Held by Authority for Advance Ruling, TamilNadu
In the matter of
M/s Suswani Foundations Private Limited (AAR No. 123/AAR/202)
The Applicant is constructing Industrial buildings which are to be rented out as godowns for commercial purposes. The Applicant is seeking advance ruling on the question that whether the Applicant is entitled to claim ITC on inward supply of goods or services used for construction of such godowns. The Applicant contended that Section 17(5)(d) of CGST Act is not applicable in the given case as the godowns are not to be used for furtherance of business. Rather, such godowns themselve are a source of income. Further, as per Article 14 of Constitution of India, ITC can’t be denied on ground of “equal protection of law”.
The Hon’ble AAR held that the Applicant is proposing to rent out such godowns to large companies for storage purpose, i.e., for furtherance of his business. Therefore, no ITC is available as per Section 17(5)(d) of CGST Act. Further, As per GST law, ITC on goods and services used for construction of immovable property on one’s own account is unavailable. The power to restrict the flow of ITC is given under GST Law itself. Suitability and requirement of the taxpayer varies from person to person, GST law can’t be amended accordingly.
In the given case, the applicant is not entitled to claim the ITC
Detailed judgment is given below:
1. Brief Fact of the Case
- The Applicant is constructing an industrial building of around 1.62 lakh square feet which is to be rented out as godown for commercial purpose.
- For the purpose of construction, the applicable will procure material like cements, steels, PEB Sheet, bricks, sand etc. and will also engage consultants and architects.
- On inward supply of material and service, the applicable shall pay appx. GST of INR 2.50 Crores.
- Such godowns will not be used for personal purposes. They will be used for further renting to generate rental Income.
2. Question before Hon’ble Authority of Advance Ruling
The Applicant has raised following question before Hon’ble AAR:
“Whether ITC is available on Inputs to the Assessee when the Godowns constructed by him is entirely meant for renting it out for commercial purposes to the registered dealers?”
3. Relevant Legal Extract.
Relevant extract of GST law is reiterated below for ready reference:
Section 17(5)(d) of CGST Act is reiterated below:
‘(5) Notwithstanding anything contained in subsection (1) of section 16 and 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 & 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 purpose of clause (c) and (d), the expression “construction” includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property”
4. Contention of the Applicant
The Applicant contended that:
- Where input is consumed in construction of an immovable property which is intended to be used for taxable output services then ITC should be allowed.
- Section 17(5)(d) of CGST Act is to give benefits to the person who had paid gst and it has to be interpreted in continuity of transaction. In the given case, since rental income is arising out of the godown which are constructed after paying gst on different items.
- Further, the Applicant relied on Article 14 of The Constitution of India which states:
“The state shall not deny to any person equality before the law or the equal protection of the law within the territory of India”.
- “Equality before law” in Article 14 prohibits the discrimination and “Equal Protection” requires to state to give special treatment to persons in different situations to establish equality.
- Therefore, as per Article 14, the applicant is required to pay GST on rental income arising out of investment on which GST is paid. The applicant should be allowed to avail credit of such ITC.
- Section 17(5)(d) is not applicable in the given case as they are not constructing the godowns for furtherance of business. Rather, the building itself is a source of income and business does not exist without the same.
- In this case, The godowns are similar to raw material input to a manufacturing industry. Manufacturing operations cannot happen without raw material. Similarly, renting business cannot happen without the godown.
- GST law was introduced to avoid cascading effects of various indirect taxes. Therefore, restriction on ITC on goods & Services used for further supply of services on which GST is payable may not be correct as it will break the tax chain.
5. Submission of the Department
The Central Jurisdictional Authority submitted that:
- Section 17(5)(d) restricts ITC on any goods or services received for construction of immovable property for its own purpose. ITC is inadmissible even if such goods or services are used for furtherance of business.
- In the given case, the applicant has built the godowns for himself. Such godowns are to be further rent out which is furtherance of business. Therefore, no ITC is admissible to the Applicant as per Section 17(5)(d) of CGST Act.
- Also, there is no GST applicable on sale of immovable property after issuance of completion certificate. In this case, there is a break in the tax chain. Therefore, there is full justification for denial of ITC as there is no GST payable on completion of transaction.
6. Analysis by Hon’ble AAR.
The Hon’ble AAR made following finding and analysis:
- The Applicant contended that Section 17(5)(d) of CGST Act, 2017 is not applicable in the given case as the Godowns are not construction for furtherance of business. However, godowns themselves are the source of income.
- As per Section 17(5)(d) of CGST Act, 2017, No ITC is available in respect of any goods & services received by a taxable person for construction of an immovable property even if the same is used in course of business or furtherance of business.
- The Applicant is proposing to rent out the godowns to large companies for storing their stocks for future sale, i.e., for furtherance of his business.
- Therefore, as per Section 17(5)(d), no ITC is available to the applicant for goods and services to be used for construction of godowns.
- Further, contention of the Applicant of equality under Article 14 of the Constitution of India is also not correct. ITC on goods and services used for construction of immovable property on one’s own account is unavailable.
- The restriction is provided in the Act which is passed by the legislature. Power to restrict ITC is given under GST law intending the ITC can’t be allowed to all persons in all the cases.
- Suitability and requirement of the taxpayer varies from person to person, GST law can’t be amended accordingly.
7. Ruling
Based of above discussion, the Hon’ble AAR held that No ITC is available to the Applicant when godowns are constructed by him for renting it out for commercial purposes to the registered dealers.
