| Aug-19-2021

GST – ITC Claim on Factory Building

  • You must be logged in to reply to this topic.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Replies
  • Dear Sir,

    In a factory, which comprises of both building and machiney, can ITC be claimed on the GST portion on the amounts spent on the construction of building? Department refused to grant ITC on this and issued a demand notice with a penal interest of 2% per month.

    Do we have an option to request the govt authorities to get waiver on the penal interest of 2% per month whether partly or fully when the ITC cannot be claimed on the construction of building for a factory as per the statement of govt authorities???

    CA VenkataramaniCA Venkataramani
    Compliance Expert

    Comments:
    Input tax credit of GST paid on inward supply of works contract services received for construction of immovable property other than ‘plant and machinery’ is ineligible in terms of Section 17(5)(c ) of the CGST / SGST Act, 2017 except in situations where it is an input service for further supply of works contract services. In terms of Explanation appended to Section 17, ‘plant and machinery’ is clarified to mean apparatus, equipment, and machinery fixed to earth which shall not include land, building or any other civil structures; telecommunication towers; and pipelines laid outside the factory premises. Accordingly, it is apparent that the inward supply of works contract services for construction of building (which will not qualify as ‘plant and machinery’) is restricted in terms of Section 17(5)(c ) of the CGST / SGST Act, 2017. In this backdrop, in the instant case, based on the facts furnished, the input tax credit of GST paid on construction of building would be ineligible.

    It is relevant to draw your attention to Section 17(5)(d) of the CGST / SGST Act, 2017 which specifies similar restriction in claiming input tax credit on goods and / or services used for construction of building on his own account. Attention is also drawn to the Explanation appended to Section 17(5)(c ) and Section 17(5)(d) of the CGST / SGST Act, 2017 which clarifies / defines the expression ‘construction’. It is important to understand the correct facts of the case, before a final opinion / conclusion can be drawn. There are certain judicial pronouncements which have not been dealt with while framing these views.

    We would be in a position to answer this query appropriately only when several facts, amongst others, such as – whether sub-contractors are involved; treatment in the books of account viz., whether capitalised or not; or whether the construction is carried out on own account and the nature of the transactions is known.

    Insofar as proposal to levy interest is concerned, the reversal of ineligible input tax credit subsequently would be liable for interest at the rate of 18% per annum in terms of Section 50(1) of the CGST / SGST Act, 2017. The rate of interest at the rate of 24% in terms of Section 50(3) of the CGST / SGST Act, 2017 would be applicable only if the input tax credit is liable for reversal by virtue of reasons specified under Section 42(10) or Section 43(10) of the CGST / SGST Act, 2017.

    The above comments are in general nature and is stated on the basis of facts furnished herein and our understanding that the issue as regards eligibility to claim input tax credit of GST paid on inward supply of works contract services.

Viewing 2 posts - 1 through 2 (of 2 total)