Section 17(5)(d) of CGST Act, 2017 cannot be construed in a narrow sense as to disallow credit of goods or services used for construction of immovable property not used for own purposes
Recently in a matter of M/s Safari Retreats Pvt. Ltd. & Another v. Chief Commissioner of Central Goods and Service tax and Others reported in 2019-TIOL-1088-HC-ORISSA-GST, Hon'ble High Court of Orissa while relying on the decision of Apex Court in Eicher Motors Ltd. v. Union of India - (1999) 2 SCC 361 held that Section 17(5)(d) of CGST Act, 2017 cannot be given such narrow construction of interpretation so as to deny credit of tax paid on goods or services used in construction of immovable property which is ultimately constructed with the intent of letting out by the Petitioner on which GST stands payable.
The facts of the case are that Petitioner is involved in the business of construction of shopping malls for the purpose of letting out to various tenants on which it is duly paying GST under 'renting of immovable property'. Now for the purposes of construction of such immovable property, huge quantities of materials and other inputs were purchased by the Petitioner. Petitioner also availed certain input services in the form of consultancy service, architectural service, etc. On all these inputs and input services, Petitioner was paying huge amount of taxes under GST regime which the Petitioner was availing as ITC for discharging its output tax liability. Contrary to this, revenue directed the Petitioner to deposit output tax liability without availing such ITC in view of restriction contained in Section 17(5)(d) ibid. and warned of penal consequences of availing such ITC as well.
Hon'ble High Court held that legislative intent behind introducing ITC provisions would be defeated if Section 17(5)(d) ibid. is read in a manner so as to disallow credit where such immovable property is not constructed on 'own account' rather used for rendering output taxable service, i.e. renting of immovable property service. Since there is no break in tax chain and Petitioner is paying output tax in respect of such construction, provisions of Section 17(5)(d) won't be attracted and credit shall be allowed to the Petitioner.
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