TaxTMI 
TaxTMI 
TaxTMI 
The 'On Own Account' Paradigm: Deconstructing ITC Eligibility for Commercial Construction.
I. Introduction
The core philosophy of the Goods and Services Tax (GST) is the removal of the cascading effect of taxes—a 'tax on tax.' This is achieved through the Input Tax Credit (ITC) mechanism under Section 16 of the CGST Act, 2017. However, Section 17(5) acts as a restrictive gatekeeper. Clause (d) specifically blocks ITC on goods and services used for the construction of immovable property. The legal friction arises from the qualifying phrase: 'on his own account.'
II. The Statutory exception: 'On Own Account' vs. Business Furtherance.
Section 17(5)(d) blocks credit for construction 'on his own account,' even when used in the course or furtherance of business. To understand this, one must apply the rule of Purposive Interpretation. As clarified at Para No.32 of the Hon’ble Supreme Court judgement in Chief Commissioner of Central Goods and Service Tax & Ors. Versus M/s Safari Retreats Private Ltd. & Ors. - 2024 (10) TMI 286 - Supreme Court, construction is 'on own account' when it is for personal use or serves as a mere 'setting' for business (like an administrative office).
The Commercial Distinction: When a taxpayer constructs a customised building with special features specifically to generate taxable outward supplies—such as 'Renting of Immovable Property' under Schedule II, Entry 5(a)—the construction is not for the taxpayer’s own consumption. It is an investment in a 'service vehicle' that generates continuous GST revenue.
III. The Schedule II Connection: Works Contract as a Service under GST. 'Works contract' is defined as a composite supply of service. When taxpayers receive goods and services for constructing a rental property, they are essentially preparing to provide a taxable service. If ITC is denied on the construction of a shopping mall or cinema theatre or luxury hotel, hospital, educational buildings, cold storages, warehouse etc., intended for renting/leasing, the GST paid on cement, steel, and professional services becomes a cost. This cost is then embedded in the rent/lease charged to tenants, who then pay GST on that inflated rent. This results in double taxation and a direct violation of the GSTs foundational goal.
IV. Addressing the 'Plant and Machinery' Controversy. There is a segment of legal opinion suggesting that following the Finance Act 2025 (which retrospectively amended 'plant or machinery' to 'plant and machinery'), the only gateway to ITC for immovable property is the 'Plant and Machinery' exception.
The counter-argument: Why 'On Own Account' still matters if the legislature intended to restrict ITC exclusively to plant and machinery, the phrase 'on his own account' would be redundant (superfluous). In statutory interpretation, every word must be given a useful meaning. Because every law is made for specific, long-term and broader object.
V. The 2025 amendment refined the definition of machinery but did not delete the 'on own account' qualification. Therefore, the ratio in Safari Retreats case—which distinguishes between construction for self-consumption and construction for generating taxable rental income—remains the prevailing law.
VI. Economic Implications and Consumer Burden- The denial of ITC in a leasing model shatters the 'tax neutrality' of GST. By forcing the construction GST into the cost of the project:
1. Capital Blockage: Businesses face higher entry costs for infrastructure.
2. Inflationary Pressure: The end consumer (the tenant or the shopper in the mall) ultimately bears the 'buried' tax cost.
3. Economic Distortion: It disincentivizes the creation of organized commercial infrastructure, which is contrary to the 'ease of doing business' initiative.
Conclusion:
The 'on own account' provision is a deliberate legislative tool intended to prevent ITC on private consumption while preserving it for business value-creation. By reading Section 17(5)(d) in harmony with Schedule II, it is clear that construction for the purpose of taxable renting/leasing is not on own account. To interpret it otherwise ignores the Supreme Court’s binding precedent and reverts the tax system to a pre-GST era of cascading costs.
Thus in my considered opinion, the retrospective amendment to Section 17(5)(d) of the CGST Act, 2017 does not have any adverse effect on the ITC entitlement if goods or services or both are consumed in the construction of customised buildings with special features exclusively for renting/leasing purpose constituting outward taxable supply in conjunction with Schedule II to the CGST Act.
Although there would be divergent interpretations flying here and there on this count, still the original provision of Section 17[5][d] (later amended as plant & machinery) remains undisturbed. Therefore the stakeholders may consult the legal experts before responding to notices if issued by the department to reverse such ITC with interest and penalty.