2020 (1) TMI 31 - AAR - GST

Denial of Input Tax Credit for Construction Materials Used in Business

The Authority for Advance Ruling held that the applicant was not eligible for Input Tax Credit (ITC) on construction materials under Section 17(5)(d) of ... Utilisation of Input tax credit - utilisation of credit against purchases of materials construction of building materials - nullifying the cascading effect of taxation - whether ITC against purchases of materials and services used for construction of building (constructed by him) can be claimed and utilized to pay GST on the outward supply of services of renting of the building? HELD THAT:- Section 17 (5) (d) provides that no ITC is available in respect of any goods or services received by a taxable person for construction of an immovable property on his own account even if such inputs and input services are used in the course and furtherance of business - In the instant case the applicant has himself built the marriage hall for which he has received various goods such as cement, steel, sand, tiles, bathroom fittings etc. as inputs and services by architect, labour contractor etc. as input services. He is using the hall to rent out to customers for occasions i.e. for furtherance of his business. Therefore, as per section 17(5) (d), no ITC is available on any goods or services received by him for such construction and the same cannot be claimed by him. The input tax paid on the goods/ services received for construction of an immovable property ‘on one’s own account’ is unavailable. The restriction is provided in the Act which is passed by the Legislature. The power to restrict flow of credit exists under Section 16(1) of the GST Act, which shows a Legislative intent that Input Tax credit may not always be allowed partially or fully - As the suitability and requirement of tax payer varies from person to person, rule/ Act, cannot be changed/ amended accordingly and it is mandatory for the tax payers to adhere the restrictions prescribed in Act and Rule. Thus, no Input Tax Credit is available against any goods or services received by the applicant for construction of the Marriage Hall on his own account even if used in course or furtherance of his business of renting the place. Issues:1. Availability of Input Tax Credit for construction materials2. Interpretation of Section 17(5)(d) of the CGST ActIssue 1: Availability of Input Tax Credit for construction materialsThe applicant sought an Advance Ruling on whether Input Tax Credit (ITC) against purchases of construction materials could be claimed to nullify the cascading effect of taxation. The applicant had invested significantly in constructing a marriage hall and auxiliary buildings, incurring expenses on various materials and services taxable under CGST, SGST, and IGST Acts. The applicant argued that denying ITC in the case of constructing a property for renting out would lead to double taxation and violate the basic rationale of GST. They cited a decision by the Orissa High Court allowing ITC on construction materials for a property rented for commercial purposes. The State jurisdiction officer, however, contended that ITC was not available for construction activities under Section 17(5)(d) of the CGST Act.Issue 2: Interpretation of Section 17(5)(d) of the CGST ActSection 17(5)(d) prohibits the availment of ITC for goods or services received for constructing an immovable property on one's account, even if used in the course or furtherance of business. The Authority for Advance Ruling analyzed the applicant's case, where the marriage hall was constructed by the applicant and rented out for events. The Authority held that as per Section 17(5)(d), the applicant was not eligible for ITC on materials and services used for construction, despite the property being used for business purposes. The Authority rejected the applicant's argument that denial of ITC would lead to double taxation, emphasizing the legislative intent and the statutory provisions. The Authority also noted the Orissa High Court's decision, clarifying that while ITC was granted in a specific case, the provision of Section 17(5)(d) remained valid.In conclusion, the Authority ruled that no Input Tax Credit was available for goods or services received by the applicant for constructing the marriage hall, even if used in the course or furtherance of the business of renting the property.