ITC to muncipalities

[Guest]

Is input tax credit available to the muncipalities,

ITC:-where the muncipalities receiving services from works contractors, and receiving invoices, and paying GST to the contractors.

Out put tax:- where the muncipalities are liable to pay the taxes on road cutting charges, rent received from commercial shops, advertisement income etc....

Now can the muncipalities setoff their out put tax liability with the input they have.....?

[Mahadev R]

In terms of Section 17(5) of CGST Act, ITC is restricted in case of following:

Section 17 (5) (c) - 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;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation.''For the purposes of clauses (c) and (d), the expression 'construction' includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

Therefore, in the present case if construction services are being provided by municipalities (which is unlikely), then ITC can be taken.

ITC can also be taken if the nature of work is like renovation, repairs if not capitalised.

From the nature of output services mentioned, it appears that credit is not eligible.

Hope this would be helpful in analyzing the issue further.

[KASTURI SETHI]

Answer is NO. If availed, it is prone to litigation.

AI Summary

Municipalities Face ITC Restrictions on Works Contractor Services Under Section 17(5) of CGST Act; Litigation Risk Noted. A query was raised regarding whether municipalities can claim input tax credit (ITC) on services received from works contractors and offset it against their output tax liabilities on services like road cutting charges and commercial rent. One response highlighted that under Section 17(5) of the CGST Act, ITC is restricted for construction services unless it's for further supply of works contract services or involves non-capitalized renovations or repairs. Another response simply stated that claiming ITC in such situations is not advisable and could lead to litigation.