Input Tax Credit on inward supplies used for construction of warehouse by use of pre-engineered steel structure is not available if construction expenses are capitalized in books.
Facts of the Case: M/s Mindrill Systems and Solutions Private Limited is the applicant, has constructed a warehouse for the purpose of letting out to earn rental incomes and has been paying tax on such outward supply.
The Applicant has sought the advance ruling “whether input tax credit of input/input services used for construction of warehouse can be claimed and utilized to pay tax on outward supply of services provided by way of renting of said warehouse in case such capital expenses are capitalized in books or if in such a case such expenses are not capitalized in books.”
Contentions of the Applicant:
Section 17(5)(d) of CGST Act, 2017 restricts availment of ITC on goods or services used by taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in course or furtherance of business.
ITC is restricted when immovable property is constructed on his own account and in applicant’s case applicant contended that he is using the warehouse for the purpose of renting not for his own purpose.
Further the warehouse is constructed using pre-engineered fabricated steel structure with nut bolt technology and can be dismantled and detached without any damage. Hence applicant contended that warehouse is not permanently fixed to the earth and could not fall within the purview of immovable property. Hence restriction of 17(5)(d) is not applicable in applicant’s case.
Observations and Findings of the Authority
The applicant has constructed the warehouse and accounted the same in his books and retains the ownership/title of said warehouse. The warehouse is being used by applicant for providing outward supplies i.e. renting or leasing service i.e on his own account.
As per applicant’s submission, construction of warehouse involves goods like cement, marble, paver block, shutter door, prefabricated steel building and structural installation along with works contract services like painting, plumbing, electrical installation etc. Warehouse of the applicant is not intended to be moved and indeed has not been moved after construction of same at given place. The intention behind construction of warehouse is to let it out and earn rental income.
Hence, construction of warehouse itself is intended to be permanent at given place and applicant would not shift it from one place to another place. And hence such warehouse would be regarded as immovable property.
Conclusion: Input tax credit against inward supply of input/input services used for construction of warehouses cannot be claimed if construction expenses are capitalized in books of accounts. However, input tax credit could be availed and utilized if such construction expenses are not capitalized in books of account.
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