Land Development charges-eligible for ITC?

[BHAVESH JHALAWADIA]

Land occupied by company. Company is going to construct factory over the land. Factory is for chemical business. In order to construct the factory over the land, first land is to be properly developed Contract is given for development of land. Contractor issues bill of works contract for development work over the land. Whether ITC is available or not?.

[Rajagopalan Ranganathan]

Sir,

According to Section 17 (5) (c) of CGST Act, 2017 " works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service."

If the contractor for development of the land and construction of the factory are same then the contractor can take credit of gst paid on development charges.

[Alkesh Jani]

Sir,

I agree with the views of our experts.

Thanks

[KASTURI SETHI]

Without the development of land, construction of plant .and installation of machinery is not possible.In my view, 'land development' is also part of Works Contract Service. Your activity is covered under the exclusion phrase, "Other than plant and machinery". In other words, ITC is denied on the contraction of an immovable property except plant and machinery. ITC is admissible from both aspects:-

(i) Credit is denied only on other than plant and machinery. ITC is admissible on construction of plant and installation of machinery.

(ii) Land development is an input service for same service i.e. Works Contract Service. Land development is very much basis of providing Works Contract Service.

What is the legal definition of a 'plant' ? What is classification of 'land development' ?" These have to be taken care of.

Remote possibility of litigation cannot be ruled out due to jugglery of words used in the exclusion clause.

[Rajagopalan Ranganathan]

Sir,

In view of the opinions of the experts it is better to get an advance ruling on the question.

[KASTURI SETHI]

I agree with Sh.Rangarajan Sir. I am sure you will win and thus save avoidable interest and penalty. The department can drag the activity of land development under the category of site preparation services. So be safe.

AI Summary

Input tax credit eligibility on land development turns on classification as works contract services versus input for plant construction. Eligibility for input tax credit on land development charges hinges on classification under the works contract exclusion: Section 17(5)(c) denies credit for works contract services supplied for construction of an immovable property other than plant and machinery, so if land development is part of such a works contract ITC is denied; if it is integral to construction of plant and machinery or provided by the same contractor as the factory construction, it may qualify as an input and attract ITC. Ambiguity in the definition of 'plant' and classification risks dispute; obtain an advance ruling.