2021 (11) TMI 884 - AAR - GST

Classification of supply - deemed service or not - purchasing flats/buildings while they are under construction - immovable property should fall under the definition in clause 5(b) of Schedule II of SGST Act, 2017 or not - inward supply does fall under the exclusion provided in Sec 17 of the CGST Act, 2017 from availing input tax credit (ITC) or not - HELD THAT - Though the construction of a building is covered by the definition of works contract still there are (2) separate entries in Schedule II which describe the eligibility of immovable property to tax. Both these entries read with Sec 7(1A) make the supply of immovable property taxable under the Act. However, the Schedule II carves out certain types of works contract under clause 5 to be treated differently from the types of works contract enumerated in Entry 6. This does not alter the basic definition of works contract given in Sec 2(119). It is a settled principle of interpretation that while interpreting the provision of taxing statute, a construction which would preserve the purpose of provision should be adopted. Therefore in the very nature of taxation statute the interpretation cannot be absolutely cast upon the logic. The purpose of introducing exceptions in Sec 17 of the CGST Act, 2017 is to distinguish it from other transactions. Wherever the legislature has considered it appropriated to ensure consistency in the working of various provisions and to avoid repugnancy and ambiguity in such places they have clearly enacted such exclusions. Where such clarity of excluding a particular transaction is not clearly mentioned it cannot be inferred by logic. The interpretation of Sec 17(5)(c) wherein works contract services are excluded from claiming ITC will include all activities enumerated under Sec 2(119). And this definition does not exclude any species of works contract relatable to any immovable property where transfer of property in goods is involved. Thus the applicant who is purchasing building under an agreement of sale is not eligible to claim ITC under Sec 17 of the CGST Act, 2017.

Summary

Issues Involved:
1. Interpretation of clauses 5(b) and 2(b) of Schedule II of CGST Act in relation to Section 17(5)(c) and 17(5)(d).
2. Definition and scope of "works contract services" under Section 17(5)(c) and its applicability.
3. Eligibility of Input Tax Credit (ITC) for purchase of under-construction commercial immovable property.
4. Clarifications and notifications by the Department of Revenue regarding ITC for under-construction commercial complexes.
5. Specific law/rule preventing the flow of tax credit from vendor to applicant.

Detailed Analysis:

1. Interpretation of Clauses 5(b) and 2(b) of Schedule II of CGST Act:
- The applicant questioned whether the supply of under-construction immovable property and lease of immovable property, defined as distinct services under clauses 5(b) and 2(b) of Schedule II, can be treated under the supplies or transactions described in Sections 17(5)(c) or 17(5)(d).
- The ruling clarified that Clause 5(b) of Schedule II and Section 17(5)(c) are distinct provisions of the CGST Act, 2017. Similarly, Clause 2(b) of Schedule II and Section 17(5)(c) are also distinct provisions.

2. Definition and Scope of "Works Contract Services":
- The applicant contended that the term "works contract services when supplied for" in Section 17(5)(c) should refer to the output supply of lease of immovable property or the input receipt of under-construction commercial immovable property.
- The ruling stated that Section 17(5)(c) is enacted with reference to the restriction of ITC to works contract services and that works contract is defined under Section 2(119). Therefore, Section 17(5)(c) pertains to all transactions defined under Section 2(119).

3. Eligibility of ITC for Purchase of Under-Construction Commercial Immovable Property:
- The applicant argued that purchasing under-construction commercial immovable property under an indivisible contract should be considered a valid input for the business of leasing immovable property.
- The ruling concluded that Section 17(5)(d) refers to inputs on which ITC is not available for any taxable person. Therefore, if the applicant utilizes goods or services for the construction of immovable property on his own account, Section 17(5)(d) applies. The purchase of under-construction commercial immovable property falls within the scope of Section 17(5)(c), and the applicant is not eligible to claim ITC.

4. Clarifications and Notifications by the Department of Revenue:
- The applicant referred to numerous clarifications and notifications stating that ITC is available for the sale of under-construction commercial complexes sold before the issuance of the completion certificate.
- The ruling noted that the applicant did not bring any specific clarifications or notifications to the authority's notice. Thus, the authority is not precluded from taking a different stand.

5. Specific Law/Rule Preventing the Flow of Tax Credit:
- The applicant questioned what specific law or rule prevents the flow of tax credit from the vendor to the applicant against the GST received for leasing immovable property.
- The ruling pointed out that Section 17(5)(c) clearly answers this question, indicating that the applicant is not entitled to claim ITC for the purchase of under-construction commercial immovable property.

Conclusion:
- The ruling clarified that the provisions in Schedule II and Section 17 of the CGST Act operate in different fields and have distinct purposes.
- The applicant's transactions fall under the exclusions provided in Section 17(5)(c) and (d), making them ineligible for claiming ITC for the purchase of under-construction commercial immovable property.
- The authority upheld the provisions of the CGST Act, 2017, and denied the applicant's claim for ITC.