ITC cannot be availed on lease rent paid in pre-operating period 

Categories: Advance Ruling
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GGL Hotel and Resort Company Ltd. (“the Appellant”) is in hospitality and real estate business. For one of the project’s the appellant took land on lease from West Bengal Housing Infrastructure Development Corporation Limited (“WBHIDCL”) for on payment of a lease premium with an annual lease rent @10% and few other conditions. WBHIDCL will be charging GST @ 18% on the lease rent.

Issue Involved:

Whether credit is available on input tax paid on lease rent during pre-operative period for the leasehold land on which the resort is being constructed to be used for furtherance of business, when the same is capitalized and treated as capital expenditure?


The Hon’ble AAAR, West Bengal vide Appeal Case No. 01/WBAAAR/APPEAL/2019 dated May 3, 2019 observe that the premium paid by the appellant is exempted under Sl. No. 41 (SAC 9972) of Notification No. 12/2017-CT (Rate) dated June 28, 2017, as amended vide Notification No. 32/2017-CT (Rate) dated October 13, 2017 and Notification No. 23/2018-CT (Rate) dated September 20, 2018. Whereas lease rental paid by the appellant is taxable under Sl. No. 16 (iii) (SAC 9972) of Notification No. 11/2017-CT (Rate) dated June 28, 2017, as amended vide Notification No. 1/2018-CT (Rate) dated January 25, 2018.

Lease premium and lease rental both are parts of the project cost, the former being one time fixed amount and the latter being a variable cost. Both lease premium and lease rental are classified under SAC 9972 being real estate services.

Further AAAR, West Bengal upholds that the appellant is constructing the Eco Resort on his own account in course of furtherance of its business of providing hospitality services, for which one of the input services availed is leased rental services. The ambit of the block credit as per clause (d) of Sub-Section (5) of Section 17 is board as it included such goods or services or both when used in the course of furtherance of business. So, clause (d) of sub-section 17 restrict the appellant from availing input tax credit on lease rental paid.

Citation: [2019] 105 248 (AAAR-WEST BENGAL)