No ITC on Goods and Services received and used in Construction of Warehouse : AAR
Case law : Unity Traders V/s Madhya Pradesh
The Question raise was –
> Whether ITC of GST paid on goods purchased for the purpose of construction and maintenance of Warehouse such as Vitrified Tiles, Marble, Granite, ACP sheet, Steel Plates, TMT Tor (Saria), Bricks, Cement, Paint and other construction material can be claimed in full?
> Whether ITC of GST paid on work contract service received from registered and Unregistered Contractor for construction and maintenance contract of building can be claimed in full?
> Whether ITC of GST paid on goods purchased during works contract service received during the FY 2017-18 for the purpose of construction and maintenance Warehouse can be claimed in full?
View-point of concerned officer is that –
> As per the Section17(5)(d) of CGST Act 2017, no input tax credit is permissible in the goods and services used in the construction of Warehouse constructed by the applicant for letting out.
> As per the Section 17(5), it contemplates and provides for is a situation where inputs are consumed in the construction of an immovable property which is meant and intended to be sold.
> The sale of immovable property post issuance of completion certificate does not attract any levy of GST. Consequently, in such situation, there is a break in the tax chain and therefore there is full justification for denial of input tax credit as on the completion of the transaction, no GST would at all be payable and, therefore, no set-off of the input tax credit would be required or warranted or justified. But the position is totally different where the immovable property is constructed for the purpose of letting out the same, because, in that event the tax chain is not broken and on the contrary the construction of building will result in a fresh stream of GST revenues to the exchequer on the rentals generated by the building.
> The denial of input tax credit in such a situation would be completely arbitrary, unjust and oppressive and would be directly opposed †o †he basic rationale of GST itself, which is to prevent the cascading effect of multi-stage taxation and the inevitable increase in costs which would have to be borne by the consumer at the end of the day.
> Interpretation of Section 17(5)(d) states that the ITC not allowed leads to double taxation, i.e. firstly, on the inputs consumed in the construction of the building and secondly, on the rentals generated by the same building. It is also a settled principal of interpretation of tax statutes that interpretation should be adopted which avoids or obviates double taxation. This principal is also directly applicable to the present case. It would also be violative of the applicants fundamental right to carry on business under Article 19(1)(g) of the constitution as it would a wholly unwarranted and unreasonable and arbitrary restriction which would render building now constructed for renting out uncompetitive, by consumed in the construction and, thereafter on the rentals generated by the warehouse. It is therefore, submitted that, in accordance with well settled principles of interpretation of unconstitutionality, by confining the provision to cases where the building in question is constructed for the purpose of sale of the same post issuance of completion certificate, thereby terminating the tax chain, and by not applying Section 17(5)(d) to cases where the building in question is constructed for the purpose of renting out the same and where the tax chain is not broken. It is further submitted that if this interpretation of Section 17(5)(d) is not accepted, then there would be no alternative except to declare that provision as unconstitutional and illegal and null and void.
Ruling Held that –
> We hold that no ITC of GST paid on goods purchased for the purpose of construction and maintenance of Warehouse such as Vitrified Tiles, Marble, Granite, ACP sheet, Steel Plates, TMT Tor(Saria), Bricks, Cement, Paint and their construction material is admissible under Section 17(5) of CGST Act, 017,
> We hold that no ITC of GST paid on work contract service received from registered and unregistered Contractor for construction and maintenance contract building is admissible under Section 17(5) of CGST Act, 2017,
> We hold that no ITC of GST paid on goods purchased & works contract received during the FY 2017-18 for the purpose of construction and maintenance of Warehouse is admissible under Section 17(5) of CGST Act,
> The ruling is valid subject to the provision under section 103(2) until and unless declared void under section 104(1) of the GST Act.
Conclusion –
> In view of above, it is concluded that the ITC is not admissible on goods and services received and used in the construction of Warehouse used for letting out on rent as per section 17(5)(d) of CGST Act 2017.
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