No ITC allowed for construction expenses; irrespective of whether expenses have been capitalised or not [AAAR]

The West Bengal Appellate Authority of Advance Ruling (AAAR West Bengal) in the matter of M/s Mindrill Systems and Solutions Private Limited has ruled out that No ITC is allowed for construction expenses; irrespective of whether expenses have been capitalised or not.

The concerned respondent, M/s Mindrill Systems and Solutions Private Limited [GSTIN-19AAECM3065G1ZG] has constructed a warehouse at Village: Mollarber, P.O. Dankuni Coal Complex, Durgapur Expressway, P. S. – Dankuni, Hooghly-712310 and has let it out to M/s Zomato Hyperpure Private Limited, GST being paid on such supply.

The Respondent sought an advance ruling under section 97 of the West Bengal Goods and Services Tax Act, 2017/ the Central Goods and Services Tax Act, 2017, (hereinafter collectively referred to as “the GST Act”) on the issue of whether input tax credit (in brevity “ITC”) against inward supply of said input/ input service used for construction of warehouse can be claimed and utilized to pay tax on the outward supply of services provided by way of renting of said warehouse in case such construction expenses are a) capitalized in books; b) not capitalized in books.

WBAAR therefore held that the restriction under clause (d) of sub-section (5) of section 17 of the GST Act in respect of input tax credit on goods or services received by the applicant for the construction of the warehouse is applicable in the instant case i.e., the applicant is not eligible for credit of input tax charged on inward supply of goods and services related to construction of warehouse which is capitalized in the books of account. However, where construction expenses are not capitalized in books, the claim of ITC is admissible.

The WBAAR has erred in interpreting the mentioned provisions by applying the conditions of capitalisation both for construction as well as for reconstruction, renovation, additions or alterations or repairs.

In view of the above discussions, The Coram is of the opinion that in the instant appeal case, the concerned respondent has constructed one warehouse and let it out. This being a “construction”, will attract the provisions of clauses (c) and (d) to sub-section (5) of section 17 of the GST Act and not the Explanation part for determining the eligibility criteria for Input Tax Credit. Thus, the input tax credit for such construction shall not be available to the respondent.

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