TMI Blog2021 (6) TMI 1101X X X X Extracts X X X X X X X X Extracts X X X X ..... Input tax credit. These supplies may also be termed as blocked credit. Sub-section 17 (5) carves out certain exceptions to Section 16 (1) by way of the non-obstante clause - notwithstanding , making it clear that the restriction imposed herein is absolute in nature as it seeks to override Section 16 (1) which entitles a registered taxpayer to avail credit on works contract services/goods or services used or intended to be used in the course or furtherance of business. Though the appellant was directed to submit copies of works contracts also, but they have not supplied the same; and it would appear from the facts of the case that they are not providing output service of works contract - it is found that input tax credit in general is not available for construction of an immovable property, in view of the above said provisions. The only exception to this provision is 'plant and machinery'. In other words the input tax credit is available to the taxpayer in respect of works contract services/goods or services used for construction of 'plant and machinery' in spite of their being an immovable property. It is found that Input Tax Credit is not only restricted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (RIICO) (hereinafter referred to as the Appellant) has been set up by the Rajasthan Government for the purpose of development of various industrial areas to set up Industries and other supportive services in the state of Rajasthan. The Appellant 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. The Appellant for the development of industrial areas first identifies the suitable governmental/ private land. Thereafter Appellant starts the acquisition process of such land and later planning for the development of such land. 3.1 As the Appellant acquires the raw/undeveloped land, the Appellant has to initially carry out the development work like leveling of the land, development of the basic amenities like construction of roads, drainage system, boundary wall, water and power supply system, dumping yard and various other types of related development works. After development of a new industrial area, Appellant also shoulders responsibility of maintenance/ upkeep of infrastructure as well as up gradation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h land from the allottee of the plot of land. The appellant has not paid GST on lease of an industrial plot in view of the Notification No. 12/2017-Central Tax (rate) and paid GST on Non-Industrial plot/commercial plot 3.5 It is reported that the Appellant recognizes the revenue in the books of accounts according to the various accounting principles. The mechanism of recognizing the revenue is provided here in below; a. In case of land component, the revenue is recognized as lease revenue as per IND AS 17 - Leases . b. In case of component of development activities, revenue is recognised as per the percentage of completion method after reasonably measuring the progress of performance obligation, as per IND AS 115 - Revenue recognition from contracts . 3.6 For carrying out the development and maintenance work in the various areas, the appellant procures various input services by way of construction/works contract services from contractors. There is certain time gap between the development of an area and allotment of plots in that area. The allotment starts only after the basic development work is carried out like roads; power-water supply system etc. is done in tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of cost of inventory has not been appreciated. They have further erred in holding that the expenditure incurred by the applicant are capital in nature and has to be capitalized and cannot be treated as revenue expenditure. They also erred in holding that the work done by the applicant on the acquired land is not of the nature of repair and maintenance on immovable property but a new fixed asset is constructed and it appreciated the value of the property/land. 6.1.1 Appellant submitted that Sec. 17 (5) of the Central Goods Services Tax ( CGST ) Act, 2017 provides for certain restrictions on claim of input tax credit ( ITC ). Clause (c) (d) of Sec. 17 (5) along with Explanation is relevant for our discussion and the same is reproduced below: 17. Apportionment of credit and blocked credits. - (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely :- (c) 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of school building will not be available to the applicant to the extent of capitalization in the books of accounts. 6.1.4 It is submitted that the Rajasthan Government allots land on lease for a period of 99 years to the applicant as per The Rajasthan Industrial Areas Allotment Rules, 1959. The applicant is given right to sub-lease the leased land or part thereof for industrial purposes. It is also mentioned in above rules that the land shall revert back to the Government free of all encumbrance and without payment of any compensation where the land is used for any purpose other than industrial or where breach of any condition is made of the lease or sub-lease. 6.1.5 The appellant accordingly develops the land and allots the plot to various industrialists /persons on lease for 99 years. The land is allotted for sub-lease of the same for industrial development as per Rule 11A of The Rajasthan Industrial Areas Allotment Rules, 1959. The activity of sub-lease is a supply under GST. Therefore the land is commodity for the appellant and it is not a Fixed Assets as appellant deals into it. 6.1.6 The appellant prepares books of accounts in accordance with the provisions of Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory auditors and will have to be approved by the company in its General Meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the revenue that it is still open to the Assessing Officer to rescrutinise the accounts and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. In our opinion, reliance placed by the revenue on sub-section (1A) of section 115J in support of the above contention is misplaced. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the Income-tax Act for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of inventory. Hence the ITC on such expenses should be allowed. 6.2 The Ld. Authority of Advance Ruling has also erred in wrongly interpreting that the input tax credit on input services of construction or works contract service procured is only allowed for further supply of works contract service as per provisions of section 17 (5) (c) /17(5)(d) of the CGST Act 2017. 6.2.1 The interpretation of the AAR that ITC of works contract service is allowed only when there is further supply of works contract service is incorrect. The clause (c) of sec. 17 (5) as mentioned above provides that- The ITC of works contract service when supplied for construction of an immovable property is blocked. However the ITC of works contract service is available in case of construction of plant machinery which is not immovable property for the purpose of GST law. It further allows that the ITC of works contract service is available when the output supply is also of works contract service. Similarly the clause (d) of Sec. 17 (5) provides that ITC on goods and services received by a taxable person for construction of an immovable property on his own account is blocked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Sh.R. K. Limba, G.M. (Taxation RIICO) and Sh. Virendra Parwal, Authorized Representative of the appellant has attended hearing on 04.06.2021. They reiterated the submissions already made under grounds of appeal. During the course of the personal hearing, the members of the Appellate Authority directed the appellant to submit their balance sheet and copies of the contract to understand the nature of work and services within five days. DISCUSSION AND FINDINGS: 8.1 We have carefully gone through the Appeal papers filed by the Appellant, the Ruling of the AAR, Rajasthan, written as well as oral submissions made by the authorized representative(s) of the Appellant, at the time of personal hearing held on 04.06.2021. The appellant has submitted balance sheet on 10.06.2021 but not submitted copies of the works orders till passing of this order. 8.2 From the facts of the case, it would appear that the appellant is providing 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. Appellant acquires the undeveloped land and carry out the development work in initial years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, have to be capitalized and cannot be treated as revenue expenditure. Therefore, as per Section 17 (5) (c) (d) of the CGST/RGST Act, 2017, No ITC is available to the applicant'. 8.5 Aggrieved by the Ruling, the appellant came before us by way of an appeal filed at online portal on 22.03.2021 mainly on ground that the appellant has not capitalized the expenditure in fixed assets and prayed that benefit of ITC both on the development expenses and special maintenance expenses should be allowed to them and consequently the decision of AAR is liable to be set aside. 8.6 Section 16 (1) of the CGST Act provides for entitlement of registered person 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 subject to fulfillment of certain conditions such as possession of invoice, receipt of goods/service, payment of tax to Government etc. as provided under Section 16 (2) of the GST Act, 2017. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 (5) which reads as under- Explanation -For the purposes of clauses (c) and (d), the expression construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property; 8.10 According to the appellant, Section 17(5)(c) and (d) of CGST Act read in combination with the above explanation, entitles them to take Input Tax Credit of works contract services/ goods and services used for construction of even immovable property if the same is not capitalized in the books of accounts. 8.11 Therefore, whole issue to be decided in the current appeal is as to whether the appellant is entitled to take Input Tax Credit of works contract services/ goods and services, used for construction of even immovable property, if the same is not capitalized in their books of accounts? Looking at the Explanation to Section 17 (5) (c) and (d), reproduced earlier, it is clear that the same seeks to expand the scope of the term 'construction' , to include re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property'. There is differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an immovable property and any goods and services or both / works contract, used for construction of an immovable property shall attract the provisions of clauses (c) and (d) under sub-section (5) of Section 17 of the CGST Act, 2017 which specifically deny such input tax credit. 8.16 The case of M/s DWARIKESH SUGAR INDUSTRIES LIMITED of the AAR Uttar Pradesh as relied by appellant has not only been passed in different context but also has no precedence value being not passed by the higher forum than the present one. The Appellant has also mentioned about the judgment rendered by the Hon'ble High Court of Orissa in the case of M/s. Safari Retreats Pvt. Ltd., and Another v. Chief Commissioner of Central Goods Service Tax Others . It can be seen that in the case of Safari Retreats, the prayers are (a) eligibility to credit of input tax paid on goods/services used for construction which is rented for commercial purposes, (b) to hold Section 17 (5) (d) as ultra-virus, While the Hon'ble High Court has granted the prayer at (a), has not accepted the prayer at (b) stating that they are not inclined to hold the provision ultra-view. On a case to case basis, the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X
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