Appellate ruling denies Input Tax Credit for construction of logistics facility for rent

The appellate authority upheld the ruling that the applicant is not eligible for Input Tax Credit (ITC) on inputs/capital goods used in constructing a logistics facility to be rented out. The authority found that the construction was done by the appellant for itself, intending to retain ownership rights and lease it out, falling under the restriction of Section 17(5)(d) of the CGST Act. Despite arguments citing judicial precedents, including the Orissa High Court decision in 'Safari Retreats,' the appeal was dismissed as the ruling did not have any legal flaws.

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

Issue-wise Detailed Analysis:

1. Eligibility of Input Tax Credit (ITC) for Inputs/Capital Goods Used in Constructing a Logistics Facility (Warehouse) to be Rented Out:

Question for Advance Ruling:
- Whether ITC of GST on inputs/capital goods used for creating a logistics facility space (warehouse) to be rented out is eligible under Sections 16 and 17 of the CGST Act, 2017.

Ruling by Authority for Advance Ruling:
- The applicant is not eligible for ITC on inputs/capital goods used for creating the logistics facility space to be rented out.

Grounds of Appeal:
- The appellant argued that the ruling by AAR is incorrect both on facts and the law.
- They cited various judicial precedents, including the Orissa High Court decision in 'Safari Retreats Pvt. Ltd. vs. Chief Commissioner,' which they believe supports their case.
- The appellant contended that the property is constructed for leasing out, not on their own account, and thus, the denial of ITC is arbitrary and against the GST rationale of removing the cascading effect of taxation.
- They also referenced the Andhra Pradesh High Court decision in a pre-GST era case, which upheld CENVAT credit on construction materials used for a warehouse.

Appellate Authority's Findings:
- The legislative intent is clear from Section 17(5)(d) of the CGST Act, which restricts ITC for goods/services used in constructing immovable property on one's own account.
- The construction was done by the appellant for itself, intending to retain ownership rights and lease it out, thus falling under the restriction of Section 17(5)(d).
- The Orissa High Court's decision in 'Safari Retreats' provided a liberal interpretation but did not declare Section 17(5)(d) ultra vires. The decision is under appeal in the Supreme Court and thus not binding.

2. Applicability of Section 17(5)(d) of the CGST Act, 2017 Concerning ITC on Goods/Services Used in Construction:

Appellant's Plea:
- The appellant argued that Section 17(5)(d) should not apply since the property is constructed for leasing out, not on their own account.
- They cited the Orissa High Court decision in 'Safari Retreats' and other judicial precedents to support their claim that ITC should be admissible.

Appellate Authority's Findings:
- Section 17(5)(d) explicitly restricts ITC for goods/services used in constructing immovable property on one's own account.
- The appellant's construction of the warehouse, intended for leasing, still falls under the restriction as it is constructed on their own account.
- The Orissa High Court's decision, while providing a liberal interpretation, is not final and binding as it is under appeal in the Supreme Court.

Ruling:
- The appeal is dismissed, and the Advance Ruling dated 28.08.2020 is upheld as it does not suffer from any infirmity or illegality.

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