Case: In the matter of Mindrill Systems and Solutions Private Limited [Appeal No. 04/WBAAAR/Appeal/2023 dated January 24, 2024]
Facts
- M/s Mindrill Systems and Solutions Pvt Ltd (“Respondent”) has constructed a warehouse at Hooghly-712310 and has let it out to M/s Zomato Hyperpure Pvt Ltd, GST being paid on such supply.
- The Respondent sought an advance ruling under section 97 of the WBGST Act, 2017 and the CGST Act, 2017, on the issue of whether input tax credit against inward supply of said input/ input service used for construction of warehouse can be claimed and utilized to pay tax on the outward supply of services provided by way of renting of said warehouse.
- The respondent contended before the WBAAR that as per provisions of Section 17 (5) (d) of the GST Act, registered persons are ineligible for claiming ITC on inward supplies of goods or services used for construction on account of own use and such provisions will not extend to including construction of immovable property for use by lessee or tenant.
- The respondent taxpayer referred to the judgement delivered by the Hon’ble Orissa High Court in the case of Safari Retreats (P.) Ltd. v. Chief Commissioner of Central Goods & Service Tax. However, the WBAAR observed that the aforesaid case was not identical with the case being dealt with and opined that the ratio of the aforesaid judgment was not applicable to the respondent’s case.
- WBAAR therefore held that the respondent is not eligible for credit of input tax charged on inward supply of goods and services related to construction of warehouse which is capitalized in the books of account. However, where construction expenses are not capitalized in books, the claim of ITC is admissible.
- Aggrieved by the order of AAR on the ground that AAR erred by restricting the input tax credit to the extent of construction expenses only which are capitalized in books of accounts, the department filed an appeal before the AAAR.
Held
- Observed that the ITC is blocked under the provisions of Section 17 (5) (c) and (d) of the GST Act as it clearly states that Input Tax Credit is not available in respect of works contract services or goods or services or both received for construction of an immovable property.
- Further, observed that the explanatory part explains that the restrictions of ITC as per section 17 (5) (c) and (d) of the GST Act are not only applicable on construction but also on reconstruction, renovation, additions, alterations or repairs.
- Also noted that, the condition in regard to capitalization is applicable only in respect of reconstruction, renovation, additions, alterations or repairs to the said immovable property. If such expenses are not capitalized in the books, only under such circumstances the related Input Tax Credit may be available subject to fulfilment of other eligibility criteria.
- For the purpose of “construction”, it is clear from the law that ITC is blocked on all occasions and there is no scope of any other interpretation.
- Held that the ITC is blocked in the case wherein the immovable property is being constructed with the motive of being further let-out.