ITC on Site clearance service inside the Factory

[BipadBhanjan dixit]

In order to expand the factory area,the company acquire a land which is very rocky and abnormally high in major areas.The company goes for breaking these big size rock by engaging contractors whose scope of work is to break the rock using its own machine and labour. The output stones are used for road construction and boundary wall of the company.The company pay contractor as rock breaking charges PMT basis and also pay the Royalty to the mining Dept. for removal of minor minerals like stone boulder. There is no immediate plan to set up plant in this land but may be used latere on for setting up plant.

Query: 1- Can the company avail ITC on GST paid to Service provider i.e rock breaker for such rock breaking charges?

2- If yes,then under which SAC code such service will come?

[Mohit Singhal]

As per section 17(5)(d) of CGST Act, 2017, 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.

And the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;

In my opinion, credit for the services provided by contractors is not available to the factory.

[YAGAY and SUN]

https://www.taxtmi.com/forum/issue?id=113951

[YAGAY and SUN]

2018 (10) TMI 745 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA IN RE: NIPRO INDIA CORPORATION PRIVATE LIMITED

[Ganeshan Kalyani]

And the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;

See the bold text. The restriction to take credit is linked with the capitalization. If expense of leveling of the land is going to be capitalized then no credit is allowed.

[YAGAY and SUN]

As per the accounting standards of India, such expenses need to be capitalized. Hence, no ITC will be available.

[KASTURI SETHI]

I support the views of all experts.

AI Summary

Input tax credit restriction on construction related services: GST credit denied where land levelling costs are capitalized.
ITC on GST paid to contractors for rock breaking and land levelling is excluded where such goods or services are received for construction of immovable property (other than plant or machinery) and the expense is capitalized; if capitalised under applicable accounting treatment, credit is not available.