The Gujarat Appellate Authority of Advance Ruling ( AAAR ) recently decided that services purchased by the port for the operation and maintenance of diving support vehicles (DSV) are not eligible for the Input Tax Credit (ITC) under the Goods and Service Tax ( GST ).
M/s Sikka manages and controls a port and terminal handling facility in Sikka Port, Gujarat, for the purpose of receiving crude oil and other feedstock and evacuating different finished products from the crude oil refinery established by Reliance Industries Limited (‘RIL’) in Jamnagar. The applicant business built Sikka Port as a captive port for RIL’s refinery project in the 1990s.
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Apart from the usual port infrastructure, SPMs (Single Point Moorings) are also available to enable loading, unloading of various goods. In 2007, with a new refinery being set up by Reliance Petroleum Limited (RIL), the Applicant expanded its port and terminal handling facilities, by incurring substantial capital cost for setting up additional facilities such as three SPMs, subsea pipelines, crude and product pipelines, marine tank farms, sea water outfall system and support vessels comprising of marine support vessels, diving support vessel, three tugs and two pilot boats, all with a view to handle the increase in the quantity of the crude and products that was likely to transit through the port for the new refinery.
On 26-3-2007, the respondent and RIL signed a long-term contract called “Agreement for the Receipt Handling Storage and Evacuation of Crude, Petroleum and Petrochemical Products.” Under the terms of the agreement, the respondent was required to establish new facilities as listed in Schedule 1 in order to carry out the services listed in Schedule 2 of the long-term contract.
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The respondent requested an advance determination on whether it was eligible to receive the Input Tax Credit (ITC) for services purchased for the upkeep and operation of their own Diving Support Vehicle, which they employ to provide port and terminal management services.
Another question that needed to be answered was whether the applicant could get the Input Tax Credit (ITC) for services that were hired out as well as for the upkeep and operation of the Security Patrol Vessel that it uses to provide port and terminal handling services.
According to the AAR, blocked credit for repair and maintenance services related to vessels is covered by Section 17(5)(ab) of the CGST Act. This isn’t even the case right now. The essence and substance of the contracts state that the services provided by the aforementioned contractors to M/s Sikka go beyond simply “repairing and maintaining” vessels. They also include services related to facilitating the discharge of liquid cargo into subsea pipelines and providing security patrolling and pollution checks through the operation and manning and maintenance of DSVs and SPVs, respectively, by qualified crew.
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According to the AAR, the credit block imposed under Section 17(5)(aa), Section 17(5)(ab), and Section 17(5)(b)(i) of the CGST Act does not apply.
The department appealed to the AAAR, arguing that the respondent had concealed the truth by falsely claiming that DSV Relsagar was their property when, in reality, it belonged to M/s. Reliance Industries Ltd. The DSV owned by M/s. Sikka was the subject of the requested ruling. The respondent has stated that it was a bonafide mistake which even otherwise, would not have any effect on the conclusion arrived by the GAAR.
The department’s application against the Authority of Advance Ruling (AAR) ruling, which held that M/s Sikka is entitled to receive ITC on the services purchased for the operation and maintenance of DSVs: Relsagar & Reldarshan, has been granted by the two-member bench of Rajeev Topno and B V Siva Naga Kumari. For services acquired for the operation and upkeep of SPVs Eagle, Chetak, Calypso Fortune, and ML Noorani, M/s Sikka is eligible to receive ITC.
Regarding the renting of a vessel [SPV], the AAAR determined that the ITC is barred under section 17(5) when the respondent’s contractor has discharged GST under SAC codes 996602 and 996609.
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