Re: M/s. National Aluminium Company Limited

Quick Summary

The Appellate Authority said: no ITC for maintaining employee townships, housing, guest/transit/hostel facilities, or township security—these are perquisites, not business inputs.

But ITC is allowed for plant-area horticulture/green belts inside plant, mines, and office premises. Those activities are legally required and directly linked to running the business.

Issues

• Can GST paid on township maintenance, security, and horticulture be claimed as ITC?

Rules

• Business nexus test: Input service must be integrally connected with manufacture/business of final product.
• Cost inclusion not enough: Merely adding a cost into product costing does not itself allow ITC.
• Perquisites: Benefits for employee comfort/convenience are not “in the course or furtherance of business.”
• Capitalisation: If expenses are capitalised into certain assets, ITC may be barred as per GST law.

Facts — Timeline

Business & Sites

Manufacturer of aluminium metal—refinery (Damanjodi) and smelter (Angul), Odisha. Townships at Angul, Damanjodi, Bhubaneswar.

Employee Facilities

Housing, hospitals, and guest houses for staff and visitors; security and horticulture for these areas.

Appeal

Challenged AAR Order 02/ODISHA-AAR/2018-19 to allow ITC on township/security/horticulture-related inputs and services.

Arguments

Judgment (Held)

• Township/Housing/Residential colony: Inward supplies for management/repair/maintenance or furnishing of residential colonies—no ITC.
• Capitalised expenses: If such costs are capitalised, ITC is not available.
• Perquisites: Housing and similar facilities are employee perquisites (as per CBIC press note); not business activities.
• Guest house/Transit house/Trainee hostel: Also perquisites → no ITC.
• Plant-area horticulture/green belts (incl. mining & office premises): Legally required and business-critical → ITC allowed.

Bottom line: Welfare/perquisite spend → no ITC; Compliance-linked green belts within operational premises → ITC allowed.

Ratio Decidendi

ITC needs a direct, integral nexus with business/manufacture. Employee comfort/perquisites fail this test. Legally mandated in-plant green belts pass it.

Why It Matters

• Helps manufacturers separate welfare costs from business-critical inputs for ITC claims.
• Aligns GST with environment compliance realities in heavy industry.
• Guides policy on capitalisation and documentation for ITC eligibility.

Key Takeaways

Mnemonic + 3-Step Hook

Mnemonic: “PERQ vs PLANT”

• PERQ = perquisites (housing/guest/hostel/security) → no ITC
• PLANT = in-plant green belts (legal) → ITC allowed

3-Step Hook (Exam Writing):

1. State: ITC needs integral business nexus.
2. Show: Perquisites vs compliance-linked green belts.
3. Seal: Deny ITC for perquisites; allow for plant-area horticulture.

IRAC Outline

Glossary

Input Tax Credit (ITC)

Credit of GST paid on inputs/input services used in business.

Perquisite

Employee benefit for comfort/convenience; not a business input.

Green Belt

Plantation/landscaping within industrial premises for compliance and pollution control.

Capitalisation

Recording expense as a capital asset; may restrict ITC under GST.

FAQs

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