TMI Blog2021 (2) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... ictions as stipulated under Section 17(5)(d) of the GST Act, 2017. Section 17(5)(c) and (d) of the CGST Act, 2017 denies availment of ITC on works contract service and on goods and services when supplied 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 furtherance of business. Applicant does not deny that the civil work i.e. roads drainage, approaches, culverts, rain water harvesting system, power supply related work like laying of new power lines, street light work, work for common facilities in the industrial area like Administrative office, building for fire tenders, Post office/Bank building etc. is an immovable property. In fact, they have obtained land from state Government/private land and after the development work, the land is allotted on lease to the various persons who applies for the same - as per Sub Section 5(c) and 5(d) of Section 17 of CGST Act, 2017 the input tax credit will not be allowed for works contract service and on the goods and service used by the taxable person on his own account. Since, the work done by the applicant on the acquired land is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is a Rajasthan State Government owned Public Sector Undertaking. The corporation (RIICO) has been setup by the Rajasthan Government for the purpose of development of various industrial areas for the purpose of setting up of Industries and other supportive services in the state of Rajasthan. It has total 30 regional offices all across the State of Rajasthan for the purpose of development, improvement, up-gradation and maintenance of various Industrial areas in various regions. 2. The Applicant is a registered person under GST for the purpose of providing various taxable and exempt outward supplies of leasing of Industrial and Non-Industrial Plots as well as financing activities of providing term loan to various projects. 3. The applicant for the development of industrial areas in the various regions of the Rajasthan for the purpose of setting of Industries first identifies the suitable governmental/ private land. Thereafter applicant starts the acquisition process of such land and later planning for the development of such land. After that for the purpose of getting land developed, the applicant prepares a detailed project report for the purpose of mapping of entire area, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs after initial development of any industrial area is approved under above sanctions. Example: - Up-gradation of damage BT road to Cement Concrete Road (CC), Up-gradation of masonry drain to RCC drain, up-gradation of sodium vapour/Tube light based street light to LED based street light system etc. 6. The main activity of applicant is development and leasing of the developed land to various industrial/ non-industrial users. Due to nature of its business, the applicant considers the land as its stock in the books of accounts. Hence, the applicant is charging all the development and special maintenance expenses in its profit and loss account considering the same as revenue expenditure. The accounting treatment of both the development expenses and special maintenance expenses are provided here in below for ready reference: (a) Accounting Treatment of development expenses: - Expenditure incurred on development of each industrial area is debited to profit loss account under the head Expenditure on development of land . It is so because RIICO deals in land which is stock in trade for RIICO. Applicant acquires raw land, convert it into developed land by incurring developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges upfront amount in the name of 'Development Charges' for recovery of the cost of land including the development expenses incurred for the development of such land from the allotted of the plot of land. On such development charges, no GST is payable in view of exemption provided in the Notification No. 12/2017- Central Tax (rate) as mentioned below: - Notification No. 12/2017- Central Tax (Rate) SI.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition 41 Heading 9972 [Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 50 per cent, or more ownership of Central Government, State Government, Union territory to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount as revenue expenditure. As mentioned above, the land is stock of the applicant, therefore the inputs and input services procured for the development of such land is included in the cost of stock and charged to Profit and Loss account as revenue expenditure. It is not a capital expenditure, hence the same is not capitalized to any fixed assets in the books of accounts of the applicant. 14. At present the applicant is not availing Input tax credit (ITC) on the GST paid to the contractors from whom the input services of works contract / construction are taken. The applicant is charging the GST amount along with the expenditure as revenue expenditure in its Profit and Loss account with the development cost. Statement of Applicant's interpretation of Law/Facts in respect of the Questions on which the advance ruling is sought Applicant's view point on the availability of Input tax credit on development and special maintenance Expenses: 1. As the applicant is engaged in development of land and leasing thereof for 99 years, the same is part of the current assets as stock in the books of accounts of the applicant. Therefore, the expenses incurred for the develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and (d) he has furnished the return under section 39: 3. The applicant fulfils all the above conditions. Firstly, the applicant is engaged in leasing of the plot of land for industrial and non-industrial purposes which is in the course or furtherance of the business of the applicant. The applicant receives services (work contract service) of various contractors and possesses the tax invoices issued by them. The GST paid by the applicant as charged by the supplier in their invoices is reflected in GSTR-2A of the applicant. The applicant files the monthly GST returns and therefore, the applicant is eligible to claim the credit as per section 16 of the CGST Act, 2017. 4. After discussing the provisions of Section 16, it is equally important to discuss the provisions of Section 17 which provides for Apportionment of credit and blocked credits. The relevant clause (c) and (d) of section 17(5) of the CGST Act, 2017 are reproduced below: - 17. Apportionment of cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 17(5) (c) (d). 7. The above view is strengthened from the services of construction of a complex provided by the builder where the supply of service is taxable except where the entire consideration has been received after issuance of completion certificate as provided in clause (b) of entry 5 of Schedule-II of the CGST Act,2017. For providing the output services, builders take works contract services, procures inputs and other input services for the construction of buildings or complex. The builder is eligible to claim input tax credit of GST charged on such input input services as per N. No. 11/2017-CT(Rate). 8. Further scope of supply under section 7(1) of the GST Act includes all forms of supply of goods and services, including a sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made. Section 7(1A) read with Schedule II under the GST Act provides which of such supplies shall be treated as supply of goods or services. Paragraph 2 of Schedule II provides that transactions relating to land and buildings, any lease, tenancy, easement, license to occupy the land, letting out of a building including a commercial, indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t without any basis. Further, the petitioner would have paid GST if it disposed of the property after the completion certificate is granted and in case the property is sold prior to completion certificate, he would not be required to pay GST. But here he is retaining the property and is not using for his own purpose but he is letting out the property on which he is covered under the GST, but still he has to pay huge amount of GST, to which he is not liable. 20. In that view of the matter, in our considered opinion the provision of Section 17(5)(d) is to be read down and the narrow restriction as imposed, reading of the provision by the Department, is not required to be accepted, inasmuch as keeping in mind the language used in (1999) 2 SCC 361= 1999 (106) E.L.T. 3 (S.C.) (supra), the very purpose of the credit is to give benefit to the assessee. In that view of the matter, if the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, it is required to have the input credit on the GST, which is required to pay under Section 17(5)(d) of the CGST Act. 10. In view of above, where the land is stock of the applicant and bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately and the common credit is to be apportioned based on turnover of taxable and exempt supply during the tax period. 13. As mentioned in the facts of the case that there is certain time gap between development of a particular area and leasing of plot in that area. The issue of claiming ITC arises at the time of incurring the expenses for the development whereas the output liability of GST arises at the time of leasing of plot after the completion of substantial development work in that area. Thus, the tax period of claiming ITC and tax period in which outward supply is made will differ and substantial time gap arises. Thus, one to one correlation of claiming ITC with respect to outward taxable supply of that particular area is not practically feasible. In this scenario there are two methods for determining the attributable input tax credit related to taxable outward supply:- (i) In the tax period in which the ITC of input services is availed, the aggregate turnover of exempt and taxable supplies of that particular tax period be considered. The applicant has developed so many industrial areas in the state of Rajasthan. Thus, in the particular tax period the total supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions already made in the application. D. COMMENTS OF THE JURISDICTIONAL OFFICER: Comments received from the Deputy Commissioner, SGST, Circle-N, Jaipur vide letter dated 17.09.2020 are reproduced as under: - Comment on Question No.1 1. Whether the Applicant can claim the ITC on the Input services of construction or works contract procured for the development of an Industrial area or the special maintenance expenses of the area? As per Section 16 of Central goods and service tax Act 2017 and Rajasthan goods and service tax Act 2017. Provided the conditional which we have to satisfied for taking the input tax credit the relevant portion of section 16 is re produce as under,- Section 16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed75 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. (2) Notwithstanding anything contained in this section, no reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said tax component shall not be allowed. (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or 78a [***] debit note pertains or furnishing of the relevant annual return, whichever is earlier: 78aa[Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.] Further sub section 5 of Section 17 of Central goods and service tax Act 2017 and Rajasthan goods and service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the submissions made by the applicant in their application for advance ruling as well as the additional submissions made by the applicant during the personal hearing. We also considered the issues involved on which advance ruling is sought by the applicant and relevant facts. At the outset, we would like to state that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the RGST Act. 1. It is evident that the applicant is a Rajasthan State Government owned Public Sector Undertaking. The corporation (RIICO) has been setup by the Rajasthan Government for the purpose of development of various industrial areas for the purpose of setting up of Industries and other supportive services in the state of Rajasthan. It has total 30 regional offices all across the State of Rajasthan for the purpose of development, improvement, up-gradation and maintenance of various Industrial areas in various regions. 2. The applicant for the development of industrial areas in the various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions for taking input tax credit. 16.(1) Every registered person shall, subject to such conditions and restrictions 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. (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying documents as may be prescribed; (b) he has received the goods or services or both. 5. Thus, Section 16 (1) of the CGST Act specifically provides that every registered person shall be entitled to take credit of the input tax charged on any supply of goods or services or both made to him, which are used or intended to be used in the course or furtherance of his business. Such entitlement is subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative office, building for fire tenders, Post office/Bank building etc. is an immovable property. In fact, they have obtained land from state Government/private land and after the development work, the land is allotted on lease to the various persons who applies for the same. We find that as per Sub Section 5(c) and 5(d) of Section 17 of CGST Act, 2017 the input tax credit will not be allowed for works contract service and on the goods and service used by the taxable person on his own account. Section 17(5)(c) clearly states that no input tax credit would be available on the tax paid on works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract services. 8. It is admitted by the appellant that they are getting civil works done from the contractor. On perusal of fact submitted by the appellant, we find that the appellant has constructed roads drainage, approaches, culverts, rain water harvesting system, power supply related work like laying of new power lines, street light work, work for common facilities in the industrial area like Administrative office, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for construction of an immovable property is not allowed only to the extent of capitalisation. But in this case the applicant argued that entire expenses incurred on the development and maintenance of the areas including GST charged by the contractor in the profit and loss account as revenue expenditure and it is not a capital expenditure, we do not agree with the applicant's view that the land development work on immovable property is not a capital expenditure. The term 'extent to which capitalized', only suggests that the extent of such expenses are expected to be capitalized or else will be treated as capitalized to such immovable property. Since, the work done by the applicant on the acquired land is not of the nature of any type of repair or maintenance on immovable property, but a new fixed asset is constructed and it appreciate the value of the property/land. Hence, such expenses, which enhance the value of the property permanently and as per accounting convention, the expenditure are capital in nature, has to be capitalized and cannot be treated as revenue expenditure. The applicant's contention cannot be accepted. Therefore, as per Section 17(5)(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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