Whether ITC can be availed on the inputs and input services used in the construction of the marriage hall, which is given on lease, in order to nullify the cascading effect of tax?

PJ/Case Law/2020-2021/3581

Sree Varalakshmi Mahaal LLP, 51/ARA/2019 dated November 25, 2019(AAR - Tamil Nadu)
Brief Facts:-The applicant has built marriage hall for the purpose of leasing or renting for occasions. It has received materials such as cement, steel, wood, fittings, etc. along with various services from labour, architect, etc. to construct marriage hall.
Issue: -Whether ITC can be availed on the inputs and input services used in the construction of the marriage hall, which is given on lease, in order to nullify the cascading effect of tax?
Applicant Contention: -The Applicant contended that the ITC should be eligible on the basis of the following grounds. Section 17(5)(d) would apply to those situations where the inputs are consumed for construction of an immovable property which is meant and intended to be sold. Sale of property, post issuance of the completion certificate does not attract GST. Consequently, the break of tax chain is justified.
However, in the present case, GST would be paid on rental income and therefore, denial of ITC would be unjust, oppressive and against the rationale of GST which is to prevent cascading effect of multi stage taxation. This would also lead to violation of Article 14 of the Constitution of India. The applicant has also referred to the case of Safari Retreats Pvt. Ltd. and others v. Chief Commissioner of CGST and others3, the Hon’ble High Court allowed the ITC on the goods and services used in the construction of building which was let out.
Reasoning of the Judgement:-The Authority observed that as per the provisions of blocked credits under GST, no ITC is available in respect of any goods or services received by a taxable person for construction of an immovable property on his own account even if such inputs and input services are used in the course and furtherance of business. In the present case, the applicant has itself built the marriage hall for which he has received various goods such as cement, steel, sand, tiles, etc. as inputs and services by architect, labour contractor, etc. as input services. It is using the hall to rent out to customers for occasions, i.e., for furtherance of his business. Therefore, input tax paid on the goods or services received for construction of immovable property ‘on one’s own account’ cannot be availed. The Interpretation of legislature can’t differ from person to person according to their requirements and suitability.
The Authority also states in their judgement that In the case of Safari Retreats on a case to case basis, the High Court has allowed the ITC but has not regarded section 17(5)(d) as ultra-vires. Since the section is found to be valid, there is no reason to go beyond the statutory provisions.
Decision:-The Authority for Advance Rulings held that ITC is not available against any goods or services received by the applicant for construction of the marriage hall on its own account even if used in the course or furtherance of business of renting the place
Comment: - The case of Safari Retreats has been appealed before the Hon’ble Supreme Court and the matter is still pending for hearing. Supreme Court Judgment will clarify the eligibility of credit in many pending cases. Moreover, taxpayers availing construction services with substantial ITC loss may proactively file WRIT petitions before their jurisdictional High Courts challenging vires of Section 17(5) of the CGST Act,2017.
Prepared by: - CA Kartik Singhvi

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PJ/Case Law/2020-2021/3581

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