2025 (6) TMI 329 - AAR - GST

AAR rejects advance ruling application on ITC entitlement due to pending investigation proceedings under Section 98(2)

In Re: M/s. Rare SS Properties India Private Limited

In Re: M/s. Rare SS Properties India Private Limited - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Authority for Advance Ruling (AAR) were:Whether the applicant is entitled to avail Input Tax Credit (ITC) on goods and services procured for construction, furnishing, and infrastructure development of a commercial property that is leased out, specifically when the output service is rental of immovable property.Whether the ITC on inputs and input services used in construction and furnishing of the building for rental purposes is blocked under Section 17(5)(c) and 17(5)(d) of the CGST/TNGST Act, 2017.Whether the advance ruling application filed by the applicant is admissible, given that investigation and proceedings by the Directorate of Goods and Services Intelligence (DGGI) on the same issue were already pending at the time of filing.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement to Input Tax Credit on Construction and Furnishing for Rental ServicesRelevant legal framework and precedents: The applicant relied on Sections 16(1) and 16(2) of the CGST Act, which provide for entitlement to ITC on inputs and input services used in the course or furtherance of business. The applicant contended that the rental service of immovable property (classified under SAC 997212) is a taxable supply on which GST is paid at 18%, and therefore, ITC on inputs used to provide such rental services should be allowed. The applicant also cited judicial precedent from the Hon'ble High Court of Orissa in the case of M/s. Safari Retreats Pvt. Ltd., which recognized the principle that ITC is meant to benefit the taxpayer by allowing credit on investments made for taxable supplies such as rent.Court's interpretation and reasoning: The applicant argued that the goods and services procured-such as cement, steel, lifts, air conditioners, electrical equipment, and professional services-are directly related to making the building suitable for rental business and hence should qualify for ITC. The applicant emphasized that the building is not constructed for sale but for rental purposes, and the GST paid on rental income should be supported by corresponding ITC to avoid cascading tax effects.Key evidence and findings: The applicant submitted invoices for procurement of various goods and services, details of ITC availed, and the lease agreement evidencing rental income subject to GST. The applicant also noted that the GST on lease rent is regularly paid.Application of law to facts: The applicant's contention was that Section 17(5)(c) and (d), which block ITC on goods and services used in construction of immovable property, apply only to properties constructed for sale, not for rental. Therefore, ITC should not be blocked in this case.Treatment of competing arguments: The department's position, as reflected in the show cause notice, was that ITC claimed on inputs used in construction of immovable property is blocked under Section 17(5)(c) and (d), regardless of whether the property is for sale or rent. The department initiated investigation on the basis that the applicant's availment of ITC on construction inputs was irregular and not permissible under the Act.Conclusions: While the applicant's substantive legal argument on entitlement to ITC was noted, the Authority did not proceed to decide this issue on merits due to the procedural issue of admissibility of the advance ruling application.Issue 2: Admissibility of the Advance Ruling Application in Light of Pending ProceedingsRelevant legal framework and precedents: Section 98(2) of the CGST Act, 2017, provides that the Authority for Advance Ruling shall not admit an application if the question raised is already pending or decided in any proceedings under the Act in the case of the applicant. The term 'proceedings' was analyzed extensively with reference to various provisions of the CGST Act, including Sections 6, 29, 66, 67, 70, 73, 74, 75, 78, 122, 127, 130, and 160, which use the term in different contexts such as assessment, adjudication, recovery, inspection, inquiry, and judicial proceedings.Court's interpretation and reasoning: The Authority interpreted 'proceedings' broadly to include not only formal adjudication or assessment proceedings following issuance of a show cause notice but also investigations and inquiries initiated prior to such notices. The Authority reasoned that the initiation of investigation or inquiry, such as summons for evidence and production of documents, constitutes commencement of proceedings under the Act. This interpretation is consistent with the legislative intent to prevent parallel or conflicting adjudications on the same issue.Key evidence and findings: The chronology of events showed that the DGGI had conducted inspection and issued summons to the applicant starting from 25-05-2023, well before the filing of the advance ruling application on 13-09-2024. The applicant had also furnished detailed information and statements to the DGGI during the investigation. Subsequently, a show cause notice was issued on 03-12-2024.Application of law to facts: Since the investigation and inquiry into the same issue of ITC availment was already pending at the time of filing the advance ruling application, the Authority held that the application was not admissible under the first proviso to Section 98(2) of the Act.Treatment of competing arguments: The applicant sought clarification through advance ruling despite the ongoing investigation, possibly to obtain a binding decision on the issue. However, the Authority emphasized that allowing advance ruling in such circumstances could interfere with the ongoing adjudication and recovery proceedings, potentially vitiating the process.Conclusions: The Authority concluded that the advance ruling application was liable to be rejected on the ground of inadmissibility due to pending proceedings on the same issue.3. SIGNIFICANT HOLDINGSThe Authority held, verbatim:'The Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act.''The term 'proceedings' used in the CGST Act, 2017 is not restricted to proceedings which commence after the issue of show cause notice alone, and that the same also denotes proceedings prior to the issue of show cause notice, or proceedings which may not culminate in the issue of any show cause notice at all.''The commencement of investigation or inquiry is to be seen as the start of a proceeding to safeguard Government revenue.''An advance ruling is not required to be pronounced once an investigation is initiated against the applicant under the provisions of the CGST/TNGST Act involving the same issue on which the query for advance ruling has been raised.''The application for advance ruling filed online dated 13.09.2024 by the applicant is liable for rejection under the first proviso to Section 98(2) of the CGST / TNGST Acts, 2017, in view of the fact that 'proceedings' on the same issue was already pending against the applicant.'Core principles established include:The scope of 'proceedings' under the CGST Act is broad and includes investigations and inquiries preceding formal adjudication.Advance ruling applications are inadmissible if the issue is already under investigation or adjudication in any proceeding involving the applicant.The legislative intent is to avoid duplication and conflict between advance ruling decisions and ongoing proceedings.Final determination: The advance ruling application was rejected on the ground of inadmissibility due to pending investigation and proceedings on the same issue, without adjudicating on the substantive question of ITC entitlement.