2020 (1) TMI 1597 - AAAR - GST

Input Tax Credit - GST paid on goods purchased for the purpose of maintenance such as Vitrified Tiles, Marble, Granite, ACP Sheet, Steel Plates, TMT Tor (Saria), Bricks, Cement, Paint, Chemicals, Sanitary items like wash basin, urinal pots and toilets accessories - GST paid on Work contract service received from registered unregistered Contractor for Maintenance Contract of building - HELD THAT - The goods are being purchased by the appellant for the maintenance of building which is housing his Mall, Theatre, Food Court and a retail apparel store. This transaction falls under clause (d) which stipulates that goods or services or both received by a taxable person for construction of an immovable property on his own account would be ineligible for ITC claim. The word construction has been explained by explanation appended to clause (c) and clause (d). As per explanation construction includes re-construction, renovation, additions or alterations or repairs . The word repair simply means to restore (something damaged, faulty, or worn) to a good condition - A building which has become old would certainly require inward supply of goods such as vitrified tiles, Marble, Granite, ACT sheets, Steel Plates, TMT Tor, bricks, Cement, Paint, Chemicals and other sanitary items like Urinal Pots, Wash Basins and Toilet accessories for restoring it to a usable condition. These purchases are being made in own account for repair of building which is immovable property. Where this repair work is carried out by registered or unregistered suppliers by providing services it would qualify for work contract services. Capital Goods have been defined in clause (19) of section 2. It says, capital goods means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business. It simply means that classification of any goods as capital goods would be dependent / at the sweet will of a taxpayer on making entry in his books of accounts. If the value of goods has been capitalised, it would become capital goods and if it is not capitalised, it would not become capital goods - it is entirely at the discretion of a taxpayer to treat these expenses either as Revenue or as Capital Expenditure. Capitalisation or Non-capitalisation of these expenses is certainly not a permanent indelible mark in the account books. These accounting entries may be modified, altered or deleted as per prevailing/ changing contingencies. These entries are not Static but dynamic. Sub-section (2) of section 103 states as The advance ruling referred to in sub-section (1) shall be binding unless the law, facts or circumstances supporting the original advance ruling have changed. In situations where a taxpayer or appellant alters or modifies the accounting entry, his eligibility to claim ITC also changes.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on GST paid for goods purchased for maintenance.
2. Eligibility of ITC on GST paid for works contract services received for building maintenance.

Issue-wise Detailed Analysis:

1. Eligibility of ITC on GST Paid for Goods Purchased for Maintenance:

The appellant, Jabalpur Entertainment Complexes Pvt. Ltd., operates a Mall and Multiplex and has four operations: multiplex cinemas, mall space rental, food court, and a retail apparel store. The appellant charges GST on various supplies and claims ITC on certain inward supplies. The appellant sought clarification on whether ITC of GST paid on goods purchased for maintenance, such as vitrified tiles, marble, granite, ACP sheets, steel plates, TMT TOR, bricks, cement, paint, chemicals, sanitary items like wash basins, urinal pots, and toilet accessories, can be claimed in full.

The Authority for Advance Ruling (AAR) had held that ITC on such goods is not admissible under clause (c) of Section 17(5) of the GST Act, 2017. The appellant argued that the correct clause should be (d) of Section 17(5), which pertains to goods or services received for construction of immovable property on the taxpayer's own account, including repairs to the extent of capitalization.

The Appellate Authority for Advance Ruling (AAAR) examined the provisions and concluded that the goods purchased for maintenance fall under clause (d) of Section 17(5). The term "construction" includes reconstruction, renovation, additions, alterations, or repairs to the extent of capitalization. The AAAR noted that the eligibility for ITC depends on whether the expenses are capitalized. If the expenses are capitalized, ITC is not available. The appellant had declared that the purchases were for repair and not capitalized, supported by a Chartered Accountant's certificate. However, the AAAR emphasized that accounting entries are dynamic and can be altered, affecting ITC eligibility.

2. Eligibility of ITC on GST Paid for Works Contract Services Received for Building Maintenance:

The appellant also sought clarification on ITC for works contract services received from registered and unregistered contractors for building maintenance. The AAR had held that ITC on such services is not available under clause (d) of Section 17(5). The appellant argued that the correct clause should be (c) of Section 17(5), which pertains to works contract services supplied for construction of immovable property.

The AAAR reviewed the provisions and confirmed that works contract services for repair of the building fall under clause (c) of Section 17(5). ITC on such services is ineligible to the extent of capitalization. The AAAR reiterated that the eligibility for ITC depends on whether the expenses are capitalized.

Order:

1. In respect of question 1: ITC on GST paid for goods purchased for building repair is not eligible to the extent of capitalization under clause (d) of Section 17(5) of the GST Act, 2017.

2. In respect of question 2: ITC on GST paid for works contract services received for building repair is ineligible to the extent of capitalization under clause (c) of Section 17(5) of the GST Act, 2017.