2019(11)LCX0140(AAR)
AAR-TAMIL NADU
M/s Sree Varalakshmi Mahaal LLP
decided on 25/11/2019
AUTHORITY FOR ADVANCE
RULING
TAMIL NADU ADVANCE RULING AUTHORITY
PAPJM Buildings, II Floor, No.l, Greams Road, Chennai-600 006.
PROCEEDINGS OF THE AUTHORITY FOR ADVANCE RULING U/s.98 OF THE
GOODS AND SERVICES TAX ACT, 2017.
Members present are:
1. Ms. Manasa Gangotri Kata, IRS
Joint Commissioner/Mcmber,
Office of the Commissioner of GST & Central Excise, Chennai
2. Thiru KurinjiSelvaan V.S.,
M.Sc., (Agri.), M.B.A.,
Joint Commissioner (ST) / Member
office of the Authority for Advance Ruling, Tamil Nadu, chennai-6
ORDER No.51 /AAR/2019 DATED 25.11.2019
GSTIN Number, if any / User id | 33ADGFS2I95BTZB | |
Legal Name of Applicant | M/s. Sree Varalakshmi Mahaal LLP | |
Trade Name of The applicant | M/s. Sree Varalakshmi Mahaal LLP | |
Registered Address/Address provided while obtaining user id |
No. 320, Shri Varalakshmi Divyaa Tower Vivekananda Street , New Fairlands, Salem . Tamil Nadu. 636 016. |
|
Details of Application | ||
Concerned Officer |
State :The Assistant Commissioner (ST),
Azhagapuram Assessment Circle, 17, Pitcharts Road, IInd Floor,
Government Buildings, Salem 636 007.
Centre : Salem Commissionarate. Division: Salem-I |
|
Nature of activity(s) (proposed / present) in respect of which advance ruling sought | ||
A | Category | Leasing Business |
B | Description (in Brief) |
Leasing of the building (Marriage Hall) with all amenities for short term period |
Issue/s on which advance ruling required |
Admissibility of input tax credit of tax paid or deemed to have been paid |
|
Question(s) on which advance ruling is required |
Whether the Input Tax Credit available spent for construction of building materials can be claimed and utilize to nullify the cascading effect of taxation? |
Note : Any appeal against the Advance Ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
M/s. Sree Varalakshmi
Maliaal LLP, No. 320, Shri Varalakshmi Divyaa Tower Vivekananda Street New
Fairlands, Salem , Tamil Nadu. 636 016. (hereinafter referred as ‘Applicant’) is
registered under the GST Act 2017 vide GSTIN No. 33ADGFS2 l95B IZB. The
applicant is engaged in leasing out the building (Marriage Hall) with all
amenities for short term period. The applicant has sought Advance Ruling on the
following questions:
Whether the Input Tax Credit against purchases of materials construction of
building materials can be claimed and utilize to nullify the cascading effect of
taxation?
The applicant submitted a copy of challan evidencing payment of application fees
of Rs. 5, 000/ - each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST
Rules 2017.
2.1 The applicant has stated that they have spent several crores of amount as
investment in construction of Marriage hall and other all auxiliary amenity
buildings. In this aspect huge quantities of materials and other inputs in the
form of steel, cement, sand, aluminum, wires, cables, plywood, paints, lifts,
escalators, air condition plant, electrical equipment’s, DG sets, other
decorative items and also services in the form of consultancy service,
architectural service, legal & professional service, engineering service and
other all related services were utilized for construction purpose. All these
goods and services which are purchased / received for such construction are
taxable under the CGST, SGST & IGST Acts and as such the applicant has paid
about Rs. 2 crores approximately towards payment of CGST, SGST & IGST levies. It
is an undisputed fact that the activity of letting out the building (i.e.
marriage hall) attracts CGST & SGST levy of 18% as output tax. It is stated by
the applicant, that they are prevented from taking the credit of input tax paid
as per section 17(5) (d) of the CGST Act 2017 as well as TNGST Act 2017. In the
blocked credit condition, input tax credit shall not be available in respect of
the goods & services or both received by a taxable person for construction of an
immovable property (other than plant machinery) on his own account including
when such goods or services or both are used in the course of furtherance of
business.
2.2 The applicant has submitted that in general on a plain reading of Section
17(5) (d), it is inferred by the authorities that what is contemplated and
provided for a particular 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 a situation, there is a break in
the tax chain and therefore, there is full justification of 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. The applicant has submitted that 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 the building will result in a fresh stream of GST revenue to
the Exchequer on the Rental 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 to the basic rationale of GST itself, which is to
prevent the cascading effect of multi stage taxation. The applicant further
added that because they had paid huge amount of GST for construction of the
building intended to be let out and thereafter for the same building rental
revenue generation, again 18% GST has to be paid as output taxation, which is
clear cascading effect of the same goods as defined by the Act. No law permits
double taxation for the same goods. The denial of Input Tax credit 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. In this aspect, there is a clear
violation of Article 14 of Indian Constitution.
2.3 The applicant in support of their claim, cited the decision of the Honb'le
Orissa High Court in Safari Retreats Pvt. Ltd. And another’s (Vs) Chief
Commissioner of Central Goods and Service Tax and others in W.P. (C) No.
20463/2018 which allowed the petitioner to take the Input Tax Credit spent on
Construction of Building materials (in their case is Mall) towards output tax
liability i.e. renting of immovable property and provided a copy of the verdict.
3.1 The applicant was extended a personal hearing on 26.09.2019 and authorized
representative of the applicant, Mr.M.Muthu Kumar, appeared for the hearing.
They stated that they have constructed a marriage hall which they are currently
giving it for rent. They stated that they have procured various input services
such as civil works, design work, etc., and goods such as cement, bath fittings
etc., they wanted to clarify whether they are eligible for the input Credit.
They stated that they have correctly availed the ITC but not utilized it till
now. They quoted HonTile Orissa High Court case M / s Safari Retreats Pvt ltd.
in W.P. 20463 of 20 18 dt. 17.04.19 where the High court has permitted use of
ITC and held section 17(5)(d) is not valid. They undertook to submit details of
all the inputs and input services along with contracts copies and invoices for
goods in two weeks time. They submitted a few invoices.
3.2 State jurisdiction officer appeared for the hearing and submitted a written
submission stating that no show cause notice has been issued to them and in view
of the provisions of Section 17(5)(d) and Explanations, input tax credit in
general, is not available for construction, reconstruction, renovation,
addition, alteration or repair of an immovable property even when such goods or
services or both are used and the applicant are not eligible to avail ITC on the
materials purchased for construction of various building materials and services.
3.3 The applicant submitted the copies of the contract and invoices of purchases
on 11.10.2019. They also requested for another hearing. The applicant was again
heard on 06.11.2019. The authorized representative Mr.M.Muthu Kumar, appeared
and stated that they have submitted all the documents as per previous personal
hearing. The Jurisdictional state GST authority have submitted a written write
up that the applicant is not eligible to avail ITC on the materials purchased
and services rendered. The applicant did not have anything further to add.
4. We have carefully considered the submissions made by the applicant in the
advance ruling application, the additional submissions made during the personal
hearings and the comments furnished by the State Jurisdictional Officer. It is
seen from the submissions made by the applicant that the applicant has built a
marriage hall at Itteri Road, Meyyanoor, Salem which they lease J rent for
occasions on which they charge GST as seen from the invoices. It is seen from
the invoices submitted that the applicant has received various materials such as
cement, steel, wood, fittings etc. alongwith various services from labour ,
architect etc. which have been used by the applicant to construct the marriage
hall. The question is to decide whether ITC against purchases of materials and
services used for construction of building (constructed by him) can be claimed
and utilized to pay GST on the outward supply of services of renting of the
building.
5.1 1 Section 1T(5)(d) reads as follows:
(5) Notwithstanding anything contained in sub-section (1) of section 76 and
subsection (1} of section 1 8, input tax credit shall not be available in
respect of the following, namely:—
(d) Goods or Services or
both received by a taxable person for construction of an immovable property
(Other thus Plant and Machine ) on his one account including when such goods or
services or both are used in the 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 Bard immovable property:
Section 17(5) (d) provides that 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 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.
5.2 The applicant contends that the above provides for denial of credit of input
tax paid on goods/ services used in the construction of an immovable property
which is sold subsequently only, as there is no GST liability on the sale of
immovable property and that in their case the immovable property constructed on
their account is used for furtherance of business, i.e., letting out as marriage
hall, which is liable to GST 18%. We do not agree with the contentions of the
applicant. The Legislative Scheme is amply clear. The input tax paid on the
goods/services received for construction of an immovable property ‘on one’s own
account’ is unavailable. The restriction is provided in the Act which is passed
by the Legislature. The power to restrict flow of credit exists under Section
16(1) of the GST Act, which shows a Legislative intent that Input Tax credit may
not always be allowed partially or fully. As the suitability and requirement of
tax payer varies from person to person, rule /Act, cannot be changed/ amended
accordingly and it is mandatory for the tax payers to adhere the restrictions
prescribed in Act and Rule.
5.3 The applicant has further placed reliance on the judgment rendered by the
Honorable High Court Orissa in the case of “M / s. Safari Retreats Pvt. Ltd.,
and another Vs Chief Commissioner of Central Goods & Service Tax & others”. It
is seen that in the said case, the prayers are (a) eligibility to credit of
input tax paid on goods/services used for construction which is rented for
commercial purposes (b) to hold Section 17(5) (d) as ultra-vires. While the Hon
file High court has granted the prayer at (a) has not accepted the prayer at (b)
stating that they are not inclined to hold the provision ultra-vires. On a case
to case basis, the High court has granted the credit. In as much as the said
section is found to be valid by the Hon'ble High court, we do not find any
reason to go beyond the Statutory Provisions.
6. Accordingly We Rule as under
RULING
No Input Tax Credit is available against any goods or services received by the applicant for construction of the Marriage Hall on his own account even if used in course or furtherance of his business of renting the Place.
Ms. Manasa Gangotri Kata, IRS
Member,CGST
Shri Kurinji Selvaan V.S.,
Member TNGST
To
M/ s. Sree Varalakshmi Mahaal LLP,
No. 320, Shri Varalakshmi Divyaa Tower Vivekananda Street New Fairlands, Salem
-636 016.Tamil Nadu
Copy Submitted to:
1. The Principal Chief Commissioner of CGST & Central Excise, No.2611, Uthamar
Mahatma Gandhi Road, Nungambakkam, Chennai - 600 034. 2. The Additional Chief
Secretary / Commissioner of Commercial Taxes, 2nd Floor, Ezhilagam
Chepauk, Chennai - 600 005.
Copy to:
3. The Commissioner of GST &C.Ex., Salem Commissionerate. No.1, Foulkes Compound
Anaimedu, Salem 636 001.
4. The Assistant Commissioner (ST), Azhagapuram Assessment Circle, 17, Pitcharts
Road, IInd Floor, Governrnent Buildings, Salem 636 007
5. Master file/spare
Equivalent .