2022 (9) TMI 198 - AAR - GST

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 ... Input Tax Credit - Scope of advance ruling - sub-judice matter - applicant has developed an infrastructure for being leased out against rental and the said rental is leviable to GST - Inputs and Input Services received for development of the said infrastructure by the applicant is admissible ITC or not - HELD THAT:- The powers to restrict flow of Input Tax Credit exist under Section 16 (1) of the CGST Act, 2017, which empowers the Central Government to impose conditions and restrictions on availing input tax credit. This shows a Legislative intent that input tax credit may not always be allowed partially or fully and also that the Input Tax Credit (ITC) a provision does not provide for, that each and every all of the GAT paid is eligible to be availed of as ITC. Admissibility and availability of some of the Credits have been restricted under Section 17 in the Act itself. GST is a new system of taxation which provides setting off of Input Tax Credit (ITC) against the output tax liability along the entire value chain till the final retail level. Under the earlier tax regime, credit of inputs was available for final product in respect of certain taxes/ duties only e.g. credit of duty of excise could not be utilised against VAT and vice versa. It can, therefore, be said that the GST is applicable only on value addition along the entire supply chain and thus cascading effect of taxes has been eliminated. Thus, under the GST regime, more input tax credit is available to tax payers along the entire supply chain as compared to the previous tax regime. Further, the transitional provisions under the CGST Act provide adequate credit of taxes accumulated under the erstwhile taxation regime to taxpayers in the GST regime - Section 17(5) (c) & (d) of the CGST Act, 2017 prescribes denial of credit for certain class of taxpayers with certain conditions and limitations. This would mean that the legislature has decided in its wisdom the credit of taxes which would be allowed in credit as ITC and the tax that has not been allowed, as policy call of the Government, given effect through legislation, cannot be obtained through judicial review. This authority in IN RE: M/S. VARDHAN HOLIDAYS, [2021 (3) TMI 1380 - AUTHORITY FOR ADVANCE, UTTARAKHAND] while dealing with similar issue in the case of M/s Vardhan Holidays, Ramnagar, Uttarakhand, refrained from answering the said matter holding that the matter is sub-judice - the position has not changed since the passing of above ruling, in the case of M/s Vardhan Holidays, Ramnagar and the matter is still sub-judice. The question raised by the applicant is not answered as the matter is sub-judice. 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.