Wednesday, 1 May 2024

GST Input credit on construction of Immovable property.

Section 17(5)(c) and (d) of the Central Goods and Services Tax Act, 2017, blocks input tax credit for works contract services, goods or services that are used for the construction of an immovable property. Whereas, the explanation below the said provisions state that "construction" includes re-construction, renovation, addition or alterations, or repairs, to the extent of capitalization.

Now, the pertinent question arises: to what extent does the concept of "capitalization" apply? Is it limited to reconstruction, renovation, addition, or repair activities, or does it encompass original constructions too? In other words, can Input Tax Credit (ITC) be availed for solely for reconstruction, renovation, etc., if they are not capitalized, or does the allowance/un-restraint also extend to original constructions if they are not capitalized?

In this regard we finds multiple views and given below few of decisions.

GST Input credit allowed for construction of Immovable property.

Hon’ble Orissa High Court in the case of Safari Retreats Private Limited and Others v. Chief Commissioner, Central Goods and Services Tax and Others [W.P. (C) 20463 of 2018 dated April 17, 2019] wherein the Hon’ble High Court allowed the availment of ITC on material input/services used for construction of immovable property which is to be used in the course or furtherance of business i.e. being further let out to various tenant/lessees. 


GST Input credit not allowed for construction of Immovable property

The Hon’ble West Bengal Appellate Authority for Advance Ruling in the case of In Re. Shri B Mahesh Babu, Assistant Commissioner, Shibpur Division, Howrah CGST & CX Commissionerate [Appeal No. 04/WBAAAR/Appeal/2023 dated January 24, 2024] held as under. 

·       Observed that, clauses (c) and (d) of sub-section (5) of Section 17 of the Central Goods and Services Act, 2017 (“the CGST Act”) that ITC is not available with respect to works contract services or goods or services or both received for the construction of immovable property and, therefore would fall within the purview of blocked credit.

·       Further observed that, the explanation stated in clause (d) of Section 17 of the CGST Act, the credit is also blocked with respect to reconstruction, renovation, addition, alterations or repairs which are capitalized in the books of accounts.

·       Noted that, the condition of capitalization in the books of accounts, is only applicable with respect to reconstruction, renovation, additions, alterations or repairs to the immovable property.

·       Opined that, the ITC is blocked with respect to construction in all situations.

·       Held that, no ITC is available in relation to the construction of the warehouse which is further let out by the Applicant.



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