Introduction:

The taxation landscape is often riddled with complexities, especially when it comes to the eligibility of Input Tax Credit (ITC) in the construction sector. A recent ruling by the Tamil Nadu Authority for Advance Rulings (AAR) in the case of Suswani Foundations Private Limited has brought to light a crucial aspect regarding ITC availability in the context of constructing immovable property for commercial rental purposes.

Facts of the Case:

Suswani Foundations Private Limited, referred to as “the Applicant,” embarked on the construction of an industrial building spanning approximately 1.62 lakh square feet. This construction aimed to create ‘Godowns’ intended for commercial leasing. To materialize this project, the Applicant planned to procure various construction materials such as Cement, Steel, PEB sheets, and Building Materials like bricks, sand, and blue metals, among others. Additionally, they intended to engage consultants or architects for the construction, estimating an expenditure of around INR 12 Crores. The projected GST amount for this construction was approximately INR 2.5 Crores.

The Applicant envisioned renting out these godowns for commercial purposes, foreseeing a rental income of around INR 40 lakhs per month, subject to GST.

The contention arose when the Applicant argued that Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 (CGST Act) shouldn’t be applicable to them as they weren’t constructing the godowns for furthering their business activities directly. However, they emphasized that the income generated from these rented properties was crucial for sustaining their business operations.

Issue:

The primary issue at hand was whether Input Tax Credit (ITC) is available for the construction of immovable property intended for commercial leasing purposes.

Held:

The Tamil Nadu AAR, in Advance Ruling No. 123/AAR/2023, made the following observations and rulings: