We know that ITC is not available on works contract services when supplied for construction of an immovable property except plant and machinery. However, ITC for works contract can be availed only by person who is in the same line of business and is using such services for further supply of works contract service.
LEGAL PROVISIONS; under Section 17(5) of the CGST Act. The same are given below:
"(5) 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 following, namely:
c) works contract services 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.
The Orissa High Court in the case of - Safari retreats (P.) Ltd. vs Chief Commissioner of CGSTallowed ITC of construction material and services used for construction of a mall in which shops were leased post construction instead of being sold.
i) The petitioner was engaged in construction of shopping malls and letting out of the shops so constructed for which materials & other inputs were required.
ii) GST authorities held that ITC of taxes paid on the purchase of input material & services used for the construction of shopping mall not available for set-off against GST payable on rent received from the tenants of the shopping mall. The petitioner filed writ petition contending that the ITC should be allowed to him.[ section 17(5)(d)]
iii) The High Court observed that ITC is not available to a taxable person who has constructed the immovable property 'on his own account'. This condition cannot be applied in cases where construction of immovable property is intended for letting out. In this case, the shopping mall which the petitioner was constructing was neither intended for sale nor on his own account but was 'intended for letting out'.
iv) The High Court has held that the petitioner would be allowed to set off the ITC on the goods/services used in the construction of mall from the GST payable on the rental income received. The above judgment of the Hon'ble High Court is a blessing for registered taxpayers who are generally at the receiving end of the department's narrow interpretation of the provisions of Section 17(5).
Further, these are the views of the Hon'ble HC, in the absence of contradictory decisions of any other jurisdictional HC or SC, this decision should continue have force.
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