ITC On Construction Costs Can Be Claimed If Building Construction Was Necessary For Renting Out Service : Supreme Court




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ITC On Construction Costs Can Be Claimed If Building Construction Was Necessary For Renting Out Service : Supreme Court

 

The Supreme Court declared that real estate companies can claim Input Tax Credits (ITC) under the Goods and Services Tax (GST) regime, on costs of construction for commercial structures intended for renting or leasing purposes.

The court held that if the construction of a building was essential for carrying out the activity of supplying services, such as renting or giving on lease or other transactions in respect of the building or a part thereof, which are covered by clauses (2) and (5) of Schedule II of the CGST (Central Goods and Services Tax) Act, the building could be held to be a plant.

The Supreme Court of India ruled that if a building’s construction is necessary for providing services such as leasing or renting, it may qualify for the ‘plant’ exception under Section 17(5)(d) of the CGST Act. This section generally prohibits claiming Input Tax Credit (ITC) for construction materials used in building immovable property, except for plant and machinery.

A bench of Justices Abhay Oka and Sanjay Karol stated that the functionality test should be applied case-by-case to assess whether a building qualifies as a plant for tax purposes.

The Court ruled that Section 17(5)(d) of the CGST Act does not need to be interpreted to exclude situations where immovable property is built for rental purposes.

The bench held that the challenge to Section 17(5)(d) of the Central Goods and Services Tax (CGST) Act 2017 was dismissed. The Court has sent the matter back to the High Court to assess whether the case qualifies for the “plant” exemption for availing input tax credit under Section 17(5)(d). A detailed copy of the judgment is pending.

In 2019, the Orissa High Court ruled that developers who build properties intended for rental cannot be denied an input tax credit (ITC) for construction materials under Section 17(5)(d) of the CGST Act, 2017.

Section 17(5)(d) states that ITC is not available for goods and services used to construct immovable property (except plant and machinery) if the property is intended for the builder’s own use, regardless of whether these goods or services are utilised for business purposes.

 

From,
Krishnkant Jakhotia
Mobile No. :- 9422507911
Email Id :-  taxtalknew@gmail.com




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