ITC on Pre-Fabricated Structure Purchased and Not Constructed

[Narayan Pujar]

In one of the cases, the client has purchased an already existing pre-fabricated structure (HSN 9406) on an 'as is where is' basis, without undertaking any structural modifications.

As per Section 17(5)(d), input tax credit is restricted in respect of goods or services used for construction of an immovable property. While there are several rulings disallowing ITC on pre-engineered buildings (PEB), such disallowance has typically been on the basis that the PEB was used in the course of constructing an immovable property.

In the present case, can a distinction be drawn on the grounds that there is no construction activity involved, and the transaction pertains to the outright purchase of an already constructed and operational PEB? Accordingly, whether, in the absence of any construction activity, the restriction under Section 17(5)(d) would still apply and whether ITC can be availed in such circumstances?

[KALLESHAMURTHY MURTHY K.N.]

Sir,

HSN-9406 represents a pre-fabricated building structure - a civil structure - taxable at 18%. However, the query mentions that it was not constructed. So it can also be understood as movable property. The Hon'ble Supreme Court has held that a pre-fabricated structure (PES) is movable in the case of M/s. Bharti Airtel Ltd. This case doesn't apply to all cases, since it is classified under HSN-9406. Therefore, the eligibility for ITC on the pre-engineered structure (PES) depends on its intended use. The department may view it as ITC restricted u/s 17(5)(d).

Please refer to the Advance Ruling of AAR, Gujarat, in the case of M/s. HMSU Rollers (India) Private Limited - 2025 (5) TMI 1100 - AUTHORITY FOR ADVANCE RULING, GUJARAT, wherein it was held that ITC is not available.

[KASTURI SETHI]

In this scenario, the activity of construction is present and ITC is hit by Section 17 (5)(d) of CGST Act.

[YAGAY andSUN]

Section 17(5)(d) of the CGST Act, 2017 restricts ITC in respect of goods or services received for construction of an immovable property (other than plant and machinery) on own account, even when used in the course or furtherance of business. The statutory bar is thus activity-linked, i.e., it applies where inputs are used for construction.

In the present case, the taxpayer has purchased a pre-fabricated structure (HSN 9406) on "as is where is" basis, without undertaking any further civil/structural activity. On facts, there is no construction undertaken by the recipient. Therefore, a tenable distinction arises that the inward supply is not "used for construction", but is an outright procurement of a completed asset.

However, two aspects are determinative:

(i) Nature of the asset - movable vs. immovable:

If the pre-fabricated structure, as installed, is immovable property (i.e., attached to earth with permanence and not capable of being moved without substantial dismantling), authorities have often treated such PEBs as immovable. In such cases, even in absence of fresh construction, the Department may contend that the restriction applies, as the asset partakes the character of immovable property and is capitalized as such. Adverse rulings on PEBs have generally proceeded on this characterization.

Conversely, if it can be demonstrated that the structure is movable (modular, demountable, capable of relocation without material damage), it may fall outside the ambit of "immovable property", and consequently Section 17(5)(d) would not be attracted.

(ii) "On own account" and nexus with construction:

Given that no construction activity is carried out by the recipient, it can be argued that the goods are not used for construction on own account, but merely acquired as a ready asset. This supports ITC eligibility, subject to the above characterization.

Conclusion:

A defensible position exists to claim ITC where (a) there is no construction activity by the recipient, and (b) the PEB can be substantiated as movable property. If, however, the structure is treated as immovable property upon installation, litigation risk remains high and the Department may invoke Section 17(5)(d) notwithstanding the "as is where is" purchase. Robust documentation on movability, method of fixation, and accounting treatment will be critical.

[Shilpi Jain]

PEB generally are not immovable property and hence credit should not be blocked.

[Shilpi Jain]

The fact that PEB is not an immovable property is evident from the HSN given by the supplier. You can proceed to take credit on this basis itself since the classification is final at the supplier end and cannot be questioned at the recipient's end.

[KALLESHAMURTHY MURTHY K.N.]

If the structure is movable or fixed to the earth, being treated as plant & machinery and not as civil construction or immovable property, ITC can be availed, subject to the fulfilment of other conditions to avail ITC.

AI Summary

Input tax credit on pre-fabricated structures depends on whether the asset is movable or immovable under the construction restriction. Input tax credit on a pre-fabricated structure purchased on an 'as is where is' basis turns on whether the recipient used the goods for construction of an immovable property under Section 17(5)(d). If no fresh construction is undertaken and the asset can be shown to be movable or plant and machinery, credit may be available subject to normal conditions. If the structure is treated as immovable property after installation, the credit restriction may still be invoked, making documentation on movability and fixation critical.