TaxTMI 
TaxTMI 
ON OWN ACCOUNT- SECTION 17(5)(d)- ITC ON COMMERCIAL BUILDINGS
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....<br> Article By: - Sadanand Bulbule Dated:- 23-12-2025<br> Got 6 Replies <br> Goods and Services Tax - GST<br> <br> The "On Own Account" Paradigm: Deconstructing ITC Eligibility for Commercial Construction. I. Introduction The core philosophy of the Goods and Services Tax (GST) is the removal of the cascading effect of taxes-a "tax on tax." This is achieved through the Input Tax Credit (ITC) mechanism under Section 16 of the CGST Act, 2017. However, Section 17(5) acts as a restrictive gatekeeper. Clause (d) specifically blocks ITC on goods and services used for the construction of immovable property. The legal friction arises from the qualifying phrase: "on his own account." II. The Statutory exception: "On Own Account" vs. Business Furthe....
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....rance. Section 17(5)(d) blocks credit for construction "on his own account," even when used in the course or furtherance of business. To understand this, one must apply the rule of Purposive Interpretation. As clarified at Para No.32 of the Hon'ble Supreme Court judgement in Chief Commissioner of Central Goods and Service Tax & Ors. Versus M/s Safari Retreats Private Ltd. & Ors. - 2024 (10) TMI 286 - Supreme Court, construction is "on own account" when it is for personal use or serves as a mere "setting" for business (like an administrative office). The Commercial Distinction: When a taxpayer constructs a customised building with special features specifically to generate taxable outward supplies-such as "Renting of Immovable Property" ....
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....under Schedule II, Entry 5(a)-the construction is not for the taxpayer's own consumption. It is an investment in a "service vehicle" that generates continuous GST revenue. III. The Schedule II Connection: Works Contract as a Service under GST. "Works contract" is defined as a composite supply of service. When taxpayers receive goods and services for constructing a rental property, they are essentially preparing to provide a taxable service. If ITC is denied on the construction of a shopping mall or cinema theatre or luxury hotel, hospital, educational buildings, cold storages, warehouse etc., intended for renting/leasing, the GST paid on cement, steel, and professional services becomes a cost. This cost is then embedded in the rent/le....
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....ase charged to tenants, who then pay GST on that inflated rent. This results in double taxation and a direct violation of the GSTs foundational goal. IV. Addressing the "Plant and Machinery" Controversy. There is a segment of legal opinion suggesting that following the Finance Act 2025 (which retrospectively amended "plant or machinery" to "plant and machinery"), the only gateway to ITC for immovable property is the "Plant and Machinery" exception. The counter-argument: Why "On Own Account" still matters if the legislature intended to restrict ITC exclusively to plant and machinery, the phrase "on his own account" would be redundant (superfluous). In statutory interpretation, every word must be given a useful meaning. Because every law is m....
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....ade for specific, long-term and broader object. V. The 2025 amendment refined the definition of machinery but did not delete the "on own account" qualification. Therefore, the ratio in Safari Retreats case-which distinguishes between construction for self-consumption and construction for generating taxable rental income-remains the prevailing law. VI. Economic Implications and Consumer Burden- The denial of ITC in a leasing model shatters the "tax neutrality" of GST. By forcing the construction GST into the cost of the project: 1. Capital Blockage: Businesses face higher entry costs for infrastructure. 2. Inflationary Pressure: The end consumer (the tenant or the shopper in the mall) ultimately bears the "buried" tax cost. 3. Economic Disto....
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....rtion: It disincentivizes the creation of organized commercial infrastructure, which is contrary to the "ease of doing business" initiative. Conclusion: The "on own account" provision is a deliberate legislative tool intended to prevent ITC on private consumption while preserving it for business value-creation. By reading Section 17(5)(d) in harmony with Schedule II, it is clear that construction for the purpose of taxable renting/leasing is not on own account. To interpret it otherwise ignores the Supreme Court's binding precedent and reverts the tax system to a pre-GST era of cascading costs. Thus in my considered opinion, the retrospective amendment to Section 17(5)(d) of the CGST Act, 2017 does not have any adverse effect on the ITC ent....
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....itlement if goods or services or both are consumed in the construction of customised buildings with special features exclusively for renting/leasing purpose constituting outward taxable supply in conjunction with Schedule II to the CGST Act. Although there would be divergent interpretations flying here and there on this count, still the original provision of Section 17[5][d] (later amended as plant & machinery) remains undisturbed. Therefore the stakeholders may consult the legal experts before responding to notices if issued by the department to reverse such ITC with interest and penalty. --Reply By: K Balasubramanian The Reply: I agree with your views fully. The same issue was discussed by me in my article dated 06/02/2025 on safari re....
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....treats - impact of amendment proposed in the Finance Bill 2025 Kindly refer. However, many may not agree with our views in CBIC Thanks --Reply By: Sadanand Bulbule The Reply: Dear Sir Much obliged for your expressions. Departmental officers are wearing horse blinkers to focus on retropsective amendment to Plant & Machinery and are under halluciniation that it does apply to construction of commerical properties NOT OWN ACCOUNT as well. Who has to break the ice is a billion dollar question? --- Sub-Reply By: K Balasubramanian The Sub-Reply: This issue shall certainly reach supreme court in few years. The Supreme Court is most likely to endorse your views as correct Later there shall be yet another retrospective amendm....
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....ent from 01/07/2017 itself as SECOND ROUND on same section. --Reply By: Sadanand Bulbule The Reply: Sir Well predicted. --Reply By: Sadanand Bulbule The Reply: Dear Sir I am told that India stands first in the world to make highest number of retrospective amendments whenever the Government loses in the Apex Court. The Constitutional philosophy says-Repeated retrospective amendments against taxpyers after losing in the court can be seen as: Disrepctful to judicial interpretation Contrary to the rule of law Bad governance practice. Improtatntly the Courts have read down or struck down such amendments. So one has to wait till the ice is cut by the Apex Court again. --Reply By: K Balasubramanian The Reply: Very True I agree with ....
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....your views in total. It is unfortunate situation to go for retrospective amendments as there is no certainty on tax provisions. It may be done in rarest of the rare cases but not as and when Government looses the case in Supreme Court. ....