AI Drafter 
TaxTMI 
TaxTMI 
2021 (2) TMI 1293
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....issue raised by M/s RAJASTHAN STATE INDUSTRIAL DEVELOPMENT & INVESTMENT CORPORATION LIMITED, UDYOG BHAWAN, TILAK MARG, C-SCHEME, JAIPUR, Rajasthan - (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (a) given as under: - a. Classification of goods and /or services or both Further, the applicant being a registered person (GSTIN is 08AABCR4695J1ZW as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling. A. SUBMISSION AND INTERPRETATION OF THE APPLICANT: 1. M/s Rajasthan State Industrial Development and Investment Corporation Ltd. (RIICO) (hereinafter referred to as the applicant) is a Rajasthan State Government owned Public Sector Undertaking. The corporation (RIICO) has been setup by the Rajasthan Government for the purpose of development of various industrial areas for the purpose of setting up of Industries and other supportive services in the state of Rajasthan. It has total 30 regional offices all across t....
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....lding for fire tenders, Post office/Bank building etc. Nature of Development Expenditure: - Development expenditure for creation of infrastructure for new industrial area is incurred generally in the initial years. These expenditures cover expenditure on land compensation, civil works like roads, drainage, approaches, culverts, rain water harvesting system, power supply related work like laying of new power lines, street light work, work for common facilities in the industrial area like Administrative office, Building for fire tenders, Post office/Bank building etc. Administrative cum financial sanction for incurring above development expenditure is sanctioned by competent authority for each new industrial area. (b) Nature of Special Maintenance: - This Includes improvement/up-gradation of industrial infrastructure in subsequent years after initial development of any industrial area is approved under above sanctions. Example: - Up-gradation of damage BT road to Cement Concrete Road (CC), Up-gradation of masonry drain to RCC drain, up-gradation of sodium vapour/Tube light based street light to LED based street light system etc. 6. The main activity of applicant ....
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....ration or reserved or set apart or here after reserved or set apart under any law for setting up an industry or industries including essential welfare and supporting services, e.g Post Office, Labour Colony, Residential Colony/Housing Complex & Township, Educational Institutions, RSEB, Power Station and water and Sewerage facilities, Dispensary or Hospital, Police, Fire service Station, Bank, Weigh Bridge, shops and markets, Cinema, Hotel and Restaurant and Petrol pump as mentioned in Rajasthan Land Revenue (Industrial Areas Allotment) Rules, 1959. 9. It is to be further submitted that the long-term leasing of more than 30 years of Industrial land to an Industrial unit is exempt as per entry no. 41 of the Notification No. 12/2017-Central Tax (rate) dated: 28.06.2017 (relevant entry is reproduced here in below for ready reference). The applicant charges upfront amount in the name of 'Development Charges' for recovery of the cost of land including the development expenses incurred for the development of such land from the allotted of the plot of land. On such development charges, no GST is payable in view of exemption provided in the Notification No. 12/2017- Central Tax (....
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....e various areas, the applicant procures various input services by way of construction/works contract services from contractors. There is certain time gap between the development of an area and allotment of plots in that area. The allotment starts only after the basic development work is carried out like roads, powerwater supply system etc. is done in that industrial area. Thus, the cost is incurred first by way of development expenses and thereafter the revenue is received when the plot of land is allotted. 13. The applicant debits the entire expenses incurred on the development and maintenance of the areas including GST charged by the contractor in the profit and loss account as revenue expenditure. As mentioned above, the land is stock of the applicant, therefore the inputs and input services procured for the development of such land is included in the cost of stock and charged to Profit and Loss account as revenue expenditure. It is not a capital expenditure, hence the same is not capitalized to any fixed assets in the books of accounts of the applicant. 14. At present the applicant is not availing Input tax credit (ITC) on the GST paid to the contractors from whom the inp....
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....aying documents as may be prescribed; (b) he has received the goods or services or both. [Explanation. -For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services,- (i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise; (ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.] (c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and (d) he has furnished the return under section 39: 3. The applicant fulfils all the above conditions. Firstly, the applicant is engaged in leasing of the plot of land for industrial and non-industrial purposes which is in the course or furtherance of the bu....
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....n the case of Applicant, the developed land becomes part of the stock and therefore the expenses incurred on the development of such land is charged to the profit and loss account as revenue expenditure. The development and special maintenance expenses become part of cost of stock and charged to P&L. It is not capitalised to immovable property. Therefore, the restriction of ITC as provided in the above stated clause (c) and (d) of the Section 17(5) of the CGST Act, 2017 does not apply in case of the applicant. Hence the applicant is eligible to claim the Input tax credit of the works contract services and the services received by it for the development, upgradation, improvement and maintenance of the undeveloped land and it is not blocked under section 17(5) (c) & (d). 7. The above view is strengthened from the services of construction of a complex provided by the builder where the supply of service is taxable except where the entire consideration has been received after issuance of completion certificate as provided in clause (b) of entry 5 of Schedule-II of the CGST Act,2017. For providing the output services, builders take works contract services, procures inputs and ot....
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.... 19. The very purpose of the Act is to make the uniform provision for levy collection of tax, intra-State supply of goods and services both Central or State and to prevent multi taxation. Therefore, the contention which has been raised by the Learned Counsel for the petitioners keeping in mind the provisions of Section 16(1)(2) where restriction has been put forward by the legislation for claiming eligibility for input credit has been described in Section 16(1) and the benefit of apportionment is subject to Section 17(1) and (2). While considering the provisions of Section 17(5)(d), the narrow construction of interpretation put forward by the Department is frustrating the very objective of the Act, inasmuch as the petitioner in that case has to pay huge amount without any basis. Further, the petitioner would have paid GST if it disposed of the property after the completion certificate is granted and in case the property is sold prior to completion certificate, he would not be required to pay GST. But here he is retaining the property and is not using for his own purpose but he is letting out the property on which he is covered under the GST, but still he has to pay huge amount of....
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....r providing service in any industrial area is a 'Industrial Plot' and long term leasing of such industrial plot to an industrial unit is exempt. 12. As per section 17(2) of the CGST Act, where the goods or services or both are used partly for effecting taxable supplies and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the Input Tax as is attributable to the taxable supplies. Therefore, the attributable input tax to the taxable supply is to be worked out. The manner of determination of such attributable input tax is provided in the Rule 42 of the CGST Rules, 2017. As per the said Rule the attributable inputs and input services exclusively used for effecting the exempt and taxable supply is to be determined and denoted separately and the common credit is to be apportioned based on turnover of taxable and exempt supply during the tax period. 13. As mentioned in the facts of the case that there is certain time gap between development of a particular area and leasing of plot in that area. The issue of claiming ITC arises at the time of incurring the expenses for the development whereas the output liability of GST a....
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....ut services of construction or works contract procured for the development of an Industrial area or the special maintenance expenses of the area?? 2. If the answer of question No. 1 is affirmative then what would be the mechanism for apportionment of ITC between exempt and taxable supplies as in an industrial area, long term leasing of 'industrial plot' of land is exempt under N. No. 12/2017-Central Tax(Rate) but leasing of 'nonindustrial plot' of land/commercial plot of land is a taxable supply? C. PERSONAL HEARING The PH was held on 04.02.2021 at Room No. 2.11, NCRB, Statue Circle, Jaipur. Sh. Ashok Pathak (Finance Adviser), Sh. R. K. Limba (CGM) alongwith Sh Virendra Parwal (CA) authorized representative have appeared for Ph. During the PH, he reiterated the submissions already made in the application. D. COMMENTS OF THE JURISDICTIONAL OFFICER: Comments received from the Deputy Commissioner, SGST, Circle-N, Jaipur vide letter dated 17.09.2020 are reproduced as under: - Comment on Question No.1 1. Whether the Applicant can claim the ITC on the Input services of construction or works contract procured for the development of an Industrial area o....
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....lies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed78: Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon. (3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shall not be allowed. (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoic....
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....vice of long term lease of land which is not fall under the service of work contract service, So in simple word we can say that your company is are not supply the service of works contract in the light of section sub section 5(c ) and 5(d) of section 17 your company is not eligible for input tax credit. Question No.2: If the answer of question No. 1 is in affirmative then what would be the mechanism for apportionment of ITC between exempt and taxable supplies as in an industrial area, long term leasing of 'industrial plot' of land is exempt under N. No. 12/2017- Central Tax (Rate) but leasing of 'non-industrial plot' of land/commercial plot of land is a taxable supply? Commenting on Question No. 2 having no relevancy because the answer of question No. 1 is non-affirmative. E. FINDINGS, ANALYSIS & CONCLUSION: We have considered the submissions made by the applicant in their application for advance ruling as well as the additional submissions made by the applicant during the personal hearing. We also considered the issues involved on which advance ruling is sought by the applicant and relevant facts. At the outset, we would like to state that the provision....
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....years lease to the various persons who applies for the same. In the area developed by the applicant, certain part of the area is demarcated as to be used for Non-industrial purpose which can be allotted for commercial/institutional/ residential purpose and is supportive to the industrial projects, it is not disputed that the goods or services or both obtained by the applicant are in the course or furtherance of business. Subject to the conditions and restrictions as may be prescribed, the taxpayer entitled to take input tax credit on the tax charged on any supply of goods or services or both which are used or intended to be used in the course or furtherance of business as per sub-section (1) of Section 16 of the Central Goods and Services Tax Act, 2017 which reads as under: - Section 16 (1) and (2) of the CGST Act "Eligibility and conditions for taking input tax credit. 16.(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the cour....
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....on or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes - (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises." 7. Section 17(5)(c) and (d) of the CGST Act, 2017 denies availment of ITC on works contract service and on goods and services when supplied for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the furtherance of business. Applicant does not deny that the civil work i.e. roads drainage, approaches, culverts, rain water harvesting system, power supply related work like laying of new power lines, street light work, work for common facilities in the industrial area like Administrative office, building for fire tenders, Post office/Bank building etc. is an immovable property. In fact, they have obtained land from state Government/private land and after the development work, the land is allotted on lease to the various persons who applies for the same. We find that as....
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....), no ITC is available on any goods or services received by him for such construction and the same cannot be claimed by him. Thus, the provisions of Section (17) (5)(d) squarely applies in the subject case and thus the applicant cannot avail input tax credit. Further also the input tax credit is not allowed on the work contract services when supplied for construction of an immovable property except when such services are received for the construction of plant and machinery. Similarly, input tax credit is not allowed on goods or services or both received by a taxable person for the purpose of construction of an immovable property except when the same are used for the construction of plant and machinery. However, the explanation gives a clarity that input tax credit on work contract service when supplied for construction of immovable property and goods or services or both received by a taxable person for construction of an immovable property is not allowed only to the extent of capitalisation. But in this case the applicant argued that entire expenses incurred on the development and maintenance of the areas including GST charged by the contractor in the profit and loss account as ....