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 ITC for construction of immovable property, the explanation includes repairs only to the extent of capitalization. The authority found insufficient details about the actual building or deteriorated portions being repaired. The applicant was held entitled to ITC on goods and services for repair of existing factory buildings only to the extent expenses were treated as revenue expenditure (non-capitalized) in their accounts, not for capitalized expenses.

---

---

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).

---