2021 (2) TMI 1293 - AAR - GST

Input Tax Credit - Input services - construction or works contract procured for the development of an Industrial area or the special maintenance expenses of the area? - mechanism for apportionment of ITC between exempt and taxable supplies as in an industrial area - long term leasing of industrial plot of land is exempt under N/N. 12/2017-Central Tax(Rate) or not - leasing of nonindustrial plot of land/commercial plot of land is a taxable supply or not? HELD THAT - Section 16 (1) of the CGST Act specifically provides that every registered person shall be entitled to take credit of the input tax charged on any supply of goods or services or both made to him which are used or intended to be used in the course or furtherance of his business. Such entitlement is subject to fulfillment of certain conditions such as possession of invoice receipt of goods/service payment of tax to Government etc. as provided under Section 16(2) of the GST Act 2017. However the availability of credit is subject to the restrictions as stipulated under Section 17(5)(d) of the GST Act 2017. Section 17(5)(c) and (d) of the CGST Act 2017 denies availment of ITC on works contract service and on goods and services when supplied for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the furtherance of business. Applicant does not deny that the civil work i.e. roads drainage approaches culverts rain water harvesting system power supply related work like laying of new power lines street light work work for common facilities in the industrial area like Administrative office building for fire tenders Post office/Bank building etc. is an immovable property. In fact they have obtained land from state Government/private land and after the development work the land is allotted on lease to the various persons who applies for the same - as per Sub Section 5(c) and 5(d) of Section 17 of CGST Act 2017 the input tax credit will not be allowed for works contract service and on the goods and service used by the taxable person on his own account. Since the work done by the applicant on the acquired land is not of the nature of any type of repair or maintenance on immovable property but a new fixed asset is constructed and it appreciate the value of the property/land - such expenses which enhance the value of the property permanently and as per accounting convention the expenditure are capital in nature has to be capitalized and cannot be treated as revenue expenditure. The applicant s contention cannot be accepted. Therefore as per Section 17(5)(c) (d) of the CGST/RGST Act 2017 No ITC is available to the applicant. ITC not available - application disposed off.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on input services of construction or works contract for development and special maintenance of an industrial area.
2. Mechanism for apportionment of ITC between exempt and taxable supplies.

Detailed Analysis:

1. Eligibility of Input Tax Credit (ITC):

Applicant's Submission:
- The applicant, a Rajasthan State Government-owned Public Sector Undertaking, develops and leases industrial and non-industrial plots.
- The development involves significant civil work and infrastructure setup, which is charged as revenue expenditure in the profit and loss account.
- The applicant argues that ITC should be available on GST paid for these development and maintenance activities since these are part of the cost of stock and not capitalized as immovable property.
- They cite Section 16 of the CGST Act, which allows ITC on goods or services used in the course of business, and argue that Section 17(5)(c) and (d) restrictions do not apply as the expenses are not capitalized.

Jurisdictional Officer's Comments:
- The officer contends that ITC is not allowed under Section 17(5)(c) and (d) of the CGST Act, which blocks credit on works contract services and goods/services used for construction of immovable property unless it is for further supply of works contract service.
- The officer concludes that the applicant is not eligible for ITC as the services are not for further supply of works contract service.

Authority's Findings:
- The authority agrees with the jurisdictional officer, stating that the applicant's development work constitutes construction of immovable property.
- Section 17(5)(c) and (d) of the CGST Act explicitly disallows ITC on works contract services and goods/services for construction of immovable property, except for plant and machinery.
- The authority notes that the applicant's expenses should be capitalized as they enhance the value of the property, thus ITC is not permissible.
- The authority does not rely on the Safari Retreats Pvt. Ltd. case as it is pending before the Supreme Court and has not attained finality.

Conclusion on ITC Eligibility:
- The applicant cannot claim ITC on the input services of construction or works contract procured for the development and special maintenance of an industrial area.

2. Mechanism for Apportionment of ITC:

Applicant's Submission:
- The applicant seeks guidance on apportioning ITC between exempt and taxable supplies, given that long-term leasing of industrial plots is exempt, while leasing of non-industrial/commercial plots is taxable.
- They propose two methods:
1. Apportioning based on the aggregate turnover of exempt and taxable supplies during the tax period.
2. Apportioning based on the total area of industrial (exempt) and non-industrial (taxable) plots in the developed area.

Authority's Findings:
- The authority does not address the mechanism for apportionment of ITC as the primary question of ITC eligibility was answered in the negative.

Conclusion on Apportionment Mechanism:
- As the applicant is not eligible for ITC, the question of apportionment does not arise.

Final Ruling:
- The applicant cannot claim ITC on the input services of construction or works contract procured for the development of an industrial area or the special maintenance expenses of the area.