TMI Blog2019 (5) TMI 964X X X X Extracts X X X X X X X X Extracts X X X X ..... of business in terms of sub-section (1) of section 16 of the GST Act, subject to the restrictions stipulated in Section 17 of the GST Act. The WBAAR never held lease rental to be capital good so discussion on sub-section (3) of section 16 of the GST Act is irrelevant. The Appellant's argument on the absence of any nexus, direct or indirect between lease rental and construction of the Project is incorrect. The Lease Rent paid during pre-operative period for the lease hold land, on which the construction activity had been taken for furtherance of business, has direct nexus between the Lease Rent and construction of resort. Had the appellant not paid the Lease Rent during pre-operative period they would not be able to take any construction activity thereon. Further, the asset will be capitalized in the books of accounts of the Appellant. So it is clear that the Appellant is building the Eco Resort on its own account for furtherance of business, and credit of Tax paid on input goods/service is debarred in terms of Section 17(5) (d) of GST Act. So the moot question is whether input tax credit on lease rental paid is available in the pre-operative period. It transpires from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts by the Appellant. The WBHIDCL will be charging GST @ 18% on the lease rent. 3. The Appellant sought an advance ruling under section 97 of the West Bengal Goods and Services Tax Act, 2017/ the Central Goods and Services Tax Act, 2017, (hereinafter collectively referred to as the GST Act ) on the following question: Whether credit is available on input tax paid on lease rent during pre-operative period for the leasehold land on which the resort is being constructed to be used for furtherance of business, when the same is capitalized and treated as capital expenditure. 4. The West Bengal Authority for Advance Ruling (hereinafter referred to as the WBAAR) pronounced its advance ruling by an order dated 08.01.2019, that input tax credit is not available to the Appellant for lease rent paid during pre-operative period for the leasehold land on which the resort is being constructed on his own account to be used for furtherance of business, when the same is capitalized and treated as capital expenditure. 5. The Appellant has filed the instant Appeal against the above Advance Ruling with the prayer to set aside/modify the impugned Advance Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, the same cannot be used for construction of land since no development of land is taking place. There is no nexus between lease rent of land and construction of the building. (iv) The WBAAR erred on the fact that the lease rental is a service and not a capital goods as defined under the GST Act. The Appellant will neither capitalize nor amortize the GST input in its books of account and hence sub-section (3) of section 16 of the GST Act is not applicable in the instant case. (v) The WBAAR erroneously treated the lease rental paid during the pre-operative period as an integral part of the cost of immovable property. In terms of clause (xiii) of Para A at page no. 7 of the Indenture of Lease (hereinafter referred to as the Lease Agreement) dated 21.08.2013, the valuation of building shall be made by the Lessor on the basis of cost of construction of the building less depreciation at the usual rate or the market value thereof, whichever is less. The value of land would be the amount of premium paid by the Lessee. Thus land will not form an integral part of the building and the valuation for land and building would be done separately. (vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter, that is Designing and Building together being construction service in one part and Operating service in the other part. As per the provisions of clause (d) of sub-section (5) of section 17 of the GST Act input of supply for construction on own account only has been blocked. As the Appellant is providing construction service to the WBHIDCL and not on own account, hence the input on supply of construction should not be blocked. In support of this argument the Appellant emphasized on the insertion of clauses in Para A (v) and (vi) of the Agreement, whereby the Appellant is barred from excavation of land and removal of sub-soil except in the normal course of construction or alter the location of sewer/water connection. 8. The Respondent submitted that the availability of input tax credit on goods and services used for construction of immovable property except plant and machinery comes under blocked credit as per the provisions of clause (d) of sub-section (5) of section 17 of the GST Act. Further the Appellant's prayer for allowing proportionate credit of lease rental on the unconstructed area of the project only strengthen the point that input tax credit on lease r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession of an asset in the manner of an immovable property. Para A clause (x) of the Lease Agreement stipulates that the Appellant shall restore the land to its original condition before expiry of lease period and again Para A clause (xx) stipulates that at the end of lease period the Appellant shall make over peaceful vacant Khas possession of the demised land in as good a condition as the same is now to the WBHIDCL. So it is clear that the WBHIDCL holds the ownership title of the land only and holding no proprietary interest in the immovable property constructed or being constructed on it. The Appellant is not providing any construction service to the WBHIDCL and also will not be operating the hotel on behalf of the latter. Further the Eco Resort comes not only with hotel building but also with swimming pool, cafeteria, outdoor barbeque, landscape gardens. The construction of Resort is not limited to the hotel building only as a significant amount of construction is involved for creating swimming pools and landscaping. The area for auxiliary services as presented by the Appellant cannot be truncated from the area of the hotel building; the Resort and its facilities come un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) dated 25.01.2018. Lease premium and lease rental both are parts of the project cost, the former being one-time fixed amount and the latter being a variable cost. Both lease premium and lease rental are classified under SAC 9972 being Real Estate Services. As the lease premium paid by the Appellant is exempted under Sl. No. 41 of the Rate Notification under GST Act on satisfaction of stipulated criteria the question of availing input tax credit does not arise. So the moot question is whether input tax credit on lease rental paid is available in the pre-operative period. It transpires from the above discussion that the Appellant is constructing the Eco Resort on his own account in course of furtherance of its business of providing hospitality service, for which one of the input service availed is lease rental service. The ambit of the blocked credit as per clause (d) of sub-section (5) of section 17 is broad as it includes such goods or services or both when used in the course of furtherance of business. So clause (d) of sub-section (5) of section 17 restricts the Appellant availing input tax credit on lease rental paid. In view of above discussion we find no infirmity in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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