ITC on Factory building

[Venkatesh Dhongadi]

Respected experts,

My query is in relation to ITC u/s 17(5). One of my client is giving contract to build a factory. He is letting out this factory on monthly rent basis. I have 2 queries -

1) whether the contractor can claim ITC on inputs he purchased to build the factory? (Later the contractor will bill for the building construction).

2) Whether contractee i.e, my client will be eligible to claim ITC on what contractor has billed as he is going to let out the factory building on monthly rent basis?

AI Summary

Eligibility of Input Tax Credit for Factory Construction Under GST Section 17(5) Hinges on 'Functionality Test' A client is contracting to build a factory and plans to rent it out, raising questions about Input Tax Credit (ITC) eligibility under GST Section 17(5). The contractor can claim ITC if the construction service qualifies as a 'Works Contract.' For the client, ITC eligibility depends on whether the factory is considered a 'plant' under the GST Act, as clarified by the Supreme Court in the Safari Retreats case. The ruling suggests using a 'functionality test' to determine if a building qualifies as a plant. However, the decision ultimately lies with the adjudicating authority, and taxpayers may need to challenge unfavorable rulings.