2024 (2) TMI 553 - AAAR - GST

Ineligibility for claiming ITC on inward supplies of goods or services used for construction on account of own use - applicability of 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 - HELD THAT - The provisions of clauses (c) and (d) to sub-section (5) of section 17 of the GST Act thus clearly states that Input Tax Credit is not available in respect of works contract services or goods or services or both received for construction of an immovable property. Therefore, for the purpose of construction, the law is unambiguous in the main clauses (c) and (d) to sub-section (5) of section 17 of the GST Act that Input Tax Credit will not be available and thus it will be a blocked credit. It is only the Explanation part, where the law extends the ineligibility criteria for Input Tax Credit to the arena of re-construction, renovation, additions, alterations or repairs and that too conditionally, i.e. Input Tax Credit for such portion of the expenses pertaining to re-construction, renovation, additions, alterations or repairs which are capitalized stands ineligible. The issue of capitalization is applicable only in the Explanation part to the clauses (c) and (d) to sub-section (5) of section 17 of the GST Act i.e. only when the question of reconstruction, renovation, additions, alterations or repairs arises. If such expenses are not capitalised in the books, only under such circumstances the related Input Tax Credit may be available subject to fulfilment of other eligibility criteria. But for the purpose of construction , it is clear from the law that Input Tax Credit is blocked in all occasions and there is no scope of any other interpretation. The WBAAR has erred in interpreting the afore-stated provisions by applying the conditions of capitalisation both for construction as well as for reconstruction, renovation, additions or alterations or repairs. The concerned respondent has constructed one warehouse and let it out. This being a construction , will attract the provisions of the clauses (c) and (d) to sub-section (5) of section 17 of the GST Act and not the Explanation part for determining the eligibility criteria for Input Tax Credit. Thus, the input tax credit for such construction shall not be available to the respondent.

Issues involved:
The judgment involves the admissibility of input tax credit on inward supplies for the construction of an immovable property, specifically a warehouse, and the utilization of such credit to pay tax on outward supplies of services provided by renting the warehouse. The key issue revolves around the interpretation of clauses (c) and (d) to sub-section (5) of section 17 of the GST Act regarding the availability of input tax credit in the context of construction activities.

Details of the Judgment:

1. Background and Appeal Filing:
An appeal was filed under Section 100 (1) of the West Bengal Goods and Services Tax Act against the ruling passed by the West Bengal Advance Ruling Authority. The appeal was made by the Assistant Commissioner of a CGST & CX Commissionerate concerning Mindrill Systems and Solutions Private Limited's construction of a warehouse and the subsequent renting of the same.

2. Contentions of the Respondent:
The respondent contended that the warehouse, constructed using pre-engineered steel structures, should not be considered immovable property, thereby making them eligible for input tax credit on construction expenses. Reference was made to a judgment by the Orissa High Court, but the WBAAR found the case to be distinguishable.

3. Decision of the WBAAR:
The WBAAR held that the restriction on input tax credit under clause (d) of section 17(5) of the GST Act applied in this case. It concluded that the applicant was not eligible for credit on goods or services used for the construction of the warehouse that were capitalized in the books. However, if the construction expenses were not capitalized, the input tax credit claim was deemed admissible.

4. Appeal and Final Decision:
The appellant challenged the ruling on the grounds that the input tax credit should not be restricted to capitalized construction expenses only. The State Revenue Authority supported the WBAAR's ruling, emphasizing the immovable nature of the property and the applicability of the relevant provisions of the GST Act.

5. Interpretation of GST Act Provisions:
The judgment reiterated the provisions of clauses (c) and (d) to sub-section (5) of section 17 of the GST Act, highlighting the unavailability of input tax credit for works contract services or goods used for the construction of immovable property. It clarified that the restriction applied to all construction instances, with the condition of capitalization being relevant only for reconstruction, renovation, additions, alterations, or repairs.

6. Final Decision:
The judgment confirmed the WBAAR's ruling, emphasizing that the construction of the warehouse fell under the provisions of clauses (c) and (d) to sub-section (5) of section 17 of the GST Act, making the respondent ineligible for input tax credit. The Appeal was thus upheld, modifying the original ruling.

Conclusion:
The judgment clarifies the application of input tax credit provisions under the GST Act concerning the construction of immovable property, specifically in the context of a warehouse being rented out. The decision underscores the importance of capitalization in determining the eligibility for input tax credit and upholds the WBAAR's ruling in this particular case.

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