Works Contract under GST

[Rizwan Ullah]

Sir,

As u are aware works contract under GST is simpler to the one in previous tax regime but still some doubts persists. We are reqistered manufacturing entity, we have upcoming project related to plant expansion which involves new power plant commissioning. We are asking parties to submit quotations for various activities related to plant erection. We need to build new boilers & chimney involving mechanical & civil work. We will be issuing works contract to various vendors.

Please let me know are we entitled to take ITC of 18 % GST charged by registered contractor under this new regime for the works related to plant & machinery. Kindly be specific in replying the query

[YAGAY andSUN]

On civil work you cannot avail ITC.

[Rizwan Ullah]

This civil work is related to erection of chimney of power plant

[YAGAY andSUN]

If it is part of your Plant & Machinery, then, you can avail ITC otherwise not.

[Alkesh Jani]

Sir,

The works contract in GST is given at Section 2 (119) is as under:-

(119) “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;

The plant and machinery are defined by way of explanation given after the sub-section 6 of Section 17 of CGST Act, 2017 and is given below:-

“Explanation.––For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises”.

The ITC of plant and machinery can be availed, but not for land, building and civil structure, telecommunication towers and pipelines laid outside the factory premises. In the instant case, ITC is available for plant and machinery and for its foundation or structural support, if used for making outward supply of goods or services or both, as it is excluded in terms of Section 17(5) (c) of CGST Act, 2017. Please also note that ITC is not available in respect of civil structure.

Our experts may correct me if mistaken

Thanks

[YAGAY andSUN]

Yes, there is a specific denial in Section 17(5) of the CGST Act in this regard.

[VaibhavKumar Jain]

You are entitled to avail the ITC on entire work including civil works provided the civil works are integral part of construction of Boilers and capitalized in the books of accounts under the head Plant and Machinery.

[Ganeshan Kalyani]

Works contract service related to plant and machinery is eligible to yake credit. Plant and machinery , it's support structure, chimney, boiler etc is eligible for input tax credit. However, civil structure like building, compund etc is not eligible for credit.

[YAGAY andSUN]

We are in agreement with our experts' views.

AI Summary

Input tax credit eligibility: ITC allowed for plant and machinery including integral foundations, but excluded for civil structures. ITC is available for plant and machinery, including apparatus and machinery fixed by foundation or structural support used for making outward supplies; foundations and supports are treated as part of plant and machinery for ITC. Credit is excluded for land, buildings and other civil structures, telecommunication towers, and pipelines laid outside factory premises. Civil works that are integral to and capitalized as plant and machinery (such as foundations for boilers or chimneys) may be eligible for ITC, whereas standalone civil construction is not.