RIICO VS. RAJASTHAN AAAR: ITC ELIGIBILITY ON INDUSTRIAL AREA DEVELOPMENT UNDER GST
RAJASTHAN APPELLATE AUTHORITY FOR ADVANCE RULING GOODS AND SERVICES TAX
Before the Bench of
1.Pramod Kumar Singh, Member (Central Tax)
2.Ravi Jain, Member (State Tax)
Case Title: M/s RIICO
(GST AAAR RAJASTHAN)
Appeal No. RAJ/AAAR/APP/06/2020-21
Advance Ruling No. RAJ/AAR/202021/12 dated 22.02.2021
ORDER NO. RAJ/AAAR/06/2020-21
Date of Judgment/ Order- 17th June 2021
BRIEF FACTS OF THE CASE
Para No. 3.1 M/s Rajasthan State Industrial Development and Investment Corporation Ltd. (RICCO) (hereinafter referred to as the Appellant) has been set up by the Rajasthan Government for the purpose of development of various industrial areas to set up Industries and other supportive services in the state of Rajasthan. The Appellant is a registered person under GST for the purpose of providing various taxable and exempt outward supplies of leasing of Industrial and Non-Industrial Plots as well as financing activities of providing term loan to various projects. The Appellant for the development of industrial areas first identifies the suitable governmental/ private land. Thereafter Appellant starts the acquisition process of such land and later planning for the development of such land.
Para No. 3.6 For carrying out the development and maintenance work in the various areas, the appellant procures various input services by way of construction/works contract services from contractors. There is certain time gap between the development of an area and allotment of plots in that area. The allotment starts only after the basic development work is carried out like roads; power-water supply system etc. is done in that industrial area. Thus, the cost is incurred first by way of development expenses and thereafter the revenue is received when the plot of land is allotted.
Para No. 4. The Appellant filed an Application for Advance Ruling under Section 98 of CGST/RGST Act, 2017 before Authority for Advance Ruling, Rajasthan on 3-9=2020 on the following questions:
(i) Whether the Applicant can claim the ITC on the Input services of construction or works contract procured for the development of an Industrial area or the special maintenance expenses of the area?
(ii) If the answer of question No. I, is in affirmative then what would be the mechanism for apportionment of ITC between exempt and taxable supplies as in an industrial area, long term leasing of ‘industrial plot’ of land is exempt under N.No. 12/2017-Central Tax (Rate) but leasing of ‘non-industrial plot’ of land/commercial plot of land is a taxable supply?
Para No. 5. The Rajasthan Authority of Advance Ruling vides order no. RAJ/AAR/202021/12 dated 22.02.2021 did not agree with the applicant’s view that the land development work on immovable property is not a capital expenditure. The term ‘extent to which capitalized’, only suggests that the extent of such expenses are expected to be capitalized or else will be treated as capitalized to such immovable property. Since, the work done by the applicant on the acquired land is not of the nature of any type of repair or maintenance on immovable property, but a new fixed asset is constructed and it appreciates the value of the property/land. Hence, such expenses, which enhance the value of the property permanently and as per accounting convention, the expenditure are capital in nature, have to be capitalized and cannot be treated as revenue expenditure. Therefore, as per Section 17(5)(c) &(d) of the CGST/RGST Act, 2017, No ITC is available to the applicant.
DISCUSSION AND FINDINGS
Para No. 8.4 The Rajasthan Authority of Advance Ruling has held that the term ‘extent to which capitalized’, only suggests that the extent of such expenses are expected to be capitalized or else will be treated as capitalized to such immovable property. Since, the work done by the applicant on the acquired land is not of the nature of any type of repair or maintenance on immovable property, but a new fixed asset is constructed and it appreciates the value of the property/land. Hence, such expenses, which enhance the value of the property permanently and as per accounting convention, the expenditure are capital in nature, have to be capitalized and cannot be treated as revenue expenditure. Therefore, as per Section 17(5)(c) of the CGST/RGST Act, 2017, No ITC is available to the applicant.
Para No. 8.5 Aggrieved by the Ruling, the appellant came before us by way of an appeal filed at online portal on 22.03.2021 mainly on ground that the appellant has not capitalized the expenditure in fixed assets and prayed that benefit of ITC both on the development expenses and special maintenance expenses should be allowed to them and consequently the decision of AAR is liable to be set aside.
