GST Input Tax Credit for contractors supplying works contract services

The Authority for Advance Ruling (AAR) constituted under the Goods and Services Tax (GST) Law has recently pronounced advance rulings clarifying certain positions on availability of GST Input Tax Credit for contractors supplying works contract services. these need to be read in the background of the question involved. This issue was addressed in re Vijayneha Polymers Pvt. Ltd. vs. GST AAR Telangana dated 09.12.2021, same are reproduced as below:

Position of Law on the availability of GST GST Input Tax Credit for contractors supplying works contract services

Held by AAR Telangana:

  • The applicant M/s. Vijayaneha Polymers Pvt Ltd., has constructed a factory building wherein they have hired works contractors for executing the construction in (2) different ways:
    • Wherein applicant provided material and contractor provided construction services
    • The contractor provided both material and services
  • Such construction included foundation of machinery, rooms for chillers, boilers, generators and transformers, erecting of electrical poles, laying of internal roads, factory building, internal drainage, laboratory etc.,
  • Section 17(5) of the CGST/SGST Acts states among others that input tax credit shall not be available in respect of the following:
    • “….
    • ……
    • Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
    • Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions of alterations or repairs, to the extent of capitalization, to the said immovable property;”

  • Further the explanation to Section 17 defines the meaning of “plant & machinery” as follows:

“Apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural support but excludes-

(i) Land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) Pipelines laid outside the factory premises. Thus, ITC can not be availed on work contract services for the construction of immovable property except for the erection of Plant & Machinery. Further ITC can be availed on Plant & Machinery as defined in the explanation to Section 17. Thus, the applicant is eligible for ITC to the extent of machine foundation only.

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