TaxTMI 
TaxTMI 
Renting of Immovable Property and Blocked Input Tax Credit under Sections 16 and 17(5) of the CGST Act
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....ce of business. • The decision reported as 2026 (7) TMI 220 - MADRAS HIGH COURT holds, on its facts, that a taxpayer engaged in renting and leasing could not claim construction-related credit merely because rental receipts were taxable. The Court also sustained invocation of the fraud-and-suppression demand provision. • The distinction between a building constituting ordinary immovable property and a building that may satisfy the functionality test as a "plant" was recognised in 2024 (10) TMI 286 - Supreme Court. The inquiry is fact-specific and cannot be presumed from the fact that a building is commercially let out. Background & Context The dispute arose from availment of input tax credit on construction-related inputs, capital goods and services by a taxpayer whose outward activity was renting and leasing of immovable property. The credit covered, among other things, construction materials, sanitary and plumbing materials, electrical goods, architecture, landscaping, construction and labour services, works contract services, and related expenditure. The taxpayer had initially refrained from taking credit because of the restrictions in Section 1....
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.... on an invoice or debit note cannot be taken after the thirtieth day of November following the end of the relevant financial year or furnishing of the relevant annual return, whichever is earlier. The statutory text also contains specific provisions for identified earlier financial years. For the dispute decided in 2026 (7) TMI 220 - MADRAS HIGH COURT, the Court held that the credit had not been availed within the applicable Section 16 time limit. That conclusion governs the case decided. Blocked credits for construction of immovable property Section 17(5) begins with a non-obstante clause: "Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available" in respect of the specified categories. Thus, even a business nexus under Section 16(1) cannot prevail over a credit block within Section 17(5). Section 17(5)(c) blocks credit on "works contract services when supplied for construction of an immovable property" other than plant and machinery. The express exception is where the works contract service is an input service for further supply of works contract service. A person supplying renting serv....
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....ithout more, to establish credit eligibility. The functionality inquiry under the Supreme Court decision 2024 (10) TMI 286 - Supreme Court is central to the meaning of the earlier expression "plant or machinery" in Section 17(5)(d). The Court held that this expression could not automatically be equated with the defined phrase "plant and machinery" appearing in the Explanation to Section 17. The disjunctive wording had to be given effect and could not be judicially rewritten. The Court upheld the constitutional validity of Section 17(5)(c), Section 17(5)(d) and Section 16(4), emphasising that input tax credit is a statutory entitlement and that the legislature may prescribe exceptions to it. At the same time, it held that a mall, warehouse or other building may, in an appropriate factual case, qualify as a "plant" for the earlier wording of Section 17(5)(d). The test is functional: whether, considering the registered person's business and the role performed by the building, construction of that building was essential to carrying out the taxable activity. The Court remitted the factual determination rather than treating commercial use or rental use as conclusive. The ....
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....extual but not determinative 2018 (9) TMI 1135 - MADRAS HIGH COURT accepted CENVAT credit on construction services used to provide renting of immovable property services. It proceeded on the earlier CENVAT input-service definition and the nexus between construction and the output renting service. The ruling demonstrates the different statutory design of the pre-GST regime; it does not override the non-obstante block in Section 17(5). Similarly, 2022 (12) TMI 472 - KARNATAKA HIGH COURT upheld CENVAT credit on construction-related inputs and input services used for a renting business. Its rationale was that the constructed building was used in the business of providing the output service. Under GST, that broad nexus reasoning must yield where the express conditions of Section 17(5)(c) or (d) are attracted. 2022 (12) TMI 139 - PUNJAB AND HARYANA HIGH COURT likewise addressed the former CENVAT definition of "input service", including its setting-up limb, and held that a later exclusion was not retrospective for the period in issue. It is useful for understanding the earlier credit position, but it cannot determine eligibility under the CGST Act's separately worded blocked-....