In re Kamarajar Port Limited (GST AAR Tamilnadu)
Whether input tax credit can be claimed on upfront lease premium paid? If the answer is affirmative, in what manner the input tax credit can be availed?
As per Section 16(1), a registered person is 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. Section 16(2) provides that such person will be eligible for such credit only when he is in possession of a tax invoice, has received the goods or services, paid the tax charged on such supply and has furnished the returns. Section 16(3) provides that if depreciation is claimed the ITC on the said tax component is not available. In the instant case the applicant has been allotted space by Chennai Port Trust vide Allotment Order No. LBS1/992/2020/E dated 27.04.2021 that is intended to be used by them as an extended corporate office for the accommodation of Record/Documentation Room till 31.08.2045 and in respect of the Right of use of the Asset the applicant has stated that ROU Asset that has to be capitalized, amounts to Rs.5,39,21,553/- including the initial direct cost, if any incurred by them. It is seen from the tax invoice furnished by the applicant that the license fee paid amounts to Rs.5,39,21,553/- which is the taxable value and GST is levied only on the taxable value. Thus on reading of the above statue and applying to the case at hand it is seen that input tax credit can be claimed on the upfront lease premium which is paid for the allotted covered space used as an extended corporate office as it is in the course of business.
The State Jurisdictional authority has stated that input tax credit is ineligible in the instant case under Section 17(5) (d) of the CGST Act, 2017.
From the above provisions it is seen that in respect of immovable property the Credit of tax paid on goods or services received on own account, for construction of immovable property is available only when such immovable property is a ‘Plant and Machinery’. In the instant case the contract is a lease contract of the built-building for use as an extended corporate office for accommodation of record & as documentation room and it is for the business purpose of the applicant. The lease allotment letter do not spell of lease for any construction activity on the closed space leased for business purposes. Hence, the upfront premium made is the lease rentals as per the allotment order/letter of Chennai Port Trusts and it is nothing but lease rentals paid for the services of ‘Renting of Immovable property’ for business purpose. From the material on record, we observe that the upfront premium paid is not related to any construction activity of such covered space but against the rental value for the period of rent calculated for the period of lease and collected upfront. Thus, provisions of Section 17(5) (d) is not applicable to the instant case.
To sum up, the issue relates to the eligibility to ITC of Tax paid on the upfront lease rent paid by the applicant which is consideration towards the space rented by them from Chennai Port Trust. As discussed above the provisions of Section 17(5)(d) is not attracted to the activity of ‘renting Immovable Property Services’. Therefore, the credit of tax paid on the upfront lease rent by the applicant is available subject to fulfillment of other conditions set out under Section 16 of the Act.
FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING, TAMIL NADU
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.
Tvl. KAMARAJAR PORT LIMITED, 17, Jawahar Building, 2nd Floor North Wing, 3rd Floor, Rajaji Salai, Chennai. 600 001 (hereinafter called the Applicant or KPL) are registered under GST with GSTIN 33AAACE9013G2Z1. The applicant has sought Advance Ruling on the following questions:-
Whether input tax credit can be claimed on upfront lease premium paid? If the answer is affirmative, in what manner the input tax credit can be availed?
The Applicant has submitted the copy of application in Form GST ARA – 01 and also 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 the Chennai Port Trust has allotted covered space to an extent of 267 sq.m at Ground floor – North wing of Jawahar building on Upfront Premium for Long Term Lease Basis to the applicant till 31.08.2045 from the date of handing over of the premises by Chennai Port Trust. The space is intended to be used by the applicant as an extended corporate office. The prevailing rate as per Schedule of Rates for the above building premises at Rajaji Salai is Rs. 740/- (for January 2021) per Sq.m per month or part thereof which is arrived after effecting the compoundable annual escalation of 5% on every year basis. The Details of the allotment and Upfront premium calculation are as below: –
The Chennai Port Trust has allotted the covered space to an extent of 267 sq.m at Jawahar building (Ground floor) till 31.08.2045 for Kamarajar Port Limited’s Extension of corporate office, subject to the following conditions:-
i) The lease rent is fixed as Rs. 740/- per sq.m per month or part thereof and inform the KPL to pay the Provisional Upfront amount of Rs.6,84,28,627/-(Rupees Six Crores eighty-four lakhs twenty-eight thousand six hundred and twenty-seven only) (including SD & GST). The detailed breakup of lease rent on upfront mode is furnished below:
