ITC to Builders

[RAMESH SINGLA]

I have been looking for an answer as to whether section 17(5)(c) bars the credit when works contract service are supplied for construction of an immovable property. The language of the section apparently bars such ITC except when such works contract service is input service for further supply of works contract service. Therefore, it appears that the builders who are building or getting constructed buildings which are obviously, immovable properties, would not be eligible for ITC. I request the experts to read the section and then give the opinion. My view is that the ITC is not admissible to the builders in view of the language used in section 17(5)(c). However, most of the people in trade and also the Revenue officers feel that the ITC is admissible. I admit the policy of the govt. is to allow ITC but i feel the language of the section is not supporting the intention of the govt. The courts interpret on the basis of language used in the provision and not in terms of the policy of the govt. Pl give your views.

[Rajagopalan Ranganathan]

Sir,

Your interpretation is legally valid. Since the language of the statutory provision is very clear, you are not eligible to avail ITC of tax paid on works contract services when supplied for construction of an immovable property (other than plant and machinery). As you rightly said the judicial bodies will interpret the statutory provisions strictly according to the language used by the legislature. Moreover while interpreting the statutory provisions no intendment is permissible.

[KASTURI SETHI]

Sh.Ranganathan Sir,. It needs more x-ray of the phrases used in the construction of Section 17(5)(c). Will you please spare time for throwing more light word for word ? Thanks a lot.

[Himansu Sekhar]

During the construction stage it becomes a service and the servicer is provided to another customer. This is also a works contract service. The building is not constructed on his own account also. The credit on the basis of bills of subcontractors who may be providing works contract services is not deniable as the same is used providing works contract services. Since the construction is for another customer, the inputs like rtods, cement are eligible for credit.

AI Summary

Input tax credit for works contract services may be denied where the service is used in constructing immovable property, subject to exception.
Availability of input tax credit depends on whether works contract services used in building an immovable property fall within the statutory exclusion denying credit for services used for construction of immovable property, versus the view that where construction is supplied as a works contract service to a customer (including subcontractor inputs), related input tax credit remains claimable.