. In this regard, it would be worth analysing Section 7 of Central GST Act, 2017 which reads as under: 

"Section " Scope of supply.

(1) For the purposes of this Act, the expression "supply" includes 

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business: 

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. "

The disposal of the scrap vehicles for consideration is a sale and section 7 explaining the expression 'supply' covers supply of goods such as sale or disposal made for a consideration. Section 7, further, says that the supply has to be in the course or furtherance of business. With regard to this, we see that the applicant is in the business of having a cash management network involving transportation of cash. The disposal of the cash carrying vans is a transaction in connection with or incidental or ancillary to the business of having a cash management network. As and when the vehicles become scrap, they have to be disposed off and the proceeds therefrom to be identified as income for the business which is reflected in the Profit & Loss Account of the business. Buying new assets and discarding the old and unusable assets is an activity in the course of carrying on of the business. Hence, we conclude that supply of such motor vehicles as scrap after its usage is an activity of 'supply' in the course or furtherance of business and such transaction would attract GST. 

However, we see that the applicant has referred to the following to make a claim that the impugned transaction would not be a 'supply' under the GST Act:

SCHEDULE I [See section 7] - ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION 

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

SCHEDULE II [See section 7] - ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES 

4. Transfer of business assets

(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;

With regard to the above, the applicant has argued that permanent transfer or disposal of business assets is also treated as supply but such transfer or disposal will be deemed to be supply only where input tax credit has been availed on such assets. We are not agreeable to this reasoning of the applicant. Schedule I is for activities to be treated as 'supply' even if made without consideration. This derives colour from the fact that 'supply' in section 7 says that supply is one which is made or agreed to be made for a consideration. Therefore, Schedule I comes up with cases made exceptional for being treated as 'supply' for the reason that they lack the crucial element of 'consideration'. As regards Schedule II, the same classifies the supplies into supplies of goods or services. Schedule II begins with the premise that the activities are 'supply'. For the facts before us, we find that there is a supply of cash vans, which are 'goods', for a consideration and the transaction is in the natural course of business. The transaction and the provisions are obvious. In view thereof, we do not find merit in the argument of the applicant.

Having seen that the transaction amounts to a 'supply' under the GST Act, we move on to the next aspect which the applicant desires to know and which is the rate of GST and Compensation Cess. Chapter 87 of the Customs Tariff covers motor vehicles. The applicant has not informed the Customs/Excise Tariff Heading. Neither has any copy of the invoice effecting the supply been tendered. The applicant has submitted a sample agreement copy which it enters into while delivering services of cash management. However, the same throws no light on the type of the motor vehicles to be used. Further, whether the vehicles are sold as scrap and unusable OR sold as old vehicles is not found confirmed from any document. It is generally seen that there is surrender of the RTO Registration Book when the vehicles are disposed off as scrap. Hence, it needs to be ascertained as to whether the vehicles are sold as scrap. For vehicles sold as scrap which does not amount to sale of a vehicle as such, the rate of the material sold as scrap would apply. For vehicles sold as vehicles, a perusal of the notifications issued for the purposes of the GST Act reflects thus -

1. Notification No.2/2017-Central/State Tax (Rate) - (as amended from time to time) enlisting the goods exempted from GST does not cover the impugned cash carrying vans.
2. Notification No.1/2017-Central/State Tax (Rate) (as amended from time to time) enlisting the goods taxable to GST at various rates -
   • Schedules I to III and V to VI do not cover the impugned goods.
   • Entries in Schedule IV would cover the impugned goods.
3. Notification No.l/2017-Compensation Cess (Rate) (as amended from time to time) enlisting the goods taxable to Compensation Cess under the Goods and Services Tax (Compensation to States) Act, 2017 at various rates —
   • This Notification enlists goods from the Chapter 87.

In absence of the requisite details before us, we have to ask the applicant to go through the Notification No.l/2017-Central/State Tax (Rate) and Notification No.l/2017-Compensation Cess (Rate), as amended from time to time. We would now turn to the next question.

Question 2 

If the answer to Question 1 is in affirmative, whether Input tax Credit is available to CMS Info Systems Ltd. ('CMS' or 'the applicant') on purchase of motor vehicles i.e. cash carry vans which are purchased, used for cash management business and supplied post-usage as scrap? 

There is a difference of opinion with regard to the decision of this question. The views of each

Member are as follows :

As per Sh. Borhade, Member

This question pertains to the eligibility to avail Input Tax Credit (ITC) on the purchase of cash carry vans which are used for the cash management business. We have seen above that the disposal of the cash carry vans as scrap vehicles is a 'supply' in the course of furtherance of business and is amenable to GST. In view thereof, the applicant queries as to whether ITC would be available on the purchase of cash carry vans which are later disposed off as scrap. For answering this, I would have to refer to the relevant provisions relating to ITC and find that except in certain situations as enumerated, ITC is not available in respect of motor vehicles. 

As can be seen, the impugned activity of providing cash management services not being for transportation of passengers OR for imparting training on driving, flying, navigating such vehicles or conveyances, it would not be covered by the exceptions in (B) and (C) of sub-section 5(a)(i). Sub-section 5(a)(i)(A) is about making "further supply of such vehicles or conveyances". The words "further supply" herein are in the nature of "resale". It should be noted that it is not mentioned as being just "supply of such vehicles or conveyances". The word "further" before the word "supply" has to be given its proper weightage. Here, the legislature intends to cover motor vehicles which are purchased for the purpose of being sold. In this category, we have the chain of the distributors/dealers of motor vehicles who purchase from the manufacturers for the downward sale to the final customer. The use of the word "further" is indicative of a further supply and not such a supply as in the present case which is the disposal as a scrap and which happens after the motor vehicle has been used till its full working life. In view thereof, the impugned activity of providing cash management services not being for making a further supply of the motor vehicles would not be covered by the exception in (A) of sub-section 5(a)(i). I find that the applicant has argued that as per well-settled principle of law at first one has to apply "literal interpretation" and only in cases of absurd results, one has to apply "purposive interpretation". However, this argument would not apply to the instant case. Here, the word 'further' has to be given the meaning as is intended by the Legislation. And I am convinced that there can be no other intention than the one as had by me.

Then comes sub-section 5(a)(ii) which speaks about exception if the motor vehicles are used for transportation of goods.

The word 'goods' has been defined thus —

Definitions. 2. In this Act, unless the context otherwise requires,— 

(52) "goods" means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply; 

(75) "money " means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value;' 

I find that the applicant has also mentioned that besides 'cash', the cash carry vans are also used for transport of bullion. Bullion not being excluded from the definition of 'goods', there arises no issue. However, the applicant has raised the question in terms of 'cash carry vans' and hence, "cash" would be the goods which would be transported. "Cash" here is the Indian legal tender which is 'money' and I find that 'money' has been excluded from the definition of 'goods' for the purposes of the GST Act. Therefore, whether the word 'goods' as appearing in sub-section 5(a)(ii) would take colour from the definition of 'goods' is a question I need to ponder over.I observe that I am in agreement with the claim of the applicant that the word 'goods' in sub-section 5(a)(ii) would not take colour from the definition of "goods" which excludes money therefrom. In consideration of the above, the impugned activity of providing cash management services involves use of the motor vehicles for transportation of 'goods'. The motor vehicles would be covered by the exception in sub-section 5(a)(ii) of section 17. Thus, the applicant would be entitled to the ITC on the purchase of the cash carry vans i.e motor vehicles used for transportation of goods, subject to the provisions of the Rules made in this regard.

As per Sh. Pankaj Kumar, Member 

This question pertains to the eligibility to avail Input Tax Credit (ITC) on the purchase of cash carry vans which are used for the cash management business. I have seen above that the disposal of the cash carry vans as scrap vehicles is a 'supply' in the course of furtherance of business and is amenable to GST. In view thereof, the applicant queries as to whether ITC would be available on the purchase of cash carry vans which are later disposed off as scrap. For answering this, I would have to refer to the relevant provisions relating to ITC. Except in certain situations as enumerated, ITC is not available in respect of motor vehicles. Hence, I see the exceptions.

As can be seen, the impugned activity of providing cash management services not being for transportation of passengers OR for imparting training on driving, flying, navigating such vehicles or conveyances, it would not be covered by the exceptions in (B) and (C) of sub-section 5(a)(i). Sub-section 5(a)(i)(A) is about making "further supply of such vehicles or conveyances". The words "further supply" herein are in the nature of "resale". It should be noted that it is not mentioned as being just "supply of such vehicles or conveyances". The word "further" before the word "supply" has to be given its proper due. Here, the legislature intends to cover motor vehicles which are purchased for the purpose of being sold. In this category, we have the chain of the distributors/dealers of motor vehicles who purchase from the manufacturers for the downward sale to the final customer. The use of the word "further" is indicative of a further supply and not such a supply as in the present case which is the disposal as a scrap and which happens after the motor vehicle has been used till its full working life. In view thereof, the impugned activity of providing cash management services not being for making a further supply of the motor vehicles would not be covered by the exception in (A) of sub-section 5(a)(i). 

Then comes sub-section 5(a)(ii) which speaks about exception if the motor vehicles are used for transportation of goods. The word 'goods' has been defined thus -

"Definitions. 2. In this Act, unless the context otherwise requires,— 

(52) "goods" means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply; 

(75) "money" means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit. draft, pav order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value; 

from the above definition of 'goods', it very clear that 'money' is specifically excluded from the definition of 'goods' and therefore in no way input tax credit in respect of motor vehicles and other conveyances as envisaged in Section 17(5) (a) would be available in respect of transportation of money in motor vehicles as under GST law as money is specifically excluded from the definition of 'goods' and therefore 'money' is not to be treated as 'goods' because of specific exclusion.

The intent of the legislature in excluding 'money' from the definition of 'goods' can also be visualized from a situation wherein if a person 'X' engaged in construction business has purchased a Honda City Car in the name of his firm and withdraws Rs. 50 lakh from his Bank Account for disbursing salaries to his employees. He carries money from Bank to his office. Would he be eligible for input tax credit in respect of the Honda City Car as he is transporting money in the course of his business? If this had been the case then in case of motor vehicles section 17(5) of the GST Act would not have restricted the eligibility of input tax credit in case of motor vehicles to just the four persons/entities and thus, the exclusion of money from the definition of 'goods' under the GST Act is with very specific intent by the Legislature. 

And therefore, transportation of money is not covered in section 17(5)(a) (ii) of the GST Act and the applicant is not eligible for availing input tax credit in respect of motor vehicles used in transport of money.

In view of the detailed deliberations held hereinabove, it is ordered thus —

ORDER

Question 1 

Whether supply of such motor vehicles as scrap after its usage can be treated as 'supply' in the course or furtherance of business and whether such transaction would attract GST? If yes, please provide the rate of GST and/or Compensation Cess.

Answer 1 

The question is answered in the affirmative. As regards rate of GST and/or Compensation Cess, the details being inadequate, the applicant may refer to the Notification No.l/2017-Central/State Tax (Rate) and Notification No.1/2017-Compensation Cess (Rate), as amended from time to time.

Question 2 

If the answer to Question 1 is in affirmative, whether Input tax Credit is available to CMS Info Systems Ltd. ('CMS' or 'the applicant') on purchase of motor vehicles i.e. cash carry vans which are purchased, used for cash management business and supplied post-usage as scrap?

Answer 2 

[A] Per Sh. Borhade, Member

The question is answered in the affirmative. The input tax credit available would be subject to the provisions of the Central/State Goods and Service Tax Rules, 2017 made in this regard.

[B] Per Sh. Pankaj Kumar, Member 

The question is answered in the negative. The input tax credit on purchase of motor vehicles i.e. cash carry vans would not be available.

As the Members of the Advance Ruling Authority differ in respect of Question No.2 as raised by the applicant, appropriate reference is made to the Appellate Authority For Advance Ruling for hearing and decision on this question.