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

Input tax credit restriction: municipalities generally cannot set off GST paid on construction-related services against output liabilities. ITC is restricted for works contract services supplied for construction of immovable property (other than plant and machinery) except where such services are an input service for further supply of works contract service; ITC is also excluded for goods or services received for construction of immovable property on the recipient's own account, including reconstruction, renovation, additions, alterations or repairs to the extent of capitalisation. Applied to municipalities, ITC is generally not available for contractor services linked to construction or capitalised works, with narrow availability only for non-capitalised repairs/renovation or where the service is an input service for further taxable works contract.