AAAR: ITC on GST for building repair not eligible if expenses are capitalized

The Appellate Authority for Advance Ruling (AAAR) determined that Input Tax Credit (ITC) on GST paid for goods purchased for building repair and works contract services received for building repair is not eligible to the extent of capitalization under clauses (d) and (c) of Section 17(5) of the GST Act, 2017, respectively. The AAAR clarified that eligibility for ITC depends on whether the expenses are capitalized, emphasizing that accounting entries can impact ITC eligibility.

---

---

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on GST paid for goods purchased for maintenance.
2. Eligibility of ITC on GST paid for works contract services received for building maintenance.

Issue-wise Detailed Analysis:

1. Eligibility of ITC on GST Paid for Goods Purchased for Maintenance:

The appellant, Jabalpur Entertainment Complexes Pvt. Ltd., operates a Mall and Multiplex and has four operations: multiplex cinemas, mall space rental, food court, and a retail apparel store. The appellant charges GST on various supplies and claims ITC on certain inward supplies. The appellant sought clarification on whether ITC of GST paid on goods purchased for maintenance, such as vitrified tiles, marble, granite, ACP sheets, steel plates, TMT TOR, bricks, cement, paint, chemicals, sanitary items like wash basins, urinal pots, and toilet accessories, can be claimed in full.

The Authority for Advance Ruling (AAR) had held that ITC on such goods is not admissible under clause (c) of Section 17(5) of the GST Act, 2017. The appellant argued that the correct clause should be (d) of Section 17(5), which pertains to goods or services received for construction of immovable property on the taxpayer's own account, including repairs to the extent of capitalization.

The Appellate Authority for Advance Ruling (AAAR) examined the provisions and concluded that the goods purchased for maintenance fall under clause (d) of Section 17(5). The term "construction" includes reconstruction, renovation, additions, alterations, or repairs to the extent of capitalization. The AAAR noted that the eligibility for ITC depends on whether the expenses are capitalized. If the expenses are capitalized, ITC is not available. The appellant had declared that the purchases were for repair and not capitalized, supported by a Chartered Accountant's certificate. However, the AAAR emphasized that accounting entries are dynamic and can be altered, affecting ITC eligibility.

2. Eligibility of ITC on GST Paid for Works Contract Services Received for Building Maintenance:

The appellant also sought clarification on ITC for works contract services received from registered and unregistered contractors for building maintenance. The AAR had held that ITC on such services is not available under clause (d) of Section 17(5). The appellant argued that the correct clause should be (c) of Section 17(5), which pertains to works contract services supplied for construction of immovable property.

The AAAR reviewed the provisions and confirmed that works contract services for repair of the building fall under clause (c) of Section 17(5). ITC on such services is ineligible to the extent of capitalization. The AAAR reiterated that the eligibility for ITC depends on whether the expenses are capitalized.

Order:

1. In respect of question 1: ITC on GST paid for goods purchased for building repair is not eligible to the extent of capitalization under clause (d) of Section 17(5) of the GST Act, 2017.

2. In respect of question 2: ITC on GST paid for works contract services received for building repair is ineligible to the extent of capitalization under clause (c) of Section 17(5) of the GST Act, 2017.

---