ITC Denied on Inputs for Constructing Leased Logistics Facility; Section 17(5)(d) Restriction Applies Despite Business Use.

The AAR determined that the applicant is not entitled to claim ITC on inputs and capital goods used for constructing a logistics facility intended for leasing. Despite the applicant's argument that the warehouse is for business purposes, Section 17(5)(d) of the CGST Act restricts ITC on immovable property constructed on one's own account. The AAR emphasized that the term "on his own account" includes property constructed for business purposes, such as leasing. Thus, the applicant's claim for ITC is denied, as the provision remains applicable despite previous court rulings in similar cases. The judgment was communicated accordingly.

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Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on inputs/capital goods used for constructing a logistics facility space (warehouse) intended to be rented out.
2. Applicability of Section 17(5)(d) of the CGST Act, 2017 on the construction of the warehouse for leasing purposes.

Detailed Analysis:

1. Eligibility of Input Tax Credit (ITC) on inputs/capital goods used for constructing a logistics facility space (warehouse) intended to be rented out:

The applicant, M/s Dhingra Trucking Pvt. Ltd., is engaged in constructing a covered logistics facility space (warehouse) in Haryana and intends to lease it out for storage purposes. The applicant contends that under Section 16 of the CGST/HGST Act, 2017, they are entitled to claim ITC on inputs, capital goods, and services used in the construction of the warehouse, as these are used in the course or furtherance of their business. They argue that since the warehouse will generate GST revenue through rental income, denying ITC would be arbitrary and contrary to the GST's objective of preventing the cascading effect of multi-stage taxation.

2. Applicability of Section 17(5)(d) of the CGST Act, 2017 on the construction of the warehouse for leasing purposes:

Section 17(5)(d) of the CGST Act, 2017, restricts ITC on goods and services used for constructing an immovable property (other than plant or machinery) on one's own account, even if used in the course or furtherance of business. The applicant contends that this provision should not apply to their case as the warehouse is intended for leasing out and not for sale or self-use. They argue that the term "on his own account" should be interpreted to mean immovable property constructed for self-use, not for leasing purposes.

The applicant references the Orissa High Court's decision in Safari Retreats Private Limited vs. Chief Commissioner of Central Goods and Services Tax, which allowed ITC for immovable property let out, distinguishing it from property retained for self-use. They also cite the Andhra Pradesh High Court's ruling in Commissioner of Central Excise, Visakhapatnam-II vs. Sai Samhita Storages (P) Ltd, which allowed CENVAT credit for materials used in constructing a warehouse intended for providing storage and warehousing services.

Discussion and Judgment:

The Authority for Advance Ruling (AAR) reviewed the applicant's submissions and relevant provisions of the CGST Act. Section 16 allows registered persons to claim ITC on goods and services used in the course or furtherance of business. However, Section 17(5)(d) restricts ITC on goods and services used for constructing immovable property on one's own account, excluding plant and machinery.

The AAR noted that the term "on his own account" means for one's own purpose or business. Since the applicant constructs the warehouse for their business of providing logistics services (including leasing), it falls under "on his own account." Thus, the bar under Section 17(5)(d) applies, and the applicant cannot claim ITC for the construction of the warehouse, even if it is intended for leasing.

The AAR acknowledged the Orissa High Court's ruling in Safari Retreats but emphasized that the court did not invalidate Section 17(5)(d). Therefore, the provision remains applicable, and the applicant's claim for ITC is not permissible.

Ruling:

1. The applicant is not eligible for ITC on inputs/capital goods used for creating the covered logistics facility space (warehouse) intended to be rented out for storage purposes.
2. Since ITC on input goods or services used in constructing the warehouse is not available, there is no possibility of utilizing such credit.

The judgment was ordered accordingly and communicated.

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