AMBIGUITY STILL PERSISTS FOR SECTION 17(5)(D)

Issue: Whether the Input Tax Credit against purchases of materials for construction of building materials can be claimed and utilize to nullify the cascading effect of taxation?
Relevant provisions of law: Section 17(5) of the CGST Act, 2017 contains list of blocked credits covering the list of certain goods or services on which ITC shall not be allowed despite fact that all the conditions specified in section 16(1) of CGST Act, 2017 are satisfied.
Clause (d) of section 17(5) reads as follows: “(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.” This clause restricts the admissibility of ITC on goods or services received and used by the taxable person on his own account including when such goods or services are used in course or furtherance of business.
“Explanation– For the purposes of clauses (c) and (d), the expression “construction” includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;”
In view of said clause (d), ITC is not allowed on goods and services used for construction of immovable property, whether constructed by a person on its own account or through contractor. However, where the immovable property is in form of supporting structure or for laying foundation of plant and machinery, related ITC will be allowed.
Judgment in Case of Safari Retreats Private Limited Vs. Chief Commissioner of Central Goods and Service Tax
The honorable high court of Orissa in the above decision has observed that, Section 17(5)(d) of CGST Act 2017 provides that the input tax credit is not available if the immovable property is constructed on own account or intended for the purpose of further supply. However, this restriction is not pertinent to the construction of immovable property which is used for the purpose of letting out. In the above case it was held that the shopping mall was constructed for the purpose of “letting out” hence the Input Tax Credit is admissible for setting off the tax payable on the renting of immovable property service.

Judgment in Case of M/S. Sree Varalakshmi Mahaal LLP
In the instant case the applicant has himself built the marriage hall for which he has received various goods such as cement, steel, sand, tiles, bathroom fittings etc. as inputs and services by architect, labour contractor etc. as input services. He is using the hall to rent out to customers for occasions i.e. for furtherance of his business. 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. The advance ruling authority stated that High Court decision varies on case to case basis and thereinafter, ITC has been disallowed.
Comment: The judgment of the Honorable Orissa High court has stirred uncertainty regarding the admissibility of Input Tax credit to the construction sector. Clause (d) of Section 17(5) of CGST Act 2017 clearly states that the Input Tax Credit is not allowed if the immovable property is constructed by a taxable person on his account and even if it is used in course or furtherance of business. Thus, the law is explicit, whether the immovable property is used for business purpose or not any Input tax credit shall be allowed on construction of immovable property. However, the decision in case of Safari Retreats was granted on the grounds that ultimate aim of GST is removing double taxation. Since the outward supply of immovable property service is subject to taxation hence the credit shall be allowed in respect of the inputs purchased for the same.
It is worthwhile to note that there are certain other cases covered under Section 17(5) where the outward supply is leviable to tax still no credit is allowed. Hence it is respectfully submitted that the decision taken by the Honorable Orissa High Court leaves the Section 17(5) wholly redundant.
Thus, it can be concluded that this issue is still ambiguous due to two contradicting judgments and requires further clarification by the government.

Comments

AMBIGUITY STILL PERSISTS FOR SECTION 17(5)(D)

Post a Comment

Query