It is seen that there has been a lot of confusion in the minds of assesses on whether to avail credit of GST paid on the construction of immoveable property and allied goods/services. This has led to non availment of eligible credit in several instances by assessee.
Further with the time limit on availment of credit having been put in place, the assessee who does not avail eligible credit stands to face a situation whereby such credit of 2017-18 could be time barred once the return for month of Sept 2018 is filed.
As expected CBIC has tweeted that the GSTR-3B last date has been extended upto 25 Oct. 2018 for the month of Sept. 2018. Relevant notification has also been issued[notification 55/2018-CT]. CBIC have taken this measure due to technical issues faced by the taxpayers on GST Portal on the last day/ peak time (i.e. 20 Oct. 2018) while filing GSTR-3B for Sept. 2018. This measure would give some additional time to taxpayers[time window of 4 days] to now avail in the monthly return of Sept 2018, the missed out Input Tax Credit for the period July 2017 to March 2018 (FY 2017-18). With this development, assesses have got a last chance to avail all the credit which was related to 2017-18 before filing Sept 2018 returns.
In this article the paperwriter has sought to examine eligibility to construction and related credit to supplier of taxable goods/services. The assesses may accordingly examine eligibility of such credit and avail same if the return of Sept 2018 was not yet filed on 20th Oct 2018
Availment of input tax credit
The following is list of blocked credit pertaining to construction etc for period from 1st July 2017 onwards
Section 17(5): The input tax credit shall not be available in respect of the following, namely:—
................................(c) works contract services[material plus labour contract for construction etc of immoveable property] when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation.- - For the purposes of clauses (c) and (d), the expression 'construction' includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
The credit is restricted on the works contract for building for own use. Credit is also restricted on the goods/services used for construction of building meant for own use such as factory or for own use for renting as commercial shops premises.
The credit can be availed pertaining to the construction, re-construction, renovation, additions or alterations or repairs of building meant for own use such as factory or for use for renting as commercial premises, provided that such re-construction/renovation, additions or alterations or repairs is not capitalized in books of account.
Note: 'Plant and machinery' means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes foundation and structural supports but excludes -
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
- Credit can be availed on the elevator, escalator, genset, transformer, UPS, AC, fire alarm and extinguisher system;
- Example: Input tax credit can be availed on lift installed in building which is given on rental basis as commercial premises., wherein output GST is paid on rentals.
- Other machines/equipment/appliances/electrical and electronic goods, which are used in course of business of making taxable supplies of goods/services.
Other goods on which credit could be availed as under
- Electrical fittings[to extent it is not capitalized to buildings block],
- Equipment such as computer/UPS/ printer/PABX
- HVAC system
- Pollution control system
- Furniture such as tables/chairs
- Moveable storage cabinets/shelves,
When the benefit is derived from the above goods over more than 1 year, then it maybe capitalized for accounting purpose and considered as capital goods. In such scenario, the depreciation under Income Tax act cannot be claimed to extent of the input tax credit claimed on above said goods.
Credit related to exempted supply of sale of flats after completion construction
Input tax credit cannot be availed on the goods and services which are used for supply of exempted goods or exempted services. The 'exempt supply' has been defined in section 2(47) of CGST act to mean supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act and includes non-taxable supply.
Section 17(2) states that the credit attributable to effecting exempt supplies should not be availed under GST. Section 17(3) states that sale of land and sale of building for which the consideration is received after the issuance of completion certificate should be treated as exempt supplies.
The sale of building after obtaining completion certificate is neither a supply of good or services under entry 5 of Schedule III of CGST act. When a transaction is excluded from supply under Schedule III, it is not a supply at all. Therefore, it may not be correct to treat the same as exempted supply.
However, under GST, for the limited purpose of availment/reversal of credit under section 17(2) of CGST act, constructed villas/units which are unsold after the occupancy certificate are treated as exempt supplies by virtue of section 17(3) of CGST Act. Input tax credit related to such exempted supplies cannot be availed.
The input tax credit relating to the sale of immovable properties has to be reversed, constructed villas/units which are sold after the occupancy certificate since they have to be considered similar to exempt supplies, under rule 42 and 43. Credit reversal to be done in the month in which the registration of sale deed done.
Other issues in construction credit
Issue: Whether supplier engaged in construction and sale of complex, where payment received from buyer prior to completion, could avail the input tax credit on purchase of Centering & Scaffolding material?
Comment: The centering material is a frame in which shape of the arch/ceiling etc or other structures is formed during construction.
The credit on such scaffoldings used in course of business of supply of taxable services of construction could be availed.
Issue: Whether the contractor who is executing works contract of construction of commercial complex to developer, on which output GST is paid, can avail credit on inputs such as steel, cement used for construction of building?
Comment: Yes, the credit on inputs used for executing works contract[material plus labour contract] can be availed by contractor executing building construction contract.
Issue: Whether credit of GST paid on unregistered sub-contractor’s construction bill dated on 12th July 2017, under reverse charge, could be availed by the construction company, engaged in construction and sale of flats to end buyers in course of construction?
Comment: Yes, as such construction services are used for providing taxable output service of construction.
Issue: Whether the credit of GST charged on renovation of commercial complex given on rental basis could be availed by the landlord?
The credit on the renovation services, to extent it is not capitalized, could be availed by the landlord providing taxable services of renting of immoveable property service.
Issue: Whether the credit could be availed on the GST charged by vendor for repair of the flooring in the office of chartered accountant firm?
Comment: Yes, such credit could be availed as this is of nature of repair services to extent it is not capitalized by the firm.
Issue: Whether the service provider engaged in the supply of technical testing services could avail credit on the services of installation of the machineries done in its office?
Comment: Yes, such installation credit could be availed as it is used in course of the business of supply of taxable services.
Conclusion: In this article paper writer has sought to clarify few of the aspects faced by the assessee in respect of availment of credit related to construction.
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