2022 (12) TMI 806 - AAAR - GST

Input Tax Credit (ITC) - Output service being renting / leasing of immovable property - works contract services when supplied for construction of property - certain material/goods were involved in completing the construction service. - separate and distinct service under clause 5(b) of Schedule II of CGST Act - supplies or transactions described in 17(5)(c) or 17(5)(d) of CGST? - HELD THAT - A contract for construction of complex with transfer of property in goods (explicit or implicit) falling under the ambit of entry 5(b) of Schedule-II of CGST Act, 2017 does not cease to be works contract, as long as said the supply satisfies the conditions laid down in the definition of a works contract under Section (2) sub-section (119) of CGST Act, 2017. Works Contracts and a contract for construction of a complex or building are not mutually exclusive. They are neither a subset nor a super set of each other. Hence, the principles of generalia specialibus non derogant donot apply here, i.e. the principle is applicable only when either of them is a subset or superset of one another but not when intersecting / overlapping with each other - on a combined reading, it becomes imperative to assess or classify the service availed by the appellant, i.e., to say whether it qualifies as 'works contract service' or not - the services availed by the appellant is nothing but, 'works contract' in as much as the service involved is construction of immovable property with transfer of property in goods. Hence, the supply is covered under Para 6(a) of the Schedule II of the Act. As can be seen from the sections that section 16 provides for availment of ITC subject to certain conditions and procedures to be followed by the assessee. Whereas, such availment is restricted under Section 17 and various kinds of supplies/conditions are covered - even though a general condition is prescribed under Section 16 of the Act, for availment of ITC, specific exemptions or disallowance cannot be overlooked or ignored merely because one provision allows it. Section 17(5)(c) clearly specifies that ITC is allowed on input of 'works contract' only if the output service is also works contract. In the instant case, the output service provided by the appellant is leasing/renting of immovable property. As such input tax paid on supply of works contract cannot be availed by appellant for payment of tax on supply of renting of immovable property. The contentions of the appellant are not valid in as much as, Para 5(b) of Schedule II and Section 17(5)(c) are two different and distinct provisions of CGST Act, 2017, operating in their assigned spheres - appellants are not eligible to take input tax credit of GST paid on supply of works contract service for payment of GST on their output service i.e., Renting of immovable property. Appeal disposed off.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on GST paid for the purchase of under-construction commercial property.
2. Interpretation of Clause 5(b) of Schedule II and its relevance to Section 17(5)(c) and 17(5)(d) of the CGST Act.
3. Classification of the transaction as a "works contract" under Section 2(119) of the CGST Act.
4. Applicability of Section 16(1) and Section 17(5) of the CGST Act regarding ITC.

Issue-wise Detailed Analysis:

1. Eligibility of Input Tax Credit (ITC) on GST paid for the purchase of under-construction commercial property:
The appellant contended that the GST paid for the purchase of the under-construction commercial premise should be allowed as ITC since the property is used for leasing, which is an output supply in the course of furtherance of business. The lower authority denied this claim, stating that the ITC on works contract services is restricted under Section 17(5)(c) unless the output service is also a works contract.

2. Interpretation of Clause 5(b) of Schedule II and its relevance to Section 17(5)(c) and 17(5)(d) of the CGST Act:
Clause 5(b) of Schedule II treats the construction of a complex, building, or civil structure as a supply of services if the consideration is received before the issuance of the completion certificate. The appellant argued that this clause should not fall under the exclusions described in Section 17(5)(c) or 17(5)(d). However, the lower authority maintained that Clause 5(b) and Section 17(5)(c) are distinct provisions, and the latter restricts ITC on works contract services unless for further supply of works contract service.

3. Classification of the transaction as a "works contract" under Section 2(119) of the CGST Act:
The lower authority classified the transaction as a works contract, which involves the construction of immovable property with the transfer of property in goods. This classification was upheld by referring to the Supreme Court's judgment in Larsen & Toubro Limited and Others Vs. State of Karnataka, which stated that building contracts are a species of works contract. The appellant's argument that a works contract is distinct from a construction service was rejected.

4. Applicability of Section 16(1) and Section 17(5) of the CGST Act regarding ITC:
Section 16(1) allows ITC on supplies used in the course or furtherance of business. However, Section 17(5) restricts ITC on works contract services unless the output service is also a works contract. The lower authority concluded that since the appellant's output service is leasing/renting of immovable property, ITC on works contract services used for construction is not permissible.

Conclusion:
The appellate authority upheld the lower authority's decision, denying the appellant's claim for ITC on GST paid for the purchase of under-construction commercial property. The authority reiterated that Section 17(5)(c) restricts ITC on works contract services unless the output service is also a works contract. The appeal was disposed of accordingly.