ITC claim on construction of mall

[KARAN VERMA]

Dear Sir

If i construct mall/shops and let out on rent @ 18% GST, then whether i am eligible to claim ITC on payment made to various work contractors for construction of building or any D.G set, A/C plant self purchased.

[Atul Rathod]

Ineligible in accordance with sec 17(5) the act. I guess your query is coming from orrisa high court judgement, the same has been challenged in apex court by the revenue department.

[Ganeshan Kalyani]

The credit is restricted on works contract service in terms of section 17(5) of the CGST Act, 2017.

[SIVARAMA KUMAR]

Since your query is based on the orissa high court judgement, there is a possibility that the apex court would consider the issue favourably. what merits in the judgement is when the GST chain is not broken, and it is not expended on own account ( but for furtherance of business thereby generating a taxable income) . Plain reading of the section prevents the admissability but the logic behind the inadmissability seems to be unfair.

[Ganeshan Kalyani]

Advance ruling may be sought seeking clarity on the issue.

[Ganeshan Kalyani]

Construction of factory building and civil work within the factory is also in course and furtherance of the business. But the credit is restricted. Exception is not given in law if the same activity has been carried out for renting of the immovable property. Therefore the department going by the law may not allow to take credit.

[KASTURI SETHI]

The matter is sub judice. The ball is in the court of Supreme Court. Taking such ITC is risk-prone. Better not to take ITC. There is possibility that the Apex Court may take at least one year. So you will have to cool your heels.

[Alkesh Jani]

Sir,

In this regards, my point of view is that, Para 5(b) of Schedule-II is reproduced below for ready reference

“(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier……..”

In view of the above, it can be said that construction services is said to be completed on issuance of certification, and as the construction service is deemed to be completed, now that civil structure can be termed as residential or commercial complex, as per the approved plan. So ITC for construction service is restricted under Section 17(5), however, Renting of immovable property comes into play only after the issuance of Certificate.

I do agree the decision of Apex court is vital, but till than it is wise not to take such ITC.

Thanks,

With Regards

[DR.MARIAPPAN GOVINDARAJAN]

Let us wait for the Supreme Court judgment in this regard.

[Atul Rathod]

Would suggest you to avail the itc but don’t utilize. And inform the department.

[KASTURI SETHI]

The department would issue show cause notice. The registered person(tax payer) should not be swayed away by the judgment of any court.

[SIVARAMA KUMAR]

Construction of an immovable property where in progressive payments received establishes the fact the property is for sale and taxed for construction services but no ITC eligible.

Construction of an immovable property wherein the payments are received after getting the completion certificate no gst is applicable. since exempted no ITC allowed.

Construction of an immovable property made on own account and used for business purposes for self no ITC available.

Construction of an immovable property not sold, not used for business purposes for self, but used to generate taxable income in the form of rentals for commercial establishments,ITC is not available.

Hence only the supreme court should decide the basis for charging Gst on the rental income of an immovable property being taxed under both income tax and GST.Rental income constitutes not only for building but also for the land portion. But the entire rentals is subject to tax.

However your query invited much learning thanks a lot.

[HariKishan Bhonagiri]

The Orissa High court judgement pronounced not based on Law and it is based on Equity. Applicability of that provision to specific issue is tested. However that issue is in General nature may be applicable for all.

AI Summary

Input tax credit restriction on construction of immovable property limits ITC for properties used for renting; seek clarity before claiming. Input tax credit for construction costs and related capital items used in creating immovable property for rental is generally ineligible because the law restricts credit on construction of immovable property and renting does not create an exception; the matter is under higher court review and taxpayers are advised to seek advance rulings or avoid utilising claimed credit pending resolution.