GST Input Tax Credit on Commercial Real Estate: Impact of Retrospective Amendments and AAR Ruling on Mall Construction

The eligibility of Input Tax Credit (ITC) regarding the construction of immovable property has been one of the most litigated areas within the Goods and Services Tax (GST) regime. A recent ruling by the Tamil Nadu Authority for Advance Ruling (AAR) in the case of In re Tvl. Super Chips has provided significant clarity—and a stringent outcome—for real estate developers and businesses constructing properties for rental purposes.

This ruling is particularly pivotal as it addresses the long-standing debate triggered by the Supreme Court’s functionality test in Safari Retreats and interprets the statutory provisions in light of retrospective legislative amendments.

The Core Dispute: ITC on Construction for Renting

The fundamental question before the Authority was whether an assessee is entitled to claim ITC on goods and services procured for the construction of a commercial complex (such as a mall) when the resulting property is intended to be rented out, and GST is payable on the rental income.

Factual Matrix

The applicant, In re Tvl. Super Chips, is a proprietorship engaged in the trading of snacks and the business of leasing commercial properties. The assessee initiated the construction of a commercial complex/mall with the specific intention of leasing the premises to various retail tenants.

To facilitate this construction, the assessee incurred substantial expenses on:

  • Goods: Cement, steel, aluminum, wires, plywood, paints, lifts, escalators, and air conditioning plants.
  • Services: Contractor charges, architect fees, and other professional services.

The assessee sought an advance ruling to determine if the ITC paid on these inputs could be set off against the output GST liability arising from the rental income of the mall.

The assessee presented a robust defense favoring the availability of credit, primarily anchoring their arguments on judicial precedents and the concept of double taxation avoidance.

1. The "Own Account" Argument

The assessee contended that the restriction under Section 17(5)(d) of the CGST Act 2017, which blocks credit for construction on "own account," should not apply to properties constructed for the purpose of renting. They argued that when a property is built to generate taxable rental income, it is not for personal consumption but is an asset used in the course of business.