Orissa HC allows Input Tax Credit under GST for shopping mall realtors

The Orissa High Court allows input tax credit under the GST regime for real estate companies building commercial spaces for renting or leasing such as a shopping mall construction company.

The real estate companies had moved to Delhi HC for a similar issue, which revolves around Section 17 (5) (c) and (d) of the CGST Act and related sections under the respective state GST laws.

This section does not allow an input tax credit for goods and services used to construct an immovable property on own account. One of the reasons is that since the property given on lease or rent is owned by the buyers and not the tenants or lessees, the input tax credit should not be allowed.

A petitioner at Safari Retreats challenged the tax authorities at the Orissa HC for denying the input tax credit on the construction of commercial properties given on rent or lease.

“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 tax credit on GST,” the court said.

On the other hand, the real estate companies have also petitioned at the Delhi HC to cancel Section 17 (5) (c) and (d) of the CGST Act and similar provisions in the Delhi GST Act.

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The high court issued a notice to the Union government, the Delhi government, and the GST Council. Abhishek Rastogi, council for petitioners in Delhi HC and a partner at Khaitan & Co said, “While the objective of the GST is seamless flow of credits, the section is against the very spirit of the GST and has accordingly been challenged.”

He also said that the entire issue revolves around the phrase ‘on own account’ and the rules of analysis will come into play before deciding whether the real estate companies will be eligible to claim the input tax credit.

There is a favourable tax cost arbitrage for properties obtained on rent, but those owned and built by businesses. The input tax credit is denied in case of the latter as there is no GST on the output side.

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