Eligibility to claim input tax credit on inputs attributable to the renting of immovable property

PJ/Case Law/2019-2020/3551

Vikram Traders (GST AAR Karnataka) Advance Ruling No. KAR ADRG 08/2020 dated 10.03.2020
Facts-The applicant is engaged in the business of renting of immovable property apart from manufacture and supply of fabric, and is discharging the GST on the rental income under the “Renting of Immovable Property” service. They procured different types of inward supplies for construction, repair &, maintenance, alterations etc., of the said immovable property.
Issue-Eligibility to claim input tax credit on inputs attributable to the renting of immovable property
Applicant Contentions- The applicant contends that Section 17(5)(c) and (d) stipulates that input tax credit is not eligible on inputs attributable to the construction of an immovable property, which are not sold or intended for sale before issuance of completion certificate. However, this restriction is not applicable where the immovable property is constructed for the purpose of letting out of the same, as the tax chain is not broken and, on the contrary, the construction of the building will results in fresh stream of GST revenue to the exchequer on the rentals generated by the building. The denial of ITC in such a situation would be completely arbitrary, unjust and oppressive and would be directly opposed to the basic rationale of GST itself, which is to prevent the cascading effect of multi-stage taxation.
The applicant further states that denial of ITC in respect of a building meant 86 integrated to be let out would amount to treat it as identical to a building which is meant 86 intended to be sold. Differentiating ITC for two different types of building as one for the purpose of GST as itself contrary to the basic principles regarding classification of subject matter for the levy of tax and, therefore violative of Article 14 of the Constitution, which specifies that laws inconsistent with or derogation of the fundamental rights shall, to the extent of such inconsistency, be void.
The applicant has relied on the decision of the Hon’ble Orissa High Court in the case of M/s Safari Retreats Pvt. Ltd wherein it was stated that the provision of Section 17(5)(d) is to be read down and the narrow restriction as imposed, is to be accepted, inasmuch as keeping in mind the language used in (1999) 2 SCC 361 (supra), the very purpose of the credit is to give benefit to the assessee. In that view of the matter, 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 credit on the GST, which is required to pay under Section 17(5)(d) of the CGST Act.
AAR Reasoning and Ruling- It is pertinent to mention here that the Department has filed an appeal under SLP No. 26696/2019 before the Hon’ble Supreme Court of India, against the order of the Hon’ble High Court of Orissa supra. Thus the issue is pending before the Hon’ble Supreme Court and therefore the said issue is subjudice. Therefore the instant application is liable for rejection under Section 98(2) of CGST Act 2017.

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PJ/Case Law/2019-2020/3551

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