The Hon’ble AAR, Rajasthan in the matter of M/s. Indag Rubber Limited [AAR No. – RAJ/AAR/2019-20/23 dated October 21, 2019] held that the Applicant is not eligible to claim input tax credit (“ITC”) of GST charged by vendor for supply of goods and services for carrying out the activities (Civil Work and External Developmental Works) for setting up of Maintenance Repair and Overhaul (“MRO”) facility, which was further leased.
M/s. Indag Rubber Limited (“the Applicant”) manufactures precured tread rubber, un-vulcanized rubber strip gum, universal spray cement and tyre envelopes for the tyre retreading industry. Elcom Systems Pvt. Ltd (“Elcom”) is a private company incorporated in India and is engaged in the business of repair, maintenance, overhaul, upgrade and modernization of Unmanned Aerial Vehicles (UAV).
Elcom has approached Applicant for taking on lease a MRO facility. According to the agreement between the Applicant and Elcom, the Applicant will construct MRO facility at Bhiwadi as per the specifications given by Elcom. The said MRO facility will thereafter be given on lease to Elcom by the Applicant. Elcom will install its equipments in the MRO facility and will render MRO services to Israel Aerospace Industries.
The Applicant procures inputs and inputs services for undertaking work. In respect of these inputs and inputs services, input tax credit (ITC) is being availed by the Applicant.
The Applicant has entered into agreement with M/s. Akanksha Contracts Pvt. Ltd. (“Agreement 1”) for supplying various goods and services for setting up the MRO facility on the Industrial Land.
The goods are procured by M/s. Akanksha Contracts Pvt. Ltd on a bill to ship to basis. In the invoice issued by the supplier, the bill to party is M/s. Akanksha Contracts Pvt. Ltd. and ship to party is the Applicant.
Against the material receipts, the Applicant has paid ₹ 97.37 lacs amount in advance for procuring of goods and services. Further, it has been agreed that M/s. Akanksha Contracts Pvt. will raise a consolidate invoice for each month, which will include value of both goods and services so supplied along with adjustments regarding the advance so received.
M/s. Akanksha Contracts Pvt. is charging applicable rate of GST on the goods and services being supplied to the Applicant. Further, when the Applicant will lease out the MRO facility to Elcom, it will be charging GST at applicable rate on the amount of rent received for leasing out of MRO facility.
Whether the Applicant is eligible to take ITC on the goods and services supplied by M/s. Akanksha Contracts Pvt. for carrying out the following activities for setting up of MRO facility which will be rented out?
The Hon’ble AAR, Rajasthan in the AAR No. – RAJ/AAR/2019-20/23 dated October 21, 2019 held as under:
- The activity of MRO involving supply of goods and services is leading to creation of an immovable property.
- Section 16 (1) of the CGST Act specifically provides that every registered person shall be entitled to take credit of the input tax charged on any supply of goods or services or both made to him, which are used or intended to be used in the course or furtherance of his business. Such entitlement is subject to fulfilment of certain conditions such as possession of invoice, receipt of goods/ service, payment of tax to Government etc. as provided under Section 16(2) of the CGST Act. Thus, ITC is not available for construction of an immovable property even when such goods or services or both are used in course or furtherance of business.
- The Applicant is paying GST on goods and services supplied by M/s. Akanksha Contracts Pvt. Ltd. for construction of MRO facility on the Applicant’s land. The provisions of Section 17(5)(d) of CGST Act is clear that if the goods or services are used for the construction of an immovable property, the ITC shall not be available irrespective of the use of the said property.
- The Applicant is not eligible to claim credit of the GST charged by vendor for supply of goods and services to it, which are used for carrying out the activities (Civil Work and External Developmental Works) for setting up of MRO facility.
Recently, the Hon’ble HC, Orrisa in the pari materia case of M/s. Safari Retreats Private Limited and Another v. Chief Commissioner of Central Goods & Service Tax & Others [W.P.(C) No.20463 of 2018 dated April 17, 2019] has allowed ITC on inputs and input services used for construction of a shopping mall, to be availed against GST payable on rent income receivable from tenants of such constructed shopping mall.
Section 16 (1) and (2) of the CGST Act
“Eligibility and conditions for taking input tax credit.
- (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both.
1[Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services––
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.]
(c) subject to the provisions of 2[section 41 or section 43A], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.”
Section 17(5)(d) of CGST Act
“17. Apportionment of credit and blocked credits.
(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, 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 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.
Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;”