2019 (10) TMI 1391 - AAR - GST

Input Tax Credit - inputs/ capital goods used or intended to be used for creation of covered logistics facility space (warehouse) to be rented out for storage purposes - inputs in form of goods and services be eligible if the goods and services are consumed and used in construction of covered logistic facility space when the said Input Tax Credit would be utilized in order to discharge and pay CGST and HGST/ IGST on rent received from tenants of the warehouse - section 16 and 17 of the CGST Act 2017 - HELD THAT - Section 16(1) of the CGST Act reads every registered person shall subject to such conditions and restriction 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 course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person - Section 17 (5) (d) of the CGST Act reads goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Section 16 entitles a registered person to claim credit of input tax charged on any supply of goods or services to him whereas Section 17 is an overriding provision to Section 16. Section 17(5)(d) clearly spells out that the Input tax credit shall not be available in respect of goods and services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Further as per the explanation to Section 17(5)(d) plant and machinery excludes land building or any other civil structures - The dictionary meaning of the term on his own account means for one s own purpose or for oneself or unaided . In this case the applicant is engaged in the business of providing logistic services including the warehouses. The warehouses are constructed for the applicant s own business purpose i.e. letting out. So the contention of the applicant that the bar provided under Section 17(5)(d) is not applicable to it is rejected. The Authority for Advance Ruling has gone through the ruling of Hon ble High Court of Odisha in the case titled M/S. SAFARI RETREATS PRIVATE LIMITED AND ANOTHER VERSUS CHIEF COMMISSIONER OF CENTRAL GOODS SERVICE TAX OTHERS 2019 (5) TMI 1278 - ORISSA HIGH COURT where the petitioner paying GST on rental income was held to be entitled to input tax credit. It is important to mention here that while allowing the benefit of input tax credit to the petitioner the Hon ble High Court had specifically mentioned that we are not inclined to hold it to be ultra vires . Since the provision contained under section 17 (5) (d) of the CGST Act has not been struck down by the Hon ble High Court the applicant cannot be allowed the claim of input tax credit.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on inputs/capital goods used for constructing a logistics facility space (warehouse) intended to be rented out.
2. Applicability of Section 17(5)(d) of the CGST Act, 2017 on the construction of the warehouse for leasing purposes.

Detailed Analysis:

1. Eligibility of Input Tax Credit (ITC) on inputs/capital goods used for constructing a logistics facility space (warehouse) intended to be rented out:

The applicant, M/s Dhingra Trucking Pvt. Ltd., is engaged in constructing a covered logistics facility space (warehouse) in Haryana and intends to lease it out for storage purposes. The applicant contends that under Section 16 of the CGST/HGST Act, 2017, they are entitled to claim ITC on inputs, capital goods, and services used in the construction of the warehouse, as these are used in the course or furtherance of their business. They argue that since the warehouse will generate GST revenue through rental income, denying ITC would be arbitrary and contrary to the GST's objective of preventing the cascading effect of multi-stage taxation.

2. Applicability of Section 17(5)(d) of the CGST Act, 2017 on the construction of the warehouse for leasing purposes:

Section 17(5)(d) of the CGST Act, 2017, restricts ITC on goods and services used for constructing an immovable property (other than plant or machinery) on one's own account, even if used in the course or furtherance of business. The applicant contends that this provision should not apply to their case as the warehouse is intended for leasing out and not for sale or self-use. They argue that the term "on his own account" should be interpreted to mean immovable property constructed for self-use, not for leasing purposes.

The applicant references the Orissa High Court's decision in Safari Retreats Private Limited vs. Chief Commissioner of Central Goods and Services Tax, which allowed ITC for immovable property let out, distinguishing it from property retained for self-use. They also cite the Andhra Pradesh High Court's ruling in Commissioner of Central Excise, Visakhapatnam-II vs. Sai Samhita Storages (P) Ltd, which allowed CENVAT credit for materials used in constructing a warehouse intended for providing storage and warehousing services.

Discussion and Judgment:

The Authority for Advance Ruling (AAR) reviewed the applicant's submissions and relevant provisions of the CGST Act. Section 16 allows registered persons to claim ITC on goods and services used in the course or furtherance of business. However, Section 17(5)(d) restricts ITC on goods and services used for constructing immovable property on one's own account, excluding plant and machinery.

The AAR noted that the term "on his own account" means for one's own purpose or business. Since the applicant constructs the warehouse for their business of providing logistics services (including leasing), it falls under "on his own account." Thus, the bar under Section 17(5)(d) applies, and the applicant cannot claim ITC for the construction of the warehouse, even if it is intended for leasing.

The AAR acknowledged the Orissa High Court's ruling in Safari Retreats but emphasized that the court did not invalidate Section 17(5)(d). Therefore, the provision remains applicable, and the applicant's claim for ITC is not permissible.

Ruling:

1. The applicant is not eligible for ITC on inputs/capital goods used for creating the covered logistics facility space (warehouse) intended to be rented out for storage purposes.
2. Since ITC on input goods or services used in constructing the warehouse is not available, there is no possibility of utilizing such credit.

The judgment was ordered accordingly and communicated.