Taxpayer denied input tax credit on warehouse construction expenses under Section 17(5)(d) when costs capitalized

The AAR, West Bengal ruled that a taxpayer cannot claim input tax credit (ITC) on goods/services used for warehouse construction when such expenses are capitalized in books. The Authority held that the warehouse constitutes immovable property due to its permanent characteristics and lack of mobility. Since the applicant constructed the warehouse on his own account and retained ownership for providing rental/warehousing services, the restriction under Section 17(5)(d) of GST Act applies. The Authority distinguished the Safari Retreats case as factually different and denied ITC eligibility for construction-related inward supplies.

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Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on inward supplies used for construction of a warehouse when expenses are capitalized.
2. Eligibility of ITC on inward supplies used for construction of a warehouse when expenses are not capitalized.

Summary of Judgment:

Issue 1: Eligibility of ITC on Capitalized Construction Expenses

The applicant constructed a warehouse to provide it on rent and sought to claim ITC on inward supplies used for its construction. The applicant argued that the warehouse was not constructed "on his own account" as it was intended for renting out and that pre-engineered steel structures used in the construction could be dismantled and relocated, thus not qualifying as "immovable property". The applicant relied on the Supreme Court judgment in CCE vs. Solid & Correct Engg. Works and the Orissa High Court judgment in Safari Retreats (P.) Ltd. v. Chief Commissioner of Central Goods & Service Tax.

The Authority for Advance Ruling (AAR) rejected these arguments. It held that the phrase "on his own account" includes constructing properties for renting out, as the applicant retains ownership and accounts for the warehouse in his books. The AAR also determined that the warehouse, despite using pre-engineered structures, is immovable property due to its permanent nature and the intent to provide rental services. Consequently, the restriction under Section 17(5)(d) of the GST Act applies, disallowing ITC on goods or services used for construction of the warehouse when capitalized.

Ruling: The applicant is not eligible for ITC on inward supplies used for construction of the warehouse when such expenses are capitalized in the books.

Issue 2: Eligibility of ITC on Non-Capitalized Construction Expenses

The applicant also sought to claim ITC on inward supplies for warehouse construction when such expenses are not capitalized. The AAR ruled that ITC is admissible in such cases as the restriction under Section 17(5)(d) of the GST Act applies only to capitalized expenses.

Ruling: ITC is admissible if the construction expenses are not capitalized in the books.

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