ITC claim on rented building

[KALLESHAMURTHY MURTHY K.N.]

“ Xyz” is a manufacturer and supplier registered in Chennai and Karnataka under GST. All supplies are effected from Chennai only. He has a rented building in Karnataka for assembling and meeting of the members and distributors to promote business. The Building owner is a registered person in Karnataka and issues tax invoices collecting CGST & SGST. Is “ Xyz“ eligible to avail and utilise ITC on building rent paid?

[KASTURI SETHI]

Catch-22 situation for the querist in real terms.

[KASTURI SETHI]

If any term or phrase has not been defined in the CGST/ACT/IGST Act,  the assessee has  to resort to dictionary  meaning of  the term or phrase or idiom or proverb.  It is not feasible to define all terms and phrases contained in any Act.

[KALLESHAMURTHY MURTHY K.N.]

Sri Kaeturi Sethi Ji, 

I do agree with you, Sir. 

With respects.

[KASTURI SETHI]

Sh. Kalleshamurthy  Murthy Ji, 

Thank you very much for agreeing with my views.

With deep regards.

[Amit Agrawal]

Dear Shri KALLESHAMURTHY MURTHY Ji,

This is in continuation from my earliest posts hereinabove: 

W.r.t. observations made in your post at Sr. No. 20 above (i.e. Otherwise, the Departmental Authorities in Karnataka can question the IGST charged so that the promotional activities are confined to the State of Karnataka alone or extended to other states using Karnataka as the centre and ask to reverse the same.', I need following clarity from you:

'Business Promotion Services' are provided by Karnataka GSTN to its Chennai GSTN and IGST is charged there-against. Irrespective of the fact that the 'promotional activities are confined to the State of Karnataka alone or extended to other state using Karnataka as the centre', kindly let me know the applicable GST provision/s & how same can get applied to 'given situation' which can lead of reversal of the same. 

In other words, I request clarity from you about how GST implications are different (by giving the applicable GST provision/s & how same can get applied differently to 'given '2' situations') in the 'first situation' namely 'promotional activities are confined to the State of Karnataka alone' from the 'second situation' namely 'promotional activities are extended to other state using Karnataka as the centre' 

Thanking you in anticipation!

[KALLESHAMURTHY MURTHY K.N.]

Learned Amit Agrawal Ji,

I am happy to note the interest shown by your good self in the issue. My contention is that as per the views of Sri Venu Sir, by these words " business promotion activities are also happening at Karnataka with considerable expenditure which ultimately gets translated into increased sales at Tamilnadu registration", and views of your good self at Sl. No. 19, it may generate revenue from the business promotional activities and an invoice is raised collecting IGST for the income generated by promotional activities to utilise ITC of Karnataka. Suppose, the business promotional activities may be taken in other states, Karnataka as a centre for assemble in the rented building, I mean the departmental authorities may suspect so and ask for the details of the increase in the business at Chennai by promotional activities. This is ascertainable from the verification of books of accounts only. Under such circumstances, the ITC availed may be asked to reduce proportionately on the turnover determination about other states, if it so happened. This is my assumption only. What would be the development on the issue, which may please be clarified by the experts.

With respects.

[Amit Agrawal]

Dear Shri KALLESHAMURTHY MURTHY Ji,

Thanks for your clarification!

Kindly note the fact from the query i.e. All supplies are effected from Chennai only.

Thus, benefit of ''Business Promotion Services' provided by Karnataka GSTN to its Chennai GSTN' is exclusively used only by Chennai GSTN in the course or furtherance of its business.

It does not matter of such ''Business Promotion Services' provided by Karnataka GSTN resulted into 'sale / supply' by Chennai GSTN to other states (For example: Maharashtra, Andhra Pradesh, Odisha).

And, any portion of ITC against IGST charged against ''Business Promotion Services' provided by Karnataka GSTN to its Chennai GSTN' can not be denied to 'Chennai GSTN' for the reason that 'Business Promotion Services' so provided has resulted in sale from 'Chennai GSTN' to multiple states / UT all over India. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[VENU K]

The only issue I foresee is that it is natural for the department to ask you whether you had billed Karnataka registration towards share of administrative overheads and share of other common overheads relating to services rendered by HO to Karnataka registration.

When you comply with the law , you need to comply with the law in its entirety and cannot pick and choose what is favourable to you.

AI Summary

Input tax credit eligibility: Chennai registration may claim ITC if Karnataka unit invoices IGST as inter state supply.
Where a rented building in Karnataka is billed by the landlord under CGST/SGST, the Chennai GSTIN cannot directly claim ITC; an alternative is for the Karnataka registration to invoice the Chennai registration for business promotion services as an inter state (IGST) supply so Chennai can avail ITC, subject to place of supply rules, valuation under Rule 28, adequate documentation and potential departmental scrutiny.