AUTHORITY FOR ADVANCE RULING

TAMIL NADU GOODS & SERVICE TAX

Inter-branch transfers, since the requirement of affixing/printing the declaration ‘Not for Retail Sale’ is reportedly not made in the packages, such supplies do not fall under the exempted category

BACKGROUND:

The applicant is a company who are wholesale traders in liquor, frozen meat products, food products. They make supplies to hotels, other institutional customers and also to ships, consulates etc. They have branches at Bangalore, Vizag and Kakinada. The applicant is mainly supplying frozen meat like fish, chicken, etc., and they also make supplies on branch transfer basis from Chennai to their Bangalore branch for which they have a GST registration in Bangalore. They are selling products packed in individual packs of 1Kg, 2Kg, 3Kg etc., to distributors with the marking For Institutional sale only.

ISSUE RAISED:

• Classification of any goods or services or both.
• Applicability of a notification issued under the provisions of this Act.
• Determination of the liability to pay tax on any goods or services or both.

QUESTION(S) ON WHICH ADVANCE RULING IS REQUIRED

1. Whether hotels qualify industrial/institutional consumers as per Rule 2bb and 2bc of the Legal Metrology (Packaged Commodities) Rules, 2011?
2. As supply to institutions is not classified as ‘pre-packaged and labelled’, as per Rule 3(b) of the Legal Metrology (Packaged Commodities) Rules, 2011, the applicant is of the opinion that such supplies are ‘Nil’ rated. Whether the applicant’s understanding that ITC cannot be availed, as such supplies are ‘Nil’ rated, is correct?
3. Supply to Bangalore branch is wholly done by Chennai Head Office, and at Bangalore, they sell the products only to hotels or institutions. So, there will not be any output tax and they cannot claim ITC on inter-branch transfer. Whether GST is to be charged on inter- branch transfer?
4. The frozen meat products packed in individual packs of 1Kg, 2Kg, 3Kg etc., are sold to distributors with the marking ‘For Institutional sale only’, which means distributors can sell these products only hotels/Institutions. Whether to the applicant should charge GST on such supplies to distributors?

IMPORTANT PARA

Para 7. 18 Under the facts and circumstances of this case, we attempt to discuss and answer the queries raised by the applicant in the application for advance ruling filed, as follows

• Whether hotels qualify as industrial/Institutional consumers as per Rule 2bb and 2bc of the of the Legal Metrology (Packaged Commodities) Rules, 2011?

Hotels qualify as an industrial consumer’ as per Rule 2(bb) of the Legal Metrology (Packaged Commodities) Rules, 2011, in view of the detailed discussions as in para 7.10 above.

• As supply to institutions is not classified as ‘pre-packaged and labelled’, as per Rule 3(b) of the Legal Metrology (Packaged Commodities) Rules, 2011, the applicant is of the opinion that such supplies are ‘Nil’ rated. Whether the applicant’s understanding that ITC cannot be availed, as such supplies are ‘Nil’ rated, is correct ?

Yes. The supplies to institutional or industrial consumer shall not be considered as pre-packaged and labelled’ for the purpose of GST levy, as they get covered under Rule 3(c) of the Legal Metrology (Packaged Commodities) Rules, 2011. Such supplies are indeed ‘Nil’ rated, as they are covered under the exemption notification No.02/2017-CT (Rate) dated 28.06.2017, if and only if it fulfils all the conditions envisaged under Rule 2(bb) and Rule 2(bc) of the Packaged Commodities Rules, 2011. As a corollary, if the said conditions are not fulfilled, such supplies cannot be treated as exempted, even if they are made to an industry or an institution. Further, in the instant case of the applicant, we notice that the declaration ‘Not for Retail Sale’ is reportedly not affixed/printed in the packages, and therefore, such supplies are not exempted from payment of GST. However, on fulfilment of the requisite conditions, if such outward supplies are treated as “Nil’ rated, ITC on the inward supply involved in such cases cannot be availed.

• Supply to Bangalore branch is wholly done by Chennai Head Office, and at Bangalore, they sell the products only to hotels or institutions. So, there will not be any output tax and they cannot claim ITC on inter- branch transfer. Whether GST is to be charged on inter-branch transfer?

With regard to GST liability on inter-branch transfer of goods, Section 25(4) of the CGST Act, 2017, addresses the issue in specific terms, and it runs as follows :-

(4) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.

It becomes clear from the above that once a branch or depot of a company is required to obtain a different GSTIN, whether within the state or inter-state, they become distinct persons and accordingly, every branch or depot with individual GSTINS belonging to one company will be treated as an individual entity. Further, as per clause (2) to Schedule I of the CGST Act, 2017, “Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business”, is an activity which is to be treated as supply under Section 7 of the Act, ibid, even if made without consideration. Therefore, GST is chargeable if transactions take place between two persons with different GSTINs. In fine, we are of the opinion that intra-state stock transfers holding the same GSTIN are not subject to GST, whereas stock transfers to distinct persons within the state and inter-state stock transfers are chargeable to tax under GST. In the instant case, we observe that while the applicant’s Head Office is in Chennai, they have a branch at Bangalore, and another at Andaman & Nicobar as well. As these branches are located outside the state of Tamilnadu they become distinct entities which necessitates the need for a separate GST registration for such branches. Normally, supplies to such branches outside the home state are taxable to GST (IGST for inter-state supplies). However, as per the facts of the case furnished by the Applicant, the supply of the impugned products to its branch is reported to undergo further supply only to hotels or other institutional consumers. In this regard, we find that Rule 3(c) of the Chapter II of the Packaged Commodities Rules, inter-alia states as packaged commodities meant for industrial consumers or institutional consumers’, whereby it becomes clear that the end user should be an industrial consumer or an institutional consumer, and that the same should not be for retail sale. Hence, for the supplies meant for industrial/institutional consumers, we find that the exemption from GST would be available if and only if it fulfils all the conditions envisaged under Rule 2(bb) Rule of the Packaged Commodities Rules 2011 for “Industrial Consumer”, or under Rule 2(bc) of the Rules, ibid for “Institutional Consumer”. In the instant case of inter-branch transfers, since the requirement of affixing/printing the declaration Not for Retail Sale’ is reportedly not made in the packages, such supplies do not fall under the exempted category.

(iv) The frozen meat products packed in individual packs of 1Kg, 2Kg, 3Kg etc., are sold to distributors with the marking ‘For Institutional sale only’, which means distributors can sell these products only to hotels/Institutions. Whether the applicant should charge GST on such supplies to distributors?

It may be seen that packages of commodities containing quantity of more 25 kilograms as specified in rule 3(a) of the Legal Metrology (Packaged Commodities) Rules, 2011, and quantity of ten gram or less as specified in rule 26(a) of the rules, ibid, are kept outside the purview of the said rules. In this regard, we find that the analogy of the discussion as above in respect of query Sl. No.(iii), applies to this query as well, since frozen meat products packed in individual packs of 1Kg, 2Kg, 3Kg, etc., get covered as ‘pre-packaged and labelled’ commodities. Such supplies become eligible for exemption under notification No.02/2017-CT (Rate) dated 28.06.2017, provided the distributor to whom the Applicant makes outward supply, is also a wholesale dealer, and provided such packages carry the declaration Not for Retail, Sale’. However, since the mandatory requirement of declaration is not available in the instant case, and since the status of the distributor as a wholesale dealer is not clear/confirmed, we are of the opinion that the applicant should charge GST on such supplies to distributors ?

RULING

In view of the above discussion, the questions raised by the applicant are clarified as below:

1. Hotels qualify as an industrial consumer’ as per Rule 2(bb) of the Legal Metrology (Packaged Commodities) Rules, 2011, in view of the detailed discussions as in para 7.10 above.
2. The declaration ‘Not for Retail Sale’ is reportedly not affixed/printed in the packages, and therefore, such supplies are not exempted from payment of GST. However, on fulfilment of the requisite conditions, if such outward supplies are treated as ‘Nil’ rated, ITC on the inward supply involved in such cases cannot be availed.
3. With regard to inter-branch transfers, since the requirement of affixing/printing the declaration ‘Not for Retail Sale’ is reportedly not made in the packages, such supplies do not fall under the exempted category.
4. Since the mandatory requirement of declaration ‘Not for Retail Sale’ is not available in the packages instant case, and since the status of the distributor as a wholesale dealer is not clear/confirmed, the applicant should charge GST on such supplies to distributors.