2023 (8) TMI 1200 - AAR - GST

ITC allowed for factory building repairs only when treated as revenue expenditure, not capitalized expenses under Section 17(5)(d)

The AAR, Tamil Nadu ruled on ITC eligibility for works contract services used in factory building repair and maintenance. While Section 17(5)(d) blocks ... Input Tax Credit - works contract services used for the repair and maintenance factory building to the extant it is treated as revenue expenditure as per accounting standards - Section 17 of the GST Acts - HELD THAT:- Though Section 17(5)(d) blocks ITC on goods and services received by a taxable person for construction of immovable property on his own account including when it is used in the course or furtherance of business, as per the explanation, the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. Perusal of purchase order/work order revealed that the Applicant has procured certain goods and services towards renovation of factory buildings. But, there is no mention about the actual factory building or deteriorated portion of factory building to be renovated or repaired, so as to ascertain whether repair work has been carried out only for the purpose of preserving or maintaining an already existing factory building, which does not bring a new asset into existence. The Applicant is entitled to ITC on the goods and services received towards repair of existing factory buildings (which were already capitalized) to the extent of non-capitalization of expenses in their accounts. Issues Involved:1. Eligibility of Input Tax Credit (ITC) on GST paid for works contract services used for repair of factory buildings.Summary:1. Eligibility of ITC on GST Paid for Works Contract Services:The applicant, a manufacturer of various automotive and industrial products, sought an advance ruling on whether GST paid on works contract services for repairing factory buildings is eligible for ITC to the extent that the expenses are not capitalized. They argued that such repair and maintenance expenses, crucial for seamless production, are treated as revenue in nature and should be eligible for ITC.2. Relevant Legal Provisions:The authority examined Section 17(5) of the CGST/TNGST Act, 2017, which blocks ITC on works contract services for construction of immovable property, except where it is an input service for further supply of works contract service. The explanation to this section includes 're-construction, renovation, additions or alterations or repairs, to the extent of capitalization' under the term 'construction.'3. Applicant's Contention:The applicant contended that Section 17(5) only denies ITC on goods and services used for repair of immovable property to the extent of capitalization. Therefore, ITC on works contract services for factory building repairs charged to the profit and loss account should be available.4. Jurisdictional Officer's Remarks:The Assistant Commissioner (ST) stated that ITC for repair and maintenance of factory buildings is not related to the course or furtherance of business and falls under blocked credit as per Section 17(5)(c) of the TNGST Act, 2017.5. Authority's Observations:The authority noted that the applicant had not provided sufficient details to ascertain whether the repair work was solely for preserving or maintaining an existing factory building without creating a new asset. The expenses recorded as revenue in the applicant's books could only be confirmed after finalization of accounts.6. Ruling:The authority ruled that GST paid on works contract services for repairing factory buildings is available for ITC to the extent that the expenses are not capitalized to the immovable property, subject to the provisions under Section 17(5).