2020 (9) TMI 1250 - AAAR - GST

Input Tax Credit - inputs/ Capital Goods used or intended to be used for creation of covered logistics facility space (warehouse) to be rented out for storage purposes - credit on inputs, if the goods and services are consumed and used in construction of covered logistic facility space when the said Input Tax Credit would be utilized in order to discharge and pay CGST and HGST/IGST on rent received from tenants of the warehouse - restriction imposed under Section 17(5)(d) of the CGST Act 2017 - HELD THAT - In the instant case, the construction has been done by the Appellant for itself i.e. with all intentions to retain its ownership rights, and is only going to lease it to the other party. Thus the construction has been done, without any doubt, in the Appellant's own account. The same, in the light of what is clearly expressed in Section 17, sub-Section (5), clause (d) ibid, is not entitled to ITC on the inputs/ input services. The AAR has correctly observed that the applicant was engaged in the business of logistic services including warehouses constructed for the applicant's business of letting out; that, Section 17(5)(d) renders ITC unavailable in respect of goods and services received for construction of immovable property(other than Plant and Machinery) on Taxpayer's own account, including when such goods or services or both are used in the course of furtherance of business. Hon'ble court in M/S. SAFARI RETREATS PRIVATE LIMITED AND ANOTHER VERSUS CHIEF COMMISSIONER OF CENTRAL GOODS SERVICE TAX OTHERS 2019 (5) TMI 1278 - ORISSA HIGH COURT has concluded that they do not intend to hold it the provision of Section 17(5)(d/ as ultra-vires (Para 20 of the Order). Thus it is clear that the Hon'ble High Court has provided a liberal construction and the same as such is not law, particularly as the Department has challenged the same in the Hon'ble Supreme Court. The Appellant has itself admitted that the Hon'ble Apex Court has issued the notice. Thus the case shall be listed for arguments - The department has filed an appeal against the said judgment of the Hon'ble Orissa High Court in CHIEF COMMISSIONER VERSUS SAFARI RETREATS PRIVATE LIMITED 2020 (3) TMI 1150 - SC ORDER . The case is presently pending after notice of admission. In view of the CBIC's ibid instruction, the case has not attained finality. The same is therefore not binding in the present case. Appeal dismissed.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) for inputs/capital goods used in constructing a logistics facility (warehouse) to be rented out.
2. Applicability of Section 17(5)(d) of the CGST Act, 2017 concerning ITC on goods/services used in construction.

Issue-wise Detailed Analysis:

1. Eligibility of Input Tax Credit (ITC) for Inputs/Capital Goods Used in Constructing a Logistics Facility (Warehouse) to be Rented Out:

Question for Advance Ruling:
- Whether ITC of GST on inputs/capital goods used for creating a logistics facility space (warehouse) to be rented out is eligible under Sections 16 and 17 of the CGST Act, 2017.

Ruling by Authority for Advance Ruling:
- The applicant is not eligible for ITC on inputs/capital goods used for creating the logistics facility space to be rented out.

Grounds of Appeal:
- The appellant argued that the ruling by AAR is incorrect both on facts and the law.
- They cited various judicial precedents, including the Orissa High Court decision in 'Safari Retreats Pvt. Ltd. vs. Chief Commissioner,' which they believe supports their case.
- The appellant contended that the property is constructed for leasing out, not on their own account, and thus, the denial of ITC is arbitrary and against the GST rationale of removing the cascading effect of taxation.
- They also referenced the Andhra Pradesh High Court decision in a pre-GST era case, which upheld CENVAT credit on construction materials used for a warehouse.

Appellate Authority's Findings:
- The legislative intent is clear from Section 17(5)(d) of the CGST Act, which restricts ITC for goods/services used in constructing immovable property on one's own account.
- The construction was done by the appellant for itself, intending to retain ownership rights and lease it out, thus falling under the restriction of Section 17(5)(d).
- The Orissa High Court's decision in 'Safari Retreats' provided a liberal interpretation but did not declare Section 17(5)(d) ultra vires. The decision is under appeal in the Supreme Court and thus not binding.

2. Applicability of Section 17(5)(d) of the CGST Act, 2017 Concerning ITC on Goods/Services Used in Construction:

Appellant's Plea:
- The appellant argued that Section 17(5)(d) should not apply since the property is constructed for leasing out, not on their own account.
- They cited the Orissa High Court decision in 'Safari Retreats' and other judicial precedents to support their claim that ITC should be admissible.

Appellate Authority's Findings:
- Section 17(5)(d) explicitly restricts ITC for goods/services used in constructing immovable property on one's own account.
- The appellant's construction of the warehouse, intended for leasing, still falls under the restriction as it is constructed on their own account.
- The Orissa High Court's decision, while providing a liberal interpretation, is not final and binding as it is under appeal in the Supreme Court.

Ruling:
- The appeal is dismissed, and the Advance Ruling dated 28.08.2020 is upheld as it does not suffer from any infirmity or illegality.