UP AAR: No ITC on construction expenses on the commercial complex for lease

The Uttar Pradesh (UP) Authority of Advance Rulings (AAR) has passed a ruling recently on Input Tax Credit (ITC) eligibility.

The ruling pertains to whether expenditure incurred on constructing any commercial complex to be leased is eligible for ITC claims. The UP AAR held that ITC on such spending is not available.

The applicant is KRBL Infrastructure Limited which operates a construction business for commercial buildings and carries out its renovation, furnishing, interior, and fabrication works. Such constructed commercial buildings would then be leased out for rent to different tenants. It had taken up a project situated at plot No. 18 of C block, sector 153, Noida, Gautam Buddha Nagar of Uttar Pradesh, Pin code- 201301. 

The applicant specifically wanted to know if it is eligible to claim ITC on purchases made for the civil and interior works on different complex floors to be let out on commercial rent. It stated that such activity is furtherance of business.

The panel for AAR, Abhishek Chauhan and Vivek Arya held that Section 17(5) has clauses (c) and (d) which restrict ITC on works contract services, including goods or services utilised in the construction of such immovable property. Therefore, ITC on GST paid for the civil and interior works in the complex at Noida are not admissible.

However, the applicant relied on the Orissa High Court judgement in the 2018 case of M/s. Safari Retreats Pvt. Ltd. and others versus the Chief Commissioner of CGST, Bhubaneswar and others in WP (C) No. 20463.

In that case, the petitioner had constructed malls that were leased out. The court had held that Section 17 (5) (d) of the CGST Act was not ultra vires. It allowed the petitioner to claim ITC. The department submitted an appeal against the said judgment before the Hon’ble Supreme Court, currently pending.

Further, in the Union of India versus West Coast Paper Mills Ltd. case, the apex court held that when a special leave to appeal is granted and the same is admitted, the accuracy of the Tribunal’s judgment becomes open. The court may go into both questions of facts and law, jeopardising the correctness of the decision.

Accordingly, the ITC towards construction service used was disallowed for the applicant.

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in

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