Credit of GST paid on inputs used for construction of shopping mall is allowed, where assessee is required to pay GST on rental income from such shopping mall : High Court of Orissa

Facts of the case:

The petitioner carries business of constructing shopping malls for the purpose of letting out of the same to numerous tenants and lessees. Huge quantities of materials and other inputs are required for the aforesaid construction purpose. All such materials or inputs are taxable under the GST Act, 2017. The petitioner has accumulated large amount of ITC on such inputs and is desirous to utilize it to discharge and pay the Output tax liability payable on rentals received from the tenants of the said shopping mall and approached the revenue authorities in this regard.

However, the petitioner was advised to deposit the output tax liability without taking ITC in view of restrictions placed under section 17(5)(d)* and was warned of penal consequences if it did not do so. The petitioner thus has to pay very large amount of tax liability.

Held by High Court:

HC contended that Section 17(5)(d) contemplates and provides for a situation where inputs are consumed in the construction of an immovable property which is meant and intended to be sold. The sale of immovable property post issuance of completion certificate does not attract any levy of GST. Thus, denial of ITC in such case is fully justifiable as there is a break in the tax chain. However, in the present case the petitioner is retaining the property and will be providing taxable rental services, there is an unbroken tax chain. Denial of ITC in this case would be directly opposed to the very purpose of the GST Act itself which is to prevent the cascading effect of multi-stage taxation. To support such contention, the High Court has relied upon various judgements by the Hon’ble Supreme Court.

* Section 17(5)(d) states that input tax credit shall not available in respect of the goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.