The Goods and Services Tax Appellate Tribunal (GSTAT), Thiruvananthapuram, has allowed input tax credit of ₹11.23 lakh on joinery, carpentry and painting services used to furnish rented retail showrooms, holding that the GST component had been accounted for separately as credit and had not been capitalised or subjected to depreciation.

The Bench of Subramanya Rayaprol (Vice President) and Ramamoorthi Sriram (Technical Member) set aside the order denying credit to assessee and allowed its appeal with consequential relief and reasoned that the GST portion had not been capitalised and held that the disputed tax amounts were not covered by the restriction under Section 17(5)(d). It accordingly allowed credit on all four invoices.

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The dispute concerned whether GST paid on interior furnishing services for retail showrooms was blocked under Section 17(5) of the CGST Act, 2017, which restricts credit relating to the construction of immovable property.

A central question was the effect of the taxpayer’s accounting treatment: while the furnishing expenditure had been capitalised under “Furniture and Fixtures”, the CGST and SGST charged on the invoices had been excluded from the asset cost and recorded separately as input tax credit.

The appellant/assessee, a partnership firm engaged in retail trading of digital gadgets and providing repair and maintenance services, had obtained interior furnishing services from Brightech Interiors and Exteriors Private Limited.

The disputed services related to its rented showrooms at Vellayambalam and Nedumangad. Four invoices issued in July and September 2017 described the supplies as “Joinery and carpentry services” under SAC 995476, with one invoice also covering painting services.

The invoices involved CGST of ₹5,61,470 and an equal amount of SGST, taking the total disputed credit to ₹11,22,940.

The GST authorities denied the credit under Section 17(5). The Joint Commissioner (Appeals), Kottayam, upheld the denial through an order dated September 26, 2023, prompting the taxpayer to approach the Tribunal.

The taxpayer submitted that it did not own the showroom premises and had taken them on rent solely for conducting its retail business. It maintained that the work involved installing detachable wooden shelves and movable display units required to display digital products.

According to the taxpayer, these items were independent furniture and fixtures rather than permanent additions to an immovable property. It also argued that the services were in the nature of interior designing and could be classified under SAC 998391.

In support of its claim, the taxpayer furnished rental agreements, audited financial statements for 2017-18 and a chartered accountant’s certificate. It relied on the Karnataka Appellate Authority for Advance Ruling’s decision in Wework India Management (P.) Ltd. concerning detachable fixtures.

The taxpayer further submitted that it had complied with the requirements for claiming credit under Section 16 of the CGST Act.

The department argued that the supplier had expressly invoiced joinery, carpentry and painting services falling within the category of building completion and finishing services. It opposed the taxpayer’s attempt to describe the supply as interior design services without corrected invoices or supporting transaction documents.

The department also contended that the statutory explanation to Section 17(5)(c) and (d) extends “construction” to reconstruction, renovation, additions, alterations and repairs, to the extent of capitalisation. Consequently, work performed after completion of a building could also attract the restriction.

It maintained that merely recording expenditure under “Furniture and Fixtures” could not establish credit eligibility. The Revenue also relied on the allegation recorded in the show cause notice that removing the fixtures would damage the asset.

Additionally, the department invoked Section 155, arguing that the burden of proving eligibility rested on the taxpayer. These were the Revenue’s submissions; the Tribunal ultimately allowed the credit on its assessment of the records and the accounting treatment. 

The Tribunal observed that the show cause notice had not raised a dispute over the classification adopted by the supplier.

It therefore declined to enter into a classification controversy at the stage of examining the recipient’s credit entitlement, treating such allegations as beyond the scope of the notice.

The Tribunal confined its consideration to whether credit on the four service invoices was available or restricted under Section 17(5).

The Bench found that the joinery, carpentry and painting services had been used in rented premises from which the taxpayer conducted its registered retail business.

The work involved setting up wooden and glass shelves to store and display digital goods for sale. The Tribunal held that these services had a direct connection with the furtherance of the taxpayer’s business and satisfied the business-use requirement under Section 16(1).

It then considered whether the specific restriction under Section 17(5) nevertheless prevented the claim.

The Tribunal examined the explanation to Section 17(5)(c) and (d), under which construction includes reconstruction, renovation, additions, alterations or repairs to immovable property, to the extent of capitalisation.

In applying that provision to the case, the Bench placed decisive reliance on the chartered accountant’s certificate issued by Byju & Associates.

The certificate confirmed that the furnishing expenditure covered by the four invoices had been capitalised as property, plant and equipment under “Furniture and Fixtures”. However, the GST charged on those invoices had not been included in the cost of the fixed assets.

It further confirmed that the CGST and SGST components had been recorded separately as input tax credit, claimed in GST returns, and excluded from depreciation claims.

The Tribunal set aside the Joint Commissioner (Appeals)’s order and allowed the taxpayer’s appeal with consequential relief.

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