AAR declines ruling on input tax credit for infrastructure development used for rental purposes citing sub-judice matter

The AAR Uttarakhand declined to rule on whether input tax credit is admissible for inputs and input services used in developing infrastructure for rental purposes, where rental income attracts GST. The authority noted that GST allows broader ITC availability compared to previous tax regimes, eliminating cascading effects through value chain credit offsetting. However, Section 17(5)(c)(d) of CGST Act 2017 restricts certain credits as legislative policy decisions. Citing precedent in M/s Vardhan Holidays case, the AAR refrained from answering as the matter remains sub-judice, maintaining the same position as the earlier ruling.

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Issues Involved:
1. Admissibility of Input Tax Credit (ITC) on Inputs and Input Services for the development of infrastructure for leasing purposes.

Issue-wise Detailed Analysis:

1. Admissibility of Input Tax Credit (ITC) on Inputs and Input Services for Development of Infrastructure:

Applicant's Submission:
The applicant, a registered entity under the CGST Act, 2017, sought an advance ruling on whether ITC on inputs and input services used for developing a warehouse intended for lease and subject to GST is admissible. The applicant argued that under Section 16(1) of the CGST Act, 2017, ITC should be available as the inputs are used in the course or furtherance of business. The applicant cited the judgment of the Hon'ble High Court of Orissa in Safari Retreats Pvt. Ltd. vs. Chief Commissioner of CGST, Bhubaneshwar, which held that ITC is admissible for property leased out for rental purposes where GST is applicable.

Jurisdictional Officer's Submission:
The Deputy Commissioner argued that Section 17(5)(d) of the CGST Act, 2017 bars ITC for construction of immovable property on the taxpayer's own account, even if used in the course or furtherance of business. The officer noted that the immovable property in question is neither plant nor machinery and referenced the Maharashtra AAR's decision in M/s Ashish Arvind Hasnoti, which did not accept the Odisha High Court's view in Safari Retreats Pvt. Ltd.

Authority's Analysis:
The authority examined the provisions of the CGST Act, 2017, particularly Section 16(1) and Section 17(5)(c) & (d). Section 16(1) allows ITC subject to conditions and restrictions, while Section 17(5) imposes specific restrictions, including on works contract services and goods/services used for constructing immovable property on one's own account. The authority noted that the legislative intent is to restrict ITC for construction of immovable property, except for plant and machinery.

Judicial Precedents:
The authority referenced several judicial precedents, including the Hon'ble Delhi Court's judgment in Cellular Operators Association of India and Others vs. UOI, which upheld the government's power to restrict ITC. The Hon'ble Supreme Court's decisions in Indian Oil Corporation Ltd. vs. State of Bihar and other cases were also cited to support the view that legislative restrictions on ITC are valid and not violative of Article 14 of the Constitution.

Pending Judicial Proceedings:
The authority acknowledged that the Safari Retreats case is pending before the Hon'ble Supreme Court and a similar issue is pending before the Hon'ble High Court of Uttarakhand in the case of M/s Rosewood Hospitality (P) Ltd. Given these pending proceedings, the authority refrained from providing a definitive ruling on the matter.

Conclusion:
The authority concluded that due to the sub-judice nature of the issue, it would refrain from answering the question raised by the applicant. The decision was consistent with previous rulings, such as in the case of M/s Vardhan Holidays, where the authority also refrained from providing a ruling due to pending judicial proceedings.

Order:
The authority refrained from answering the question raised by the applicant as the matter is sub-judice.

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