Order date – 29 July 2022

Facts – 

• The applicant, M/S. KAMARAJAR PORT LIMITED, stated that the Chennai Port Trust has allotted covered space to an extent of 267 sq.m at Ground floor - North wing of Jawahar building on Upfront Premium for Long Term Lease Basis to the applicant till 31.08.2045 from the date of handing over of the premises by Chennai Port Trust. 
• The space is intended to be used by the applicant as an extended corporate office. The prevailing rate as per Schedule of Rates for the above building premises at Rajaji Salai is Rs. 740/ -(for January 2021) per Sq.m per month or part thereof which is arrived after effecting the compoundable annual escalation of 5% on every year basis.

Issue – 

• Whether input tax credit can be claimed on upfront lease premium paid? 

Ruling – 

• The authorities held that according to section 16 of CGST Act, input tax credit can be claimed on the upfront lease premium which is paid for the allotted covered space used as an extended corporate office as it is in the course of business.
• Also, according to Section 17(5) (d) Credit of tax paid on goods or services received on own account, for construction of immovable property is available only when such immovable property is a 'Plant and Machinery'. 
• In the instant case the contract is a lease contract of the built-building for use as an extended corporate office for accommodation of record & as documentation room and it is for the business purpose of the applicant. 
• Hence, the upfront premium made is the lease rentals as per the allotment order/letter of Chennai Port Trusts and it is nothing but lease rentals paid for the services of 'Renting of Immovable property' for business purpose. 
• From the material on record, they observed that the upfront premium paid is not related to any construction activity of such covered space but against the rental value for the period of rent calculated for the period of lease and collected upfront. Thus, provisions of Section 17(5) (d) are not applicable to the instant case.
• Therefore, the tax paid on the Upfront Lease Premium is available as Input Tax Credit to the applicant subject to provisions of Section 16 and 17 of the CGST/TNGST Act 2017.