2022 (8) TMI 920 - AAR - GST

Input Tax Credit - upfront lease premium - manner in which input tax credit can be availed if found eligible which is procedural and the same is not within the ambit of this Authority as it is not within the purview of Section 97(2) of the CGST Act 2017 and hence not admitted - HELD THAT - t is evident that as per Section 16(1) a registered person is entitled to take credit of Input Tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. Section 16 (2) provides that such person will be eligible for such credit only when he is in possession of a tax invoice has received the goods or services paid the tax charged on such supply and has furnished the returns. Section 16 (3) provides that if depreciation is claimed the ITC on the said tax component is not available. In the instant case the applicant has been allotted space by Chennai Port Trust vide Allotment Order No. LBS1/992/2020/E dated 27.04.2021 that is intended to be used by them as an extended corporate office for the accommodation of Record/Documentation Room till 31.08.2045 and in respect of the Right of use of the Asset the applicant has stated that ROU Asset that has to be capitalized amounts to Rs.5, 39, 21, 553/- including the initial direct cost if any incurred by them - it is seen that input tax credit can be claimed on the upfront lease premium which is paid for the allotted covered space used as an extended corporate office as it is in the course of business. The upfront premium made is the lease rentals as per the allotment order/letter of Chennai Port Trusts and it is nothing but lease rentals paid for the services of Renting of Immovable property for business purpose - the upfront premium paid is not related to any construction activity of such covered space but against the rental value for the period of rent calculated for the period of lease and collected upfront. Thus provisions of Section 17(5) (d) is not applicable to the instant case. The provisions of Section 17(5)(d) is not attracted to the activity of renting Immovable Property Services . Therefore the credit of tax paid on the upfront lease rent by the applicant is available subject to fulfillment of other conditions set out under Section 16 of the Act.

Summary

Issues Involved:

1. Whether input tax credit (ITC) can be claimed on upfront lease premium paid.
2. If ITC is claimable, the manner in which it can be availed.

Detailed Analysis:

Issue 1: Eligibility to Claim Input Tax Credit on Upfront Lease Premium Paid

The applicant, a registered entity under GST, sought an advance ruling on whether ITC can be claimed on the upfront lease premium paid to the Chennai Port Trust for leasing a covered space intended to be used as an extended corporate office. The lease is for a long-term period until 31.08.2045, with the lease rent fixed at Rs. 740/- per sq.m per month, resulting in a provisional upfront amount of Rs. 6,84,28,627/- (including GST and Security Deposit).

The applicant argued that the lease contract is a simple lease of a building and does not involve any construction activity, thus ITC should not be blocked. The State Jurisdictional Authority initially contended that ITC is ineligible under Section 17(5)(d) of the CGST Act, 2017, which restricts ITC on goods or services received for the construction of immovable property (other than plant or machinery) on one's own account.

Upon examination, the Authority found that the lease contract is for renting an immovable property for business purposes, and there is no construction activity involved. The upfront premium paid is considered lease rentals for the services of 'Renting of Immovable Property'. Therefore, the restriction under Section 17(5)(d) does not apply to this case. The Authority concluded that ITC on the upfront lease premium is available, subject to the fulfillment of conditions under Section 16 of the CGST Act, 2017.

Issue 2: Manner of Availing Input Tax Credit

The second part of the applicant's query was on the manner in which ITC can be availed if found eligible. The Authority determined that this aspect is procedural and does not fall within the purview of Section 97(2) of the CGST Act, 2017. Therefore, this part of the question was not admitted for consideration.

Conclusion:

1. The tax paid on the upfront lease premium is available as ITC to the applicant, subject to the provisions of Sections 16 and 17 of the CGST/TNGST Act, 2017.
2. The manner in which ITC can be availed is procedural and was not answered by the Authority.