Input tax credit blocked for runway and terminal construction services under Section 17(5)(c) CGST Act

The AAR Kerala ruled that input tax credit claimed by the applicant for services supplied by a contractor in connection with runway and passenger terminal building construction was ineligible. The Authority held that provisions of Section 17(5)(c) and 17(5)(d) of CGST Act block ITC for goods/services used in immovable property construction. Despite the applicant's argument that contracts could be bifurcated into separate supplies, the AAR determined the predominant supply was construction of immovable property. The contracts could not be artificially divided, making the entire ITC on works contract services ineligible as blocked credit under Section 17(5)(c).

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Issues Involved:
1. Admissibility of input tax credit (ITC) on services supplied by Larsen and Toubro Ltd (L&T) in connection with the construction of the runway and passenger terminal building.

Summary:

Issue 1: Admissibility of Input Tax Credit on Services Supplied by L&T

Applicant's Contentions:

The applicant argued that certain services related to the construction of the runway and passenger terminal building should be eligible for ITC. They highlighted that Section 17(5)(c) and (d) of the CGST Act block credit only for construction of immovable property, not for other activities such as fabrication, completion, erection, modification, etc. They claimed ITC should be allowed for services like signage, flooring, ceiling work, partition work, electrical fittings, water supply system, and engineering consultancy, as these are not directly for construction but related to it.

Additionally, the applicant contended that ITC should be allowed for plant and machinery as defined in the explanation to Section 17, which includes apparatus, equipment, and machinery fixed to earth by foundation or structural support. They listed items like airfield lighting and control systems, runway roadside pipe drain, pipe culvert, and runway electrical fittings as eligible for ITC.

Jurisdictional Officer's Comments:

The jurisdictional officer submitted that the applicant is liable to reverse the ITC availed on works contract services for the construction of immovable property, as they are not engaged in supplying works contract service. The ineligible ITC availed was approximately 15 Crores.

Discussion and Conclusion:

The authority examined the facts and submissions, noting that the applicant entered into two contracts with L&T for constructing the runway and passenger terminal building. The services provided by L&T under these contracts are considered composite supply of works contract services for construction of immovable property. Therefore, the entire ITC of tax paid on these services is blocked under Section 17(5)(c) of the CGST Act.

The authority concluded that the supply of goods/services listed by the applicant are integral parts of the overall contract for works contract services for construction of immovable property. Hence, the ITC on these supplies is not eligible.

Ruling:

The applicant is not eligible for the input tax credit in respect of the tax paid on the supplies of goods/services received by them that are specifically listed in the Statement of Relevant Facts in Annexure-I to the application.

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