Eligibility of ITC claim Issue ID 115826

[YUWRAJ KOTHARI]

Sir, in the given facts, to my knowledge,It being not Works contract(,As no trf of material being involved) nor is composite service as per item no 6 Sch-II & not covered by negative item u/sec 17(5)(c) whether ITC can be denied.Pl consider. Thanks

[KASTURI SETHI]

To arrive at correct decision, terms and conditions of the contract/agreement executed between service provider and service receiver have to be examined. What is the basis of formation of your view that it is neither works contract nor composite service ?

[Rajagopalan Ranganathan]

Sir,

According to Section 2 (119) of CGST Act, 2017 “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.

You have stated that the construction contractor requires to purchase crane for material handling in high rise bldg,so also scaffolding material and hardware material like nails, binding wire etc. Though crane for material handling is a capital goods and will be retained by the contractor after completion of the contract, scaffolding material and hardware material like nails, binding wire etc which will amount to transfer of property in goods (whether as goods or in some other form). Therefore in my opinion the contract executed by your contractor amounts to works contracr and hence he is not eligible to avail ITC on the goods mentioned by you as provided in Section 17 (5) (c) of CGST Act, 2017.

[KASTURI SETHI]

I agree with Sh.Ranganathan, Sir.

AI Summary

Works contract classification can trigger ineligibility to claim input tax credit when transfer of goods occurs in performance.
If performance involves transfer or incorporation of goods (for example scaffolding, nails, binding wire), the contract qualifies as a works contract; consequently supplies amounting to transfer of property in goods in execution of the contract render input tax credit ineligible under the statutory provision denying ITC for such supplies. Contract terms and the factual nature of goods supplied must be examined.