2023 (7) TMI 351 - AAR - GST

Utilization of input tax credit (ITC) - inward supply of said input/input service used for construction of warehouse can be claimed and utilized to pay tax on the outward supply of services provided by way of renting of said warehouse in case such construction expenses are capitalized in books or not - ITC against inward supply of said input/input service used for construction of warehouse can be claimed and utilized to pay tax on the outward supply of services provided by way of renting of said warehouse in case such construction expenses are not capitalized in books. HELD THAT - When any purchase or sales claimed to have been made by a person on his own account , it means the person is not making such purchases or sales on behalf of others and the person accounts for the expenses/income in his books. In the instant case, admittedly the applicant has constructed the warehouse and has accounted for the same in his books of accounts and retains the ownership/ title of the said warehouse. Further, the said warehouse is being used by the applicant for providing outward supplies of warehousing service and/or renting or leasing service - the warehouse has been constructed in the applicant s own account and the contention of the applicant in this regard is not acceptable. Whether the warehouse constructed by the applicant can be regarded as an immovable property or not? - HELD THAT - In the instant case, it is not the case that the applicant and nor the intention, that if he desires so, he can remove the entire warehouse with its flooring without any damage or deterioration and re-erect it on other piece of vacant land. The intention behind the construction of the warehouse, as it has been submitted by the applicant, is to let it out and earn rental income from it, i.e., to provide outward supplies of warehousing service and/or renting or leasing service - the warehouse as constructed by the applicant, for its permanent characteristics and in absence of mobility like other goods, would be regarded as immovable property and therefore the contention of the applicant cannot be accepted in this regard. Whether the ratio of the judgement delivered by the Hon'ble Orissa High Court in the case of M/S. SAFARI RETREATS PRIVATE LIMITED AND ANOTHER VERSUS CHIEF COMMISSIONER OF CENTRAL GOODS SERVICE TAX OTHERS 2019 (5) TMI 1278 - ORISSA HIGH COURT is applicable in the case in hand? - HELD THAT - In Safari Retreat case, the issue before the Hon ble Orissa High Court was to decide whether the petitioner is eligible for input tax credit in respect of inward supply of goods and services received by him and used for construction of shopping mall. Issues like whether the shopping mall can be regarded as immovable property or not and whether the petitioner has received such inward supplies on his own account or not were not a matter of dispute before the Hon ble court. However, in the case in hand, the applicant has contended that since the warehouse has been constructed for the purpose of let it out to another person against rent, it cannot be said that the applicant has received the inward supplies for construction of the warehouse on his own account - the aforesaid case is not identical with the present case and therefore the ratio of the aforesaid judgment is not applicable to the present case, as it is distinguishable on the basis of facts. Thus, the restriction under clause (d) of sub-section (5) of section 17 of the GST Act in respect of input tax credit on goods or services received by the applicant for construction of warehouse is applicable in the instant case i.e., the applicant is not eligible for credit of input tax charged on inward supply of goods and services related to construction of warehouse which is capitalized in the books of account.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on inward supplies used for construction of a warehouse when expenses are capitalized.
2. Eligibility of ITC on inward supplies used for construction of a warehouse when expenses are not capitalized.

Summary of Judgment:

Issue 1: Eligibility of ITC on Capitalized Construction Expenses

The applicant constructed a warehouse to provide it on rent and sought to claim ITC on inward supplies used for its construction. The applicant argued that the warehouse was not constructed "on his own account" as it was intended for renting out and that pre-engineered steel structures used in the construction could be dismantled and relocated, thus not qualifying as "immovable property". The applicant relied on the Supreme Court judgment in CCE vs. Solid & Correct Engg. Works and the Orissa High Court judgment in Safari Retreats (P.) Ltd. v. Chief Commissioner of Central Goods & Service Tax.

The Authority for Advance Ruling (AAR) rejected these arguments. It held that the phrase "on his own account" includes constructing properties for renting out, as the applicant retains ownership and accounts for the warehouse in his books. The AAR also determined that the warehouse, despite using pre-engineered structures, is immovable property due to its permanent nature and the intent to provide rental services. Consequently, the restriction under Section 17(5)(d) of the GST Act applies, disallowing ITC on goods or services used for construction of the warehouse when capitalized.

Ruling: The applicant is not eligible for ITC on inward supplies used for construction of the warehouse when such expenses are capitalized in the books.

Issue 2: Eligibility of ITC on Non-Capitalized Construction Expenses

The applicant also sought to claim ITC on inward supplies for warehouse construction when such expenses are not capitalized. The AAR ruled that ITC is admissible in such cases as the restriction under Section 17(5)(d) of the GST Act applies only to capitalized expenses.

Ruling: ITC is admissible if the construction expenses are not capitalized in the books.