2019 (1) TMI 488 – AUTHORITY FOR ADVANCE RULING, WEST BENGAL – TMI – Input tax credit – lease rent paid 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 capitalised and treated as capital expenditure – Held that:- The prohibition from availing input tax credit, as provided under section 17(5)(d) of the GST Act, is not limited to the civil structure being constructed. It extends to the immovable property in general (other than plant and machinery), which includes the supplies received for retaining the right to use and develop the land. Such supplies are essential for construction of the civil structure on the piece of land – The Applicant will admittedly capitalize the lease premium. The property is, therefore, admittedly being constructed on the Applicant’s own account and treated as fixed asset, including the lease rental paid. Whether the lease rental paid for the pre-operative perio
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t, stated to be in the hospitality and real estate business and is contemplating a new project on a leasehold land, seeks a ruling as to whether Input Tax Credit is available for lease rent paid 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 capitalised and treated as capital expenditure. Advance Ruling is admissible on the question under Section 97(2) sub-clause (d) of the CGST/ WBGST Acts, 2017 (hereinafter referred to, collectively, as the GST Act ). The Applicant further submits that the question raised in the Application is neither decided by nor pending for decision before any authority under any provisions of the GST Act. The officer concerned raises no objection to admission of the Application. The Application is, therefore, admitted. 2. The Applicant, stated to be a subsidiary of Ambuja Neotia Holdings Private Limited, is in the hospitality and real estate business since 1997.
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used for construction of immovable property is allowed only if such immovable property is in the nature of plant and machinery. The expression plant and machinery has been defined vide Explanation to section 17 in Chapter V of the GST Act to mean apparatus, equipment , and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services and includes such foundation and structural supports but excludes inter alia land, building, or any other civil structures. The input tax credit is, therefore, not admissible for the lease rent paid during the pre-operative period for the leasehold land on which a resort is being constructed. 3. The Applicant states that : (a) Section 16 of the GST Act deals with eligibility and conditions for taking Input Tax Credit. Sub-section (1) of the said Section states Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49,
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(c) The GST Act does not define the exact nature of the goods and services received that are deemed to relate to construction of immovable property. As a result, the meaning of construction cost is to be construed as is taken in the modern parlance. The Applicant is required to pay the lease rent to the Lessor whether or not the construction has been carried out and shall be paying the lease amount even after the completion of the construction of the immovable property for the balance period of the lease period. The lease rent for the pre-operative period is capitalized under the head Leasehold Land and not under the head Building Block . It can, therefore, be inferred that the lease rent is not used for construction of the resort. Hence, the renting services cannot be said to be received for the construction of immovable property as there is no nexus, direct or indirect, between the construction of the hotel and banquet and the rental service availed. Further, mere capitalization of
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the service of right to use the land is a supply for construction of the said property. The Applicant s argument about absence of any nexus – direct or indirect – between the lease rental and construction of the buildings for hotel etc. is incorrect. Construction of the hotel etc. is impossible unless the Applicant enjoys uninterrupted right to use the land. It is clear from the Agreement that the Applicant cannot enjoy that right if he fails to pay the lease rental. Construction of the immovable property is, therefore, critically dependent on the supply of the leasing service. The nexus between them is, therefore, direct and the two are inseparable. The leasing service for right to use the land is, therefore, a supply for construction of the immovable property. The prohibition from availing input tax credit, as provided under section 17(5)(d) of the GST Act, is not limited to the civil structure being constructed. It extends to the immovable property in general (other than plant and m
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