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 ... Input Tax Credit - construction of immovable property on one's own account - blocked credits under Section 17(5)(d) - use in the course or furtherance of business - prevention of cascading effect of taxationInput Tax Credit - construction of immovable property on one's own account - blocked credits under Section 17(5)(d) - use in the course or furtherance of business - Whether input tax credit is available on goods and services received for construction of a building (marriage hall) constructed by the applicant on its own account, where the building is let out and renting attracts GST. - HELD THAT: - Section 17(5)(d) expressly provides that input tax credit shall not be available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account, including when such goods or services or both are used in the course or furtherance of business. The applicant built the marriage hall on its own account and used inputs and input services (materials, contractors, architectural services etc.) for that construction. The activity of letting the hall and charging GST on rentals does not alter the statutory bar; the restriction is legislated and is within the power of the Legislature to limit the flow of input tax credit under Section 16(1). Reliance on the Orissa High Court decision in M/s Safari Retreats Pvt. Ltd. was noted; that court granted relief on the facts before it without striking down the provision as ultra vires. Given that Section 17(5)(d) remains part of the law, the Advance Ruling Authority will not extend credit contrary to the clear statutory prohibition. Consequently, input tax credit on goods and services used in construction of the applicant's own immovable property cannot be claimed even though the property is subsequently let out and renting is subject to GST. [Paras 5, 6]No input tax credit is available for goods or services received for construction of the marriage hall on the applicant's own account, even if the hall is let out and the letting attracts GST.Final Conclusion: The Authority ruled that Section 17(5)(d) bars the applicant from claiming input tax credit on inputs and input services used in construction of the marriage hall built on its own account, and therefore no ITC can be utilized against GST on renting of the hall. 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.