TaxTMI 
TaxTMI 
2026 (6) TMI 156
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.... 2. If yes, whether input tax credit be eligible for inputs & input services used for the construction of commercial units in case of above transactions i.e. a. Sale of commercial units to prospective buyers b. Rent received on leasing of commercial units At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 1. FACTS AND CONTENTION - AS PER THE APPLICANT 1.1 Mr. Sunil Khune (herein after referred to the applicants) in his Individual capacity worked/served as a City Engineer (employee) at Nashik Municipal Corporation. He opted for retirement in the year March 2017 and now receives monthly pension from Nashik Municipal Corporation. Besides, he also receives his share of income from M/S KHUNE AGRO FARM which is an AOP and constituted by him and his wife ....
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.... 500 sq mtrs in view of section 3[2)(a) of the said Act. 1.8 An MOU dated 29 May 2020 was executed between applicant and his wife for carrying out the construction/ development of the above co-owned immovable property and to allocate/ distribute between themselves the shop/ office units in constructed property. 1.9 The applicant and his wife are of the view that since they are not engaged in doing any business activity and it is only sale of their investment held in form of above immovable property, the amount received on sale / let out of said units to prospective buyers shall not be liable to GST, since the transaction is not in course or furtherance of business. 2. STATEMENT CONTAINING APPLICANT'S INTERPRETATION OF LAW Development of vacant land into commercial project and sale of units thereon only for limited purpose of arrangement of funds is not in the course furtherance of business and hereby not covered within definition of supply. 2.1 The applicant is a retired employee of Nashik Municipal Corporation & an agriculturist. Out of savings/ surplus funds, he and his wife jointly purchased a plot of land at Nashik as discussed herein above way back in the year 2....
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....ployee of Nashik Municipal corporation. He purchased the above plot of land as an Investment asset and held the same as a capital asset in his personal financial statement, which were submitted while filling income tax returns year on years. The said investment is like any other investment such as Bank FD investment in shares, mutual fund, Jewellery etc. The income earned out of investments is not regarded as Business income under income tax for so many years. 2.6 The said plot of land and the construction cost of the commercial project are recognized as capital assets in books of accounts of appellant and not as stock in trade. 2.7 Also, the applicant has neither purchased any other plot of land and developed it in the past, nor there is any such intention to carry out such activities in the future, which indicate that his intention is not to engage into any business activity. 2.8 Analogy can be drawn from various judicial precedents vis-a vis Income Tax Law that determine whether an income is to be taxed as business income or under other heads of income such as capital gains etc. 2.9 Hon'ble Punjab & Haryana High Court in case of CIT Vs. Sushila Devi Jain (2004) 191 C....
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....order to secure better price is not an adventure in the nature of trade or business An isolated transaction or activity can also be part of business, but to consider the question of business, there must be regular activity of purchasing and selling. In this case, there is nothing on record to show that the land was purchased for the purpose of selling into plots. 2.11 Hon'ble Delhi ITAT in case of Asst. CIT Vs. Om Prakash Arora (2011) 16 taxmann.com 396 while determining that whether sale of shares is taxable as business income or capital gains laid down following principles that can be applied to find out 01 whether transactions are in the nature of trade or are merely for investment purposes: • The intention of the assessee at the time of purchase of the shares or any other item, which can be found out from the treatment it gives to such purchase in its books of account. • Whether assessee has borrowed money to purchase. Normally, money is borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining. • What is the frequency of such purchases and disposal in that particular item? Whether pur....
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....ved previously from so many years from letting out of structure on the land was also assessed as "Income from House Property under Income Tax and never held as business income. The applicant received this income as ancillary Source of income besides drawing salary. 2.17 Therefore, it is can be safely inferred that the rental income receivable from letting out of the commercial units in newly constructed building also does not alter the situation and character of transaction. It will also be source of income post his retirement. 2.18 Further, it is humbly submitted that the applicant has never purchased any other properties with the intention of develop or let out the same. This supports the contention that he is not into any business which need activity to be carried out recurring, systematically and in organized manner. 2.19 It is an investment income generated by passive involvement of applicant. The applicant has never engaged in any kind of business activity earlier nor has any experience in this kind of activity. Besides this is the sole construction undertaken by applicant. 2.20 Further, the applicant proposes to sale only few units for purpose of meeting requirem....
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....or any local authority in which they are engaged as public authorities 2.24 From the above relevant provisions of the CGST Act, it can be Inferred that for an activity to fall within the ambit of the term "supply it should be carried out in the course or in furtherance of business. And further, an activity can be referred as business activity if it is in nature of trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity. 2.25 Here, it is also very important to take cognizance of definition of the term "business as defined in Income Tax Act, 1961. Section 2(13) of the said Act defines the term as under: (13) "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacturer; 2.26 The term "business" as defined in the erstwhile Sales tax i.e. Central Sales Tax Act is also reproduced herein below: 2(aa) "business" includes (i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture adventure or concern is carried on with a motive to make gai....
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.... a profit motive, and not for sport or pleasure. Whether or not a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transaction must ordinarily be entered into with a profit motive. Such motive must pervade the whole series of transactions elected by the person in the course of his activity. To infer from a course of transactions that it is intended thereby to carry on business ordinarily the characteristics of volume, frequency, continuity and regularity indicating an intention to continue the activity of carrying on the transaction must exist. 2.33 The applicant's instant activity cannot be treated as in the course of business as he was never engaged into any business activity in the past nor is he intending to carry on business that of builder/ developer. The development of said commercial building on his own land is one-time affair for him to earn monthly rental income being source for his survival in retired life. So, there is absolutely no question of this transaction being done in course or furtherance of business. 2.34 The applicant hum....
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....n the course or furtherance of business and hence GST paid on said inputs, input services and capital goods be eligible for ITC. 2.40 The applicant places reliance on the decision of Hon'ble Orissa High Court in the of M/s Safari Retreats Pvt. Ltd. Vs. chief Commissioner of CGST (2019) 5 TMI 1 wherein the court has categorically held that if the assessee is required to pay GST or rental income arising out of the investment on which he has paid GST, it is required to the input credit on the GST, which is required to pay under Section 17(5)(d) of the CGST The provision of Section 17(5)(d) is to be read down and the narrow restriction as imp reading of the provision by the Department is not required to be accepted. The relevant of the decision is reproduced herein below: 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 eligibili....
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....rent on leasing of commercial units appears is taxable under the ambit of CGST Act, 2017, in view of Section 7 of CGST Act, 2017 read with Paragraph-2(b)/5(a) of Schedule II. Further the activity of the Petitioner of receiving Rent on leasing of commercial units amounts to "Supply" and as such the Petitioner squarely comes within the definition of 'supplier' as appearing in Section 2(105) of the aforesaid Act and accordingly the Petitioner is liable to pay CGST on the said rental amounts received by it. If yes, whether input tax credit be eligible for inputs & input services used for the construction of commercial units in case of above transactions i.e a. Sale of commercial units to prospective buyers:- b. Rent received on leasing of commercial units:- Eligibility of cenvat credit is governed by the provisions of Chapter V of the CGST Act. consisting of Sections 16 to 21. While Section 16 mentions the eligibility and conditions for taking input tax credit, Section 17 speaks about apportionment of credit and blocked credit. Section 17(5) states that notwithstanding anything contained in sub-section (1) of Section 16 and sub-section (1) of Section 18, input tax credit....
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....rtherance of business. Further, the applicant has sought a ruling whether they would be entitled to avail input tax credit for input and input services used for the construction of commercial units where the units are sold to prospective buyers and/ or leased out on rental basis. In this regard, it becomes important to understand the term meaning of the term 'furtherance of business'. As per Section 2(17) of the CGST Act, 2017, the term business is defined as under:- "business" includes - (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the ....
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....tax at 18% under S .No. 3(if). However, when the entire consideration has been received after issue of completion certificate of the property from the competent authority, no GST would be applicable on such commercial units sold to buyers. 5.4. The activity of sale of units of a under construction commercial premises/ property to prospective buyers would be classified as a business under GST and such an activity would amount to supply under GST. Further, leasing of the said premises on rent is also a commercial activity which amounts to supply under GST. The source of the fund for construction of the said premises is irrelevant and would not be a point to be taken into consideration while deciding whether any activity is a supply under GST and whether the said activity is in furtherance of business. The source of funds may be individual savings, bank borrowings or any other source and it is immaterial to understand whether any activity is a supply under GST and whether it is in the furtherance of business or otherwise. Further as per the definition of business under GST, the scale, volume or frequency of the activity would be immaterial. 5.5. We further find that the activity....
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....ness and the said amount shall be credited to the electronic credit ledger of such person. Section 17 of the CGST Act, 2017, lays down the conditions and restrictions where the input tax credit would not be available to any person. Section 17(5)(d) of the CGST Act, 2017, reads as under:- (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:- d) goods or services or both received by a taxable person 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 course or furtherance of business. Explanation: For the purposes of this Chapter and Chapter VI, the expression "plant and machinery" means apparatus, equipment, and machinery fixed to earth by foundation 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 (ii) pipel....
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....on of using the functionality test prescribed by the Hon'ble Supreme Court in the said case, does not arise in the circumstances. In fact, the definition of 'plant and machinery' as defined under section 17 will take precedence and the said definition clearly excludes land, buildings and civil structure. Since the property developed by the applicant would appropriately be treated as building and a civil structure, it is excluded from the term 'plant and machinery' and being an immovable property, the input tax credit of the goods and services used for construction of the same would not be available in terms of Section 17(5)(d) of the CGST Act, 2017. Therefore, we find that the applicant is not eligible to avail input tax credit on the GST paid on the goods or services or both used for the construction of the immovable property. 5.8. With regard to the issue whether ITC is available on the sale of commercial property to prospective buyers, we find that the ITC is available on the inputs and input services used in the construction of commercial property which is sold to customers before receipt of the Occupation Certificate/Completion Certificate from the concerned municipal autho....