2020 (7) TMI 82 - AAR - GST

Input tax credit of GST paid - Input input services used for construction of commercial immovable property, subsequently used for renting - HELD THAT - Section (17) (5) (d) bars a taxable person, in the subject case the applicant, from taking input tax credit for construction of immovable property (as in the subject case) which is on his own account, even when such goods or services or both are used in the course or furtherance of business (in the subject case, renting of the said property). Further, it is also seen from the submissions that the immovable property in the subject case is neither a plant or machinery. Thus, Section 17(5) (d) provides that no ITC is available in respect of any goods or services received by a taxable person for construction of an immovable property on his own account even if such inputs and input services are used in the course and furtherance of business. In the instant case the applicant has himself built the immovable property for which he has received various goods or services or both and is using the said property for giving the same on rent to his customers. Therefore, as per Section 17(5)(d), no ITC is available on any goods or services received by him for such construction and the same cannot be claimed by him. Thus, the provisions of Section (17) (5)(d) squarely applies in the subject case and thus the applicant cannot avail input tax credit. The applicant has placed reliance on the judgment rendered by the M/S. SAFARI RETREATS PRIVATE LIMITED AND ANOTHER VERSUS CHIEF COMMISSIONER OF CENTRAL GOODS SERVICE TAX OTHERS 2019 (5) TMI 1278 - ORISSA HIGH COURT . In the said case it is seen that the party had constructed malls which were given further on lease. While holding that Section 17 (5) (d) was not ultra vires, the Hon ble Court ruled that the party was eligible for credit - Since the case of M/s. Safari Retreats Pvt. Ltd. is pending with the Hon ble Supreme Court, has not attained finality. It is also found that the Hon ble High Court has given the relief to the party invoking its writ jurisdiction while categorically holding that they are not inclined to hold Section 17(5)(d) to be ultra vires. Therefore, we are not relying upon the judgement of the Hon ble High Court.

Summary

Issues Involved:
1. Eligibility to claim input tax credit (ITC) on GST paid for inputs and input services used in the construction of commercial immovable property intended for renting.

Detailed Analysis:

Applicant's Contentions:
1. Construction and ITC Claims: The applicant completed construction of a property and availed ITC on various goods and services used pre and post-construction. The property is intended for renting, which is a taxable service under GST.

2. Section 17(5)(d) Interpretation: The applicant argued that Section 17(5)(d) of the CGST Act, which disallows ITC for goods and services used in the construction of immovable property on one's own account, should not apply when the property is used for providing taxable services like renting. They contended that denying ITC would break the tax chain and contradict the GST principle.

3. Revenue Generation: The applicant emphasized that the property generates taxable revenue through renting, thus qualifying for ITC under Section 16(1) of the CGST Act.

4. Judicial Precedent: The applicant relied on the Orissa High Court's decision in Safari Retreats Private Limited Vs. Chief Commissioner of Central Goods & Service Tax, which allowed ITC for construction of immovable property intended for renting.

Jurisdictional Officer's Contentions:
1. Completion of Construction: The officer noted that the construction was completed and the Occupancy Certificate was obtained, making the issue of ITC for construction irrelevant.

2. Section 17(5)(d) Applicability: The officer asserted that Section 17(5)(d) explicitly disallows ITC for construction of immovable property on one's own account, even if used for business purposes like renting. They cited similar decisions from other Advance Ruling Authorities, such as GGL Hotel and Resort Company Limited and Sree Varalakshmi Mahaal LLP, which denied ITC in comparable situations.

3. Pending Appeal: The officer highlighted that the department had appealed the Safari Retreats decision, and its finality was pending before the Supreme Court.

Authority's Findings and Decision:
1. Section 17(5)(d) Analysis: The authority examined Section 17(5)(d) and concluded that it bars ITC for construction of immovable property on one's own account, regardless of its use in business activities like renting. The property in question did not qualify as plant or machinery, thus falling squarely within the disallowed category.

2. Precedent Consideration: The authority acknowledged the Safari Retreats case but noted that its finality was pending in the Supreme Court. They referenced the Supreme Court's stance that an appeal keeps the judgment's correctness in jeopardy until resolved.

3. Consistency with Other Rulings: The authority aligned with other Advance Ruling Authorities' decisions, like those in Sree Varalakshmi Mahaal LLP and GGL Hotel and Resort Company Limited, which denied ITC for similar construction activities.

4. Final Order: The authority ruled that the applicant is not eligible to claim ITC on GST paid for inputs and input services used in the construction of the commercial immovable property intended for renting.

Conclusion:
The authority concluded that the applicant cannot claim input tax credit on GST paid for inputs and input services used in the construction of a commercial immovable property intended for renting, as per Section 17(5)(d) of the CGST Act. The decision was influenced by consistent rulings in similar cases and the pending appeal in the Safari Retreats case.