Eligibility of Input Tax Credit

[DEVENDRA KUMAR]

Fact: The company has taken a building on leased for 9 years to open a showroom for bikes (Retails business), and to operationalize it, the company has incurred expenses in relation to interior and other civil works as mentioned below :

Electricity wires- Rs.- 1,00,000/- approx (Internal Fitting)

Electricity fitting and lights- Rs- 5,00,000/- approx (External)

Fixed furniture - Rs- 10,00,000/-approx

Removable furniture- 15,00,000/- approx

Metal fixtures - 8,00,000/- (which are removable but can be resold as scrap)

AC unit- 7,00,000/-approx

Floor tiles- 4,50,000/-approx

Bathroom tiles- 1,00,000/- approx

Civil works- 2,50,000/-

Total expenses : - 46,00,000/-

Note :

# The company is discharging applicable GST liabilities on sales of bikes.

# This premises is used in the course or the furtherance of business.

# The company has paid GST of Rs- 828000/- approx in respect of goods/services purchase/receive for carrying out the ‘Civil and Interior Works’ in different floor of the building. Since all the inwards supply/goods are received by the company are taxable under the GST Law.

Please guide us: Can we avail Input Tax Credit on these expenses if all the works are done by registered persons?

[Shilpi Jain]

Require further details to comment. Is this a renovation activity undertaken or a bare shell has been made ready to use for the showroom?

Are all these expenses capitalised?

[Padmanathan KV]

There are multiple facets which needs to be looked into. 

1. Accounting treatment has to be looked into since the expression "construction" in sec. 17(5)(c) and (d) depends on "to the extent capitalized".

2. Safari Retreat case is pending before the Hon'ble Supreme Court.

Anyhow following factual points merit consideration:

1. electrical fitting (external) which are removable is generally not part and parcel of building - ITC should be eligible in my view.

2. Removable furniture and metal furniture are also not part and parcel of building - ITC should be eligible

3. Centralized AC unit (ducted) / lift etc maybe integral of the building itself and cannot be dismantled and relocated as such without considerable damage - Hence, ITC would be blocked.

4. window A/c or Split A/c etc which can be easily dismantled and set-up elsewhere are not part and parcel of building - Hence, ITC shall be allowed.

AI Summary

Input tax credit eligibility for fit-out and civil works hinges on capitalization and whether items are integral to the building. Eligibility of Input Tax Credit for fit-out and civil works depends on accounting characterisation and whether items are integral to the building. Costs capitalised as construction may be excluded under the statutory block, whereas removable or separable fixtures and fittings, and supplies taxable and procured from registered persons, are more likely to permit credit; each item must be assessed on whether it is structurally integral or movable.