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2020 (1) TMI 662 - AAR - GSTInput tax credit - input/input services - civil work - External Developmental Works - whether the Applicant is eligible to take input tax credit on the goods and services supplied by M/s. Akanksha Contracts Pvt. for carrying out the activities (civil work and External Developmental Works) for setting up of MRO facility which will be rented out? HELD THAT - The activity of MRO involving supply of goods and services is leading to creation of an immovable property. Section 16 (1) of the GST Act specifically provides that every registered person shall be entitled to take credit of the input tax charged on any supply of goods or services or both made to him, which are used or intended to be used in the course or furtherance of his business. Such entitlement is subject to fulfillment of certain conditions such as possession of invoice, receipt of goods/ service, payment of tax to Government etc. as provided under Section 16(2) of the GST Act, 2017 - thus, ITC is not available for construction of an immovable property even when such goods or services or both are used in course or furtherance of business. The applicant is paying GST on goods and services supplied by M/s. Akanksha Contracts Pvt. Ltd. for construction of MRO facility on the applicant's land. The provisions of Section 17(5)(d) of GST Act, 2017 is clear that if the goods or services are used for the construction of an immovable property, the ITC shall not be available irrespective of the use of the said property. The applicant is not eligible to claim credit of the GST charged by vendor for supply of goods and services to it, which are used for carrying out the activities (Civil Work and External Developmental Works) for setting up of MRO facility.
Issues Involved:
1. Admissibility of input tax credit (ITC) for goods and services used in the construction of an immovable property (MRO facility). Detailed Analysis: 1. Admissibility of Input Tax Credit (ITC) for Goods and Services Used in Construction of MRO Facility: Applicant's Submission and Interpretation: The applicant, a manufacturer of various rubber products, has entered into an agreement to lease a Maintenance Repair and Overhaul (MRO) facility to Elcom Systems Pvt. Ltd. The applicant contends that they should be eligible to claim ITC on goods and services procured for constructing the MRO facility. The applicant refers to several sections of the CGST Act, including: - Section 2(59): Defines 'inputs' as any goods other than capital goods used in the course or furtherance of business. - Section 2(60): Defines 'input service' as any service used in the course or furtherance of business. - Section 2(62): Defines 'input tax' in relation to a registered person. - Section 16: Provides eligibility and conditions for taking ITC, emphasizing that every registered person is entitled to ITC on supplies used in the course or furtherance of business. - Section 17(5)(d): Restricts ITC for goods or services used for the construction of an immovable property (other than plant or machinery) on the taxpayer's own account. The applicant argues that since the MRO facility will be rented out, the restriction under Section 17(5)(d) should not apply. They cite various case laws and circulars to support their claim that ITC should be available for construction materials and services used in the construction of immovable property meant for leasing, as it constitutes a taxable supply of service. Jurisdictional Officer's Comments: The jurisdictional officer concurs with the applicant to the extent that if the outward supply (renting of immovable property) is taxable, the applicant should be eligible to claim ITC on inputs and input services used for making the taxable supply. Authority's Findings, Analysis, and Conclusion: The Authority for Advance Ruling (AAR) analyzed the relevant provisions of the GST Act and found that: - The activities carried out by the applicant (civil work and external development work) lead to the creation of an immovable property. - Section 17(5)(d) explicitly restricts ITC for goods or services used for the construction of an immovable property, irrespective of whether the property is used in the course or furtherance of business. - The applicant's interpretation that the restriction under Section 17(5)(d) applies only when the output is not taxable is considered an implicit interpretation, not the intentional outcome of the section. The AAR emphasized that the primary purpose of Section 17(5)(d) is to block ITC for the construction of immovable property. The applicant's argument that the output supply (renting of the MRO facility) is taxable is immaterial when determining the eligibility of ITC for the construction phase. Ruling: The AAR ruled that the applicant is not eligible to claim ITC on the GST charged by vendors for goods and services used in the construction activities (Civil Work and External Developmental Works) for setting up the MRO facility. Conclusion: The applicant's request to claim ITC for goods and services used in constructing the MRO facility was denied based on the provisions of Section 17(5)(d) of the GST Act, which restricts ITC for the construction of immovable property, regardless of its use in business.
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