The new law of AAAR has extended our attention to a different aspect of the business which involves the employer and employee relationship and the facilities provided by the former to its employees.
National Aluminium Company Limited (NACL) is a Navratna CPSE under Ministry of Mines, came forward in this matter with the base motive of claiming Input Credit against the tax paid on providing facilities to the employees and appealed the Odisha Authority for Advance Ruling.

NACL is a big & employee concerned organisation and has residential towns including guests houses at Angul, Damanjodi, and Bhubaneswar for guests and its employees to add ease to their tours & also runs hospitals at Damanjodi and Angul solely to facilitate its employees. The controversies started when the NACL expressed its desire to claim input credit in maintaining hospitals, residential colonies, and guest house and also the preservation of garden in the residential colonies, mining areas and office premises. Input credit was forbidden for some activities. When the case went to the Odisha Authority for Advance Ruling (AAR),
AAAR regarding the GST rule that “not only the manufacturing activity but any incidental or ancillary activities thereof are also covered within the expression -business”, qualified the Inward supply of input & input service for regulating the guest house, transit house & training hostels, services availed for orchard and horticulture within the plant area including mining area and other trading premises for the input tax claim.
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Controversies Between Odisha AAAR & NACL
- NACL considers such activities of management, maintenance or restoration of the townships are for its business in the course or furtherance of business and it is valid to take Input Credit on tax paid on such services while AAR does not qualify the input credit on tax paid for inward supplies received by way of management, improvement, renovation for furnishing the residential colony as residential accommodation is an exempted supply.
- NACL regards the infrastructure of residential towns and hospitals at Angul, Damanjodi and Bhubaneswar as an inevitable need to operate large manufacturing businesses , where thousands of employees are working whereas AAAR does not approve Input credit on services and goods acquired for maintenance of hospitals and pharmacy outlet as such services fall under the nil rated slab of GST. In the same way, the service availed for the horticulture and plantation in the residential colony will not be considered for the Input tax credit.
The Commissioner (CX & GST, Bhubaneswar) called the order passed by AAAR as illegal and improper, presenting the following points:
- The infrastructure build to facilitate the employees cannot be considered as any promotion or development of business, it is solely for the employees so it doesn’t validate ITC.
- Similarly, Services provided through plantation & gardening within the plant area including mining area does not pass the legal test neither does it is intended to be used in the course or furtherance of business, so again it disproves ITC.
FINAL CONCLUSIONS:
- AAAR prohibited ITC on inward supplies received by NACL and disbursement incurred by NACL for management, repair, renovation, alteration or maintenance service or goods received for furnishing the residential colony including plantation and gardening as it is nothing but fringe benefits to employees.
“This ruling is likely to open the debate on whether an expenditure incurred by employee qualifies as a prerequisite or a business expense incurred during the course or furtherance of business. This is because credit for former is not available while for later it may be available. It is time to re-look at the employment contracts,” says Harpreet Singh, Partner, KPMG India.
- AAAR disqualified input tax credit of the tax paid on the inward supply of input and input services for upkeeping the guest house, transit house, and trainee hostel as it is also lagniappe for the workers
- Controversies between Odisha AAAR & NACL Controversies between Odisha AAAR & NACL. However, AAAR prioritising business necessity for controlling pollution as well as atmospheric temperature validated it is to NACL on services availed for plantation and gardening within the plant area including mining area and the other business premises.
According to the e Forest Conservation Act, the Environment Protection Act, etc. such activities are an indispensable part of the business and hence can be regarded as activities in the course or furtherance of its business.
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“This is a positive order for the industry as, while allowing input credit of services availed in relation to plantation and gardening within factory premises, the authorities have not only considered whether such expenditure was warranted by any statutory law, but also taken cognizance of the expenditure is a business necessity for controlling pollution, temperature and preventing soil erosion,” added said, Singh.
Legal ruling is always black and white and hence it doesn’t bear any confusion.AAAR consider maintaining and running a guest house is neither furtherance of the business nor it is an integral part of the business and is a cost to the company and this rule serves as a disadvantage to the businessmen so the controversies are still on.
