Civil and interior works for commercial property construction cannot claim ITC under Section 17(5) CGST Act

The AAR, UP held that ITC on civil and interior works for commercial property construction is not admissible under Section 17(5) of CGST Act, 2017. The applicant sought to renovate office space for tenants and recover costs through rent with 10% profit over five years. However, clauses (c) and (d) of Section 17(5) restrict ITC for construction of immovable property on own account, except plant and machinery. Since construction expenses are capitalized in books, ITC on GST paid for civil and interior works at both Noida properties was denied.

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Issues Involved:
1. Eligibility to take input tax credit (ITC) for expenditures on 'Civil and Interior Works' in a building used for rental purposes.
2. Availability of ITC on the construction of a commercial complex intended for rental purposes.

Issue-wise Detailed Analysis:

Issue 1: Eligibility to Take ITC for 'Civil and Interior Works'
- The applicant sought to determine if ITC is available for expenditures on 'Civil and Interior Works' in a building used for rental purposes.
- The applicant argued that Section 16(1) of the CGST Act, 2017 entitles every registered person to take credit of input tax charged on any supply of goods or services used in the course or furtherance of business.
- Section 17(5) of the CGST Act, 2017 imposes restrictions on ITC availment, specifically stating that ITC is not available for goods or services received for the construction of an immovable property on one's own account.
- The applicant contended that the 'Civil and Interior Works' should qualify as being in furtherance of business since the renovated property is used for renting out, which is a taxable supply under GST.
- The authorities, however, highlighted that Section 17(5)(d) explicitly blocks ITC on goods or services used for construction of an immovable property, even if used in the course or furtherance of business, thus making ITC on 'Civil and Interior Works' inadmissible.

Issue 2: Availability of ITC on Construction of a Commercial Complex
- The applicant sought clarity on whether ITC is available for the construction of a commercial complex intended for rental purposes.
- The applicant argued that constructing a commercial complex for renting out should be considered a business activity, and thus, ITC should be allowed to avoid cascading tax effects.
- The authorities reiterated that Section 17(5)(d) of the CGST Act restricts ITC on goods or services used for constructing an immovable property on one's own account, including when used in the course or furtherance of business.
- The applicant referenced the Orissa High Court ruling in the case of M/s. Safari Retreats Pvt. Ltd., which allowed ITC for construction of malls leased out. However, the authorities noted that this judgment is under appeal in the Supreme Court and thus, its applicability is uncertain.
- Consequently, the authorities concluded that ITC on the construction of the commercial complex is not admissible under the current legal framework.

Ruling:
- Question 1: Whether the Applicant is eligible to take input tax credit in relation to expenditure incurred for 'Civil and Interior Works' in building located at C32, Sector-62, Noida, Gautam Buddha Nagar, Uttar Pradesh, 201301 at different floors, since the said property is further used for letting out to different tenants on rental basis viz. for furtherance of businessRs.
Answer: Replied in negative.

- Question 2: Whether ITC on construction of commercial complex located at Plot No. 18, BLOCK C, SECTOR -153, NOIDA, Gautam Buddha Nagar, Uttar Pradesh, 201310, will be available to Applicant in case the said building is used for the purpose renting outRs.
Answer: Replied in negative.

This ruling is valid only within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to provisions under Section 104(1) of the Act.

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