While giving its decision, the Supreme Court has treated such buildings like a plant i.e. industrial unit. The decision given by the Supreme Court on Thursday is being considered a milestone for tax administration.
The tax burden is going to be reduced from the shoulders of those who build commercial buildings and rent them out. They will be able to get back a large part of the GST paid by them on the construction of these buildings. They will be able to get further credit of the tax paid during construction. That means they will be able to adjust it in their future tax liability.
The GST department had refused to give any kind of input tax credit in case of sale or rent of the building after its construction. According to CA Anuj Gupta, a rule in GST was considered inconsistent. It is written on one side in GST that giving uninterrupted input tax credit is the main feature of this law. On the contrary, when a building is sold or given on rent after construction, tax credit is not given on it.
The builders of the building in Odisha had given the challenge
The builder was demanding credit of the tax that he pays to the government at the time of construction of the building on everything from cement, rebar, sanitary fittings to labour. The builders of Safari Retreats, one such building in Odisha, had challenged the rule.
The High Court had ruled that if a building is built for rent then it should get ITC. The GST department had challenged this in the Supreme Court.
Getting tax credit will reduce costs
The Supreme Court has ruled that just like any industrial plant or machinery, a commercial building built for rent will be considered a plant. Further credit for the GST paid at the time of its construction cannot be refused. The availability of tax credits will reduce the cost of commercial buildings. This will also reduce fares. – RS Goyal, Tax Advisor
Violation of Article 14
Till now the rule in GST was applicable that if a building is sold before getting the completion certificate, then GST is applicable on it and in this case the government was also allowing tax credit.
On the contrary, when the commercial building was rented out after completion of construction, the government was charging 18 percent GST on the rent but kept invalidating the input tax credit. Input tax credit would be given only if such building was plant or machinery. The Supreme Court considered this a violation of Article 14.
