In re Embassy Industrial Park Private Limited (GST AAR Karnataka)
Whether input GST credit can be availed by the applicant on the inputs i.e. Electrical Works, Pumps, Pumping systems and tanks, Lighting system, Physical security system and Fire System?
The applicant has admitted that the works of electrical, structural, lighting, physical security and fire-fighting works are in the nature of works contract services and argued that they qualify as eligible credit under section 16 of the CGST Act, 2017. Section 17(5)(c) clearly states that no input tax credit would be available on the tax paid on works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract services.
The argument of the applicant is that these works contract services are procured are not “for construction” of an immovable property. The applicant on one hand admits that these are works contract services received from the suppliers and on the other hand claims that these are not for construction of immovable property.
It is clear from the above and also the nature of supplies made to the applicant that what is received by the applicant is a works contract service as the outcome of the contract is an immovable property.
In continuation, the argument of the applicant is not on the nature of service received but on the point that the input tax credit must not be disallowed as it is not capitalized as immovable property in the books of accounts of the applicant.
The Accounting concepts prescribe for accounting of revenue expenses and capital expenses. If the expenses are in the nature of capital expenses and are related to the fixed assets, then they are capitalized. The definition of construction only states that it includes re-construction, renovation, additions, alterations or repairs to the said immovable property and it is only an inclusive definition and hence construction of an immovable property must be seen in that context. Further, merely accounting of an immovable property as a movable property in the books of accounts of the applicant does not divest the exact nature of the item and when what is procured is an immovable property, it remains a immovable property, no matter how the same is accounted.
Further, the applicant argues what is procured are goods as they can be moved. It is clear that the input is a works contract service as admitted by the applicant himself and is a composite supply involving both goods and services with the outcome being an immovable property and hence this is not applicable.
The question is answered in the “negative” and input GST credit cannot be availed by the applicant on the inputs i.e. Electrical Works, Pumps, Pumping systems and tanks, Lighting system, Physical security system and Fire System as it is blocked under section 17(5) of the CGST Act 2017 and section 17(5) of the Karnataka Goods and Services Tax Act, 2017, for the s explained.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KARNATAKA
1. M/s Embassy Industrial Park Private Limited, (called as the ‘Applicant’ hereinafter), having GSTIN number 29AACCJ2346P1Z3, has filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 and Section 97 of the KGST Act, 2017, in FORM GST ARA-01 discharging the fee of Rs.5,000-00 each under the. CGST Act and the KGST Act.
2. The Applicant is a Private Limited Company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following question:
“Whether input GST credit can be availed by the applicant on the inputs i.e. Electrical Works, Pumps, Pumping systems and tanks, Lighting system, Physical security system and Fire Systems
3. The applicant furnishes some facts relevant to the stated activity:
a. The applicant states that they are engaged in building and managing industrial warehousing spaces for consumers and industrial centers. The Applicant is proposing to construct a new Industrial warehouse at Baguru Village in Karnataka.
b. The Applicant procures various goods and services from various contractors for fitting-out of the warehousing spaces and provides the subject space having with all facilities and infrastructure facility on rent to various industrial consumers and manufacturers. The Applicant discharges applicable GST on such procurements.
c. Section 16(1) of Central Goods and Services Tax Act, 2017 (“CGST Act, entitles a registered person to take credit of input tax charged on any supply of goods or services or both which are used or intended to be used in the course or furtherance of business.
d. The applicant states that however, as per Section 17(5) of the CGST Act, a restriction is imposed with respect to input tax credit (hereinafter referred to as “ITC”) on procurement of goods and services or both received by the taxable person for construction of an immovable property. However, the term ‘construction’ is limited to supplies to the extent capitalized to an immovable property.
e. Of the procurements, there are certain items in the nature of plant and machinery, listed below and the same are explained in detail in the subsequent paras:
