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2025 (6) TMI 329 - AAR - GSTMaintainability of Advance Ruling application - entitlement to avail Input Tax Credit (ITC) on goods and services procured for construction furnishing and infrastructure development of a commercial property that is leased out specifically when the output service is rental of immovable property - HELD THAT - The first proviso to Section 98(2) restricts admission of application seeking advance ruling where the questions are already pending in any proceedings in the case of an applicant under any of the provisions of the Act. Therefore the term proceedings assumes immense significance in the context of the instant case. Though the term proceedings has not been defined under the CGST/TNGST Act 2017 it is seen to have been widely used in the Act ibid either as it is in the context of the situation or with a prefix bringing out the meaning and purpose in an unambiguous manner like Recovery proceedings Assessment proceedings etc. It becomes clear that while Sections 73 74 and 130 talk about proceedings post the issue of show cause notice Sections 62 63 and 64 on the other hand clearly discusses about the proceedings involving assessment which precedes the issue of any show cause notice - an inquiry is to be seen as initiation of judicial proceedings and the crucial aspect is that such proceedings precedes the issue of show cause notice. Accordingly we are of the opinion that the moment an inquiry or investigation gets started it amounts to initiation of proceedings under the provisions of the Act irrespective of the fact whether it culminates in the issue of show cause notice or not depending upon the facts and circumstances of the case. The term proceedings used in the CGST Act 2017 is not restricted to proceedings which commence after the issue of show cause notice alone and that the same also denotes proceedings prior to the issue of show cause notice or proceedings which may not culminate in the issue of any show cause notice at all. Investigation is activated when there is enough predication to show that there is an alleged tax evasion and the essence of investigation is to carry out an in-depth review of the taxpayer s records and activities to ensure that the tax due to the Government is not lost in evasion. Therefore the commencement of investigation or inquiry is to be seen as the start of a proceeding to safeguard Government revenue. An advance ruling is not required to be pronounced once an investigation is initiated against the applicant under the provisions of the CGST/TNGST Act involving the same issue on which the query for advance ruling has been raised. Arriving at a decision on the same issue in respect of which a show cause notice has been issued may vitiate the adjudication proceedings involving the said notice. At this juncture it becomes imperative to analyse as to whether the query raised in the application for advance ruling is the same on which the investigation was initiated and whether the investigation proceedings precedes the application for advance ruling. The initiation of proceedings by way of issue of both the summons that seeks the details/documents in relation to the issue involved in the instant case precedes the date of filing of advance ruling application by the applicant. More specifically the letter dated 25.05.2023 of the applicant furnishing the details of ITC availed during the period 2021-22 to 2022-23 proves the case in point. Conclusion - The application for advance ruling filed online dated 13.09.2024 by the applicant is liable for rejection under the first proviso to Section 98(2) of the CGST / TNGST Acts 2017 in view of the fact that proceedings on the same issue was already pending against the applicant. The advance ruling application is rejected.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Authority for Advance Ruling (AAR) were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to Input Tax Credit on Construction and Furnishing for Rental Services Relevant legal framework and precedents: The applicant relied on Sections 16(1) and 16(2) of the CGST Act, which provide for entitlement to ITC on inputs and input services used in the course or furtherance of business. The applicant contended that the rental service of immovable property (classified under SAC 997212) is a taxable supply on which GST is paid at 18%, and therefore, ITC on inputs used to provide such rental services should be allowed. The applicant also cited judicial precedent from the Hon'ble High Court of Orissa in the case of M/s. Safari Retreats Pvt. Ltd., which recognized the principle that ITC is meant to benefit the taxpayer by allowing credit on investments made for taxable supplies such as rent. Court's interpretation and reasoning: The applicant argued that the goods and services procured-such as cement, steel, lifts, air conditioners, electrical equipment, and professional services-are directly related to making the building suitable for rental business and hence should qualify for ITC. The applicant emphasized that the building is not constructed for sale but for rental purposes, and the GST paid on rental income should be supported by corresponding ITC to avoid cascading tax effects. Key evidence and findings: The applicant submitted invoices for procurement of various goods and services, details of ITC availed, and the lease agreement evidencing rental income subject to GST. The applicant also noted that the GST on lease rent is regularly paid. Application of law to facts: The applicant's contention was that Section 17(5)(c) and (d), which block ITC on goods and services used in construction of immovable property, apply only to properties constructed for sale, not for rental. Therefore, ITC should not be blocked in this case. Treatment of competing arguments: The department's position, as reflected in the show cause notice, was that ITC claimed on inputs used in construction of immovable property is blocked under Section 17(5)(c) and (d), regardless of whether the property is for sale or rent. The department initiated investigation on the basis that the applicant's availment of ITC on construction inputs was irregular and not permissible under the Act. Conclusions: While the applicant's substantive legal argument on entitlement to ITC was noted, the Authority did not proceed to decide this issue on merits due to the procedural issue of admissibility of the advance ruling application. Issue 2: Admissibility of the Advance Ruling Application in Light of Pending Proceedings Relevant legal framework and precedents: Section 98(2) of the CGST Act, 2017, provides that the Authority for Advance Ruling shall not admit an application if the question raised is already pending or decided in any proceedings under the Act in the case of the applicant. The term "proceedings" was analyzed extensively with reference to various provisions of the CGST Act, including Sections 6, 29, 66, 67, 70, 73, 74, 75, 78, 122, 127, 130, and 160, which use the term in different contexts such as assessment, adjudication, recovery, inspection, inquiry, and judicial proceedings. Court's interpretation and reasoning: The Authority interpreted "proceedings" broadly to include not only formal adjudication or assessment proceedings following issuance of a show cause notice but also investigations and inquiries initiated prior to such notices. The Authority reasoned that the initiation of investigation or inquiry, such as summons for evidence and production of documents, constitutes commencement of proceedings under the Act. This interpretation is consistent with the legislative intent to prevent parallel or conflicting adjudications on the same issue. Key evidence and findings: The chronology of events showed that the DGGI had conducted inspection and issued summons to the applicant starting from 25-05-2023, well before the filing of the advance ruling application on 13-09-2024. The applicant had also furnished detailed information and statements to the DGGI during the investigation. Subsequently, a show cause notice was issued on 03-12-2024. Application of law to facts: Since the investigation and inquiry into the same issue of ITC availment was already pending at the time of filing the advance ruling application, the Authority held that the application was not admissible under the first proviso to Section 98(2) of the Act. Treatment of competing arguments: The applicant sought clarification through advance ruling despite the ongoing investigation, possibly to obtain a binding decision on the issue. However, the Authority emphasized that allowing advance ruling in such circumstances could interfere with the ongoing adjudication and recovery proceedings, potentially vitiating the process. Conclusions: The Authority concluded that the advance ruling application was liable to be rejected on the ground of inadmissibility due to pending proceedings on the same issue. 3. SIGNIFICANT HOLDINGS The Authority held, verbatim:
Core principles established include:
Final determination: The advance ruling application was rejected on the ground of inadmissibility due to pending investigation and proceedings on the same issue, without adjudicating on the substantive question of ITC entitlement.
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