Input tax credit allowed on upfront lease premium for covered space used as extended corporate office under Section 17

AAR Tamil Nadu held that a registered person can claim input tax credit on upfront lease premium paid for covered space used as extended corporate office. The premium constituted lease rentals for renting immovable property services for business purposes, not construction-related expenses. Section 17(5)(d) restrictions were inapplicable as the payment was for rental services, not construction activities. ITC eligibility remains subject to fulfilling conditions under Section 16 of CGST Act 2017.

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Issues Involved:

1. Whether input tax credit (ITC) can be claimed on upfront lease premium paid.
2. If ITC is claimable, the manner in which it can be availed.

Detailed Analysis:

Issue 1: Eligibility to Claim Input Tax Credit on Upfront Lease Premium Paid

The applicant, a registered entity under GST, sought an advance ruling on whether ITC can be claimed on the upfront lease premium paid to the Chennai Port Trust for leasing a covered space intended to be used as an extended corporate office. The lease is for a long-term period until 31.08.2045, with the lease rent fixed at Rs. 740/- per sq.m per month, resulting in a provisional upfront amount of Rs. 6,84,28,627/- (including GST and Security Deposit).

The applicant argued that the lease contract is a simple lease of a building and does not involve any construction activity, thus ITC should not be blocked. The State Jurisdictional Authority initially contended that ITC is ineligible under Section 17(5)(d) of the CGST Act, 2017, which restricts ITC on goods or services received for the construction of immovable property (other than plant or machinery) on one's own account.

Upon examination, the Authority found that the lease contract is for renting an immovable property for business purposes, and there is no construction activity involved. The upfront premium paid is considered lease rentals for the services of 'Renting of Immovable Property'. Therefore, the restriction under Section 17(5)(d) does not apply to this case. The Authority concluded that ITC on the upfront lease premium is available, subject to the fulfillment of conditions under Section 16 of the CGST Act, 2017.

Issue 2: Manner of Availing Input Tax Credit

The second part of the applicant's query was on the manner in which ITC can be availed if found eligible. The Authority determined that this aspect is procedural and does not fall within the purview of Section 97(2) of the CGST Act, 2017. Therefore, this part of the question was not admitted for consideration.

Conclusion:

1. The tax paid on the upfront lease premium is available as ITC to the applicant, subject to the provisions of Sections 16 and 17 of the CGST/TNGST Act, 2017.
2. The manner in which ITC can be availed is procedural and was not answered by the Authority.

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