2021 (1) TMI 1254 - AAAR - GST

Appellate Authority Upholds Decision on GST Input Tax Credit for MRO Facility Construction

In Re: M/s. Indag Rubber Limited,

The appellate authority upheld the ruling of the Authority for Advance Ruling (AAR), determining that the appellant is not eligible to claim credit for ... Credit of GST paid - credit of the GST charged by vendor at the time of supply of goods and services to it, which are used for carrying out the following activities for setting up of MRO facility which will be rented out - non-speaking order - violation of principles of natural justice - HELD THAT:- The appellant, nowhere in their appeal memo, could bring forth any evidence of availability of any such contingencies as enumerated above for producing substantial additional documents at the appellate stage. Given the fact that the appellate authority, neither has been empowered to entertain these additional facts nor, in absence of an specific provision, have the right to remand the case back to the original authority, we find ourselves not able to take up these additional evidences despite of several case laws having been cited by the appellant in their favour which pertains to the earlier period. The appellant has placed reliance upon several case laws in support of his claim that additional substantial evidences can be produced at the appellate stage. The case law relied upon by the appellant in the case of NORTH EASTERN RAILWAY ADMINISTRATION, GORAKHPUR VERSUS BHAGWAN DAS [2008 (4) TMI 544 - SUPREME COURT] wherein it has been held by the apex court that though the general rule is that ordinarily the appellate court should not travel outside the record of the lower court and additional evidence, whether oral or documentary is not admitted but Section 107 C.P.C., which carves out an exception to the general Rule, enables an appellate court to take additional evidence or to require such evidence to be taken subject to such conditions and imitations as may be prescribed. From the facts of the case and the relevant provisions as contained in the rule 112 as referred to above, the additional substantial evidences cannot be allowed to be relied upon at the appellate stage. Section 16 (1) of the CGST 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. However, the availability of credit is subject to the restrictions as stipulated under Section 17(5)(d) of the GST Act - it is clear that the restriction imposed herein is absolute in nature as it seeks to override Section 16(1) which entitles a registered taxpayer to avail credit on goods or services used or intended to be used in the course or furtherance of business. Irrespective of the fact that the goods or services are used for construction of immovable property which in turn will be used for conducting business, credit is not available; if the ownership of the property remains with the said person. The legislature, in his wisdom, think it proper to stop the flow of seamless credit once immovable property comes into existence and the ownership is fixed. After having been established the fact that the civil construction undertaken by the appellant is not a plant but an immovable property, we came to the another argument of the appellant where they claim that construction was under taken on account of Elcom and not on their own account and therefore the bar in section 17(5)(d) does not apply to such immovable property, it is observed that at the time of construction, every structure is constructed with a special purpose in the supervision of his own or other. The fact remained that appellant is the owner of the said immovable property -and it has not been sold to any other person. In future, it may be used for other than specific purpose related to his own and/or other without change of a brick. In future, the appellant's construction may also be used many other but quite different purposes by the appellant himself or by other with agreement of appellant - Against the material receipts, the Appellant has paid the bill amount in advance for procuring of goods and services. Further, it has been agreed that M/s Akanksha Contracts Pvt. Ltd. will raise a consolidate invoice for each month, which will include value of both goods and services so supplied along with adjustments regarding the advance so received. In view of specific exclusion mentioned under Section 17(5) (c) & (d) of CGST Act, it is concluded that 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 appeal filed by the appellant has no merit and rejected accordingly. Issues Involved:1. Whether the impugned ruling is a non-speaking order and violates the principle of natural justice.2. Whether the appellant is eligible to avail credit for the inputs and input services received for the MRO facility which is rented out.3. Whether the act of not following the Orissa High Court judgment in the case of Safari Retreats constitutes judicial indiscipline.4. Whether the additional evidence submitted at the appellate stage can be considered.Analysis of Judgment:1. Non-Speaking Order and Violation of Natural Justice:The appellant contended that the ruling by the Authority for Advance Ruling (AAR) did not consider the complete written and oral submissions made by the appellant, thus violating the principle of natural justice. The appellant argued that the ruling lacked cogent reasoning and failed to address the submissions regarding the applicability of the principle of stare decisis and the judgment in Safari Retreats. The appellant cited several legal precedents emphasizing the necessity of speaking orders and the obligation of quasi-judicial authorities to provide reasons for their decisions.2. Eligibility to Avail Credit for Inputs and Input Services:The appellant argued that they are eligible to claim credit for the inputs and input services used for setting up the Maintenance Repair and Overhaul (MRO) facility, which is rented out. The appellant relied on Section 16(1) of the CGST Act, which allows credit for inputs used in the course or furtherance of business, and contended that the restriction under Section 17(5)(d) should not apply since the output supply (renting of the MRO facility) is taxable. The appellant cited various judicial precedents, including the case of Safari Retreats, to support their claim that credit should be allowed when the output is taxable.The appellate authority, however, upheld the AAR's ruling, stating that Section 17(5)(d) of the CGST Act clearly restricts the availability of input tax credit (ITC) for goods or services used for the construction of immovable property, irrespective of the use of the said property. The authority emphasized that the restriction is absolute and overrides Section 16(1), which entitles a registered taxpayer to avail credit on goods or services used in the course or furtherance of business. The authority concluded that the civil construction undertaken by the appellant does not qualify as 'plant and machinery' and is therefore subject to the restriction under Section 17(5)(d).3. Judicial Indiscipline and Safari Retreats Judgment:The appellant argued that the AAR's failure to follow the judgment of the Orissa High Court in Safari Retreats constitutes judicial indiscipline. The appellant emphasized that the Safari Retreats judgment, which allowed credit for inputs used in the construction of immovable property rented out for commercial purposes, is binding unless overruled by a higher court.The appellate authority acknowledged the Safari Retreats judgment but noted that the appeal against the judgment is pending before the Supreme Court. The authority refrained from commenting on the eligibility of ITC in the cited case, stating that the judgment has not yet attained finality.4. Additional Evidence at Appellate Stage:The appellant submitted substantial additional documents and evidence at the appellate stage, which were not presented before the AAR. The appellate authority referred to Rule 112 of the CGST Rules, which restricts the production of additional evidence at the appellate stage except under specific circumstances. The authority found that the appellant did not demonstrate any of the contingencies required to admit additional evidence and concluded that the additional evidence could not be considered.Conclusion:The appellate authority upheld the AAR's ruling, concluding that the appellant is not eligible to claim credit for the GST charged by the vendor for goods and services used in the construction of the MRO facility. The authority emphasized that the restriction under Section 17(5)(d) of the CGST Act applies to the construction of immovable property, and the civil construction undertaken by the appellant does not qualify as 'plant and machinery.' The appeal was rejected, and the AAR's ruling was affirmed.