The West Bengal Authority of Advance Ruling (AAR), ruled that there can be no Input Tax Credit (ITC) claim against inward supply of input used for construction of warehouse when construction expenses are capitalized in the books.
The applicant, Mindrill Systems and Solutions Private Limited, submitted that it has constructed a warehouse / godown with sole intention to provide the same on rent and earn “Rental income” benefits. The applicant accordingly has constructed one warehouse and let it out to “Zomato Hyperpure Private Limited” and has been paying tax on such supply.
The applicant has sought advance ruling on 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 capitalized in books or not?
The applicant submitted that as the warehouse was constructed in the course or furtherance of its business and not constructed for own use of applicant company and said warehouse was made of prefabricated /engineered building, which is not immovable property, the applicant company is entitled to use /utilise input tax credit availed on inward supply of said input/input service received and used for construction of warehouse, to pay tax on the outward supply of services provided by way of renting of said warehouse, whether such expenses on account of inward supply are capitalized / not capitalised in books.
The applicant further submitted that registered persons are ineligible for ITC on inward supply of goods or services used for construction of an immovable property i.e. ware house for ‘own use’ even when such immovable property is used in the course or in furtherance of business (such as leasing, renting etc.).
A Two-Member Bench of the Authority comprising Sarthak Saxena, Joint Commissioner, CGST & CX and Joyjit Banik, Senior Joint Commissioner, SGST observed that “the applicant is not eligible for input tax credit against inward supply of 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 capitalized in books.”
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