The Maharashtra Authority of Advance Ruling (AAR) in its recent ruling on the application filed by M/s Ashish Arvind Hansoti has ruled that the Input Tax Credit (ITC) cannot be claimed for the GST paid on input and input services used for the construction of the commercial property which is subsequently used for renting.
The instant ruling is a set back for developers as it is complete reverse of the decision of Orissa High Court in Safari Retreats Private Limited ( W.P (C) No. 20463 of 2018) pronounced vide order dated 17.04.2019, wherein the Court had ruled that the provision of Section 17(5)(d) of the CGST Act, 2017 is to be read down and the narrow restriction as imposed by the Department, is not required to be accepted as the very purpose of the credit is to give benefit to the assessee and if assessee is required to pay GST on rental income arising out of the investment on which he has paid GST, he is eligible to avail ITC of such GST. Needless to mention here that Government had appealed against the above order, which is pending before the Supreme Court.
Facts of the case
The applicant, M/s Ashish Arvind Hansoti is involved in the construction of immovable property for letting out to various tenants on which the GST will be charged under the heads “renting of immovable property”.
For the purposes of such construction, huge quantities of materials and other inputs were purchased by the applicant, and certain input services were also availed against which applicant has paid GST and now wants to avail credit of such GST paid by him, for discharging the output tax liability.
Question on which ruling is sought
Whether applicant is eligible to claim input tax credit of GST paid on input & input services used for the construction of a commercial immovable property, subsequently used for renting?
Highlights and Ruling of Order of Maharashtra AAR
- Section 17(5)(d) of the CGST Act, 2017 provides that no ITC is available in respect of goods or services received by a taxable person for construction of a immovable property on his own account even if such inputs and input services are used in the course or furtherance of business. In the instant case the applicant has himself built the immovable property for which he has received various goods or services or both and is using the said property for giving the same on rent to his customers. Therefore , as per Section 17(5)(d), no ITC is available on any goods or services received by him for such construction and the same cannot be claimed by him.
- Tamilnadu AAR in case of Sree Varalakshmi Mahaal LLP had adjudged that no ITC is available against any goods or services received by the applicant for construction of Marriage Hall on his own account even if used in the course, or furtherance of business or renting the place. This decision is squarely applicable in the subject case also.
- We are of the opinion that since the case of M/s. Safari Retreats Pvt. Ltd. is pending with the Hon’ble Supreme Court, has not attained finality. We also find that the Hon’ble High Court has given the relief to the party invoking its writ jurisdiction while categorically holding that they are not inclined to hold Section 17(5)(d) to be ultra vires. Therefore, we are not relying upon the judgment of the Hon’ble High Court.
In view of above it was adjudged by Maharashtra AAR that applicant is NOT eligible to claim ITC of GST paid on input & input services used for the construction of a commercial immovable property, subsequently used for renting.
The order of Maharashtra AAR can be read below:
For future reference and use the order can also be downloaded from below:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
