Works contract for supply of construction service and itc

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RAMESH KUMAR SINGLA (Querist)
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06 October 2017 Dear All
I have been looking for an answer as to whether section 17(5)(c) bars the credit when works contract service are supplied for construction of an immovable property. The language of the section apparently bars such ITC except when such works contract service is input service for further supply of works contract service. Therefore, it appears that the builders who are building or getting constructed buildings which are obviously, immovable properties, would not be eligible for ITC. I have not received any mature response so far. I have also written an article which is published and can be seen at https://www.caclubindia.com › Articles › GST. The heading of the article is 'Construction service and ITC'. I request the experts to read the section and my article and then give the opinion. My view is that the ITC is not admissible to the builders in view of the language used in section 17(5)(c). However, most of the people in trade and also the Revenue officers feel that the ITC is admissible. I admit the policy of the govt. is to allow ITC but i feel the language of the section is not supporting the intention of the govt. Pl give your views

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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06 October 2017 No need of confusion you interpret this way. For the builders he is buying building materials and engages labour contractor and pay GST. All these are input service for further supply of works contract service hence he is eligible for input credit on GST paid.
Builder is collecting GST from buyers of home under works contract service only as the house is under construction(construction agreement entered and sale deed for common area) ITC can be claimed on inputs.. GST not applicable on Sale of completed flats on this builder will not be able to claim ITC.

RAMESH KUMAR SINGLA

RAMESH KUMAR SINGLA (Querist)
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10 October 2017 It is surprising that experts are not responding on this important issue. Pl respond so that a discussion can take place and perhaps some conclusion can also be arrived. I repeat pl read each word of section 17(5)(c) before responding.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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03 August 2025 This is a very important and much-debated issue in GST regarding Input Tax Credit (ITC) on works contract services for construction of immovable property, especially for builders.
Section 17(5)(c) of CGST Act, 2017 says (in essence):
ITC is not available on works contract services when supplied for construction of an immovable property (other than plant and machinery), except when such works contract service is used as an input service for further supply of works contract service.
What this means practically:
When a builder constructs an immovable property (like a building or residential complex) and supplies it (like selling flats), ITC on GST paid on input goods and services used in the construction is generally NOT allowed once the property is completed and transferred.
However, while the builder is engaged in the ‘works contract service’ of constructing the building (i.e., during construction phase), the GST paid on inputs and input services (like materials, labor, subcontractors) used for further supply of works contract service is allowed as ITC.
Once the building is completed and handed over (sale deed executed), subsequent sale of immovable property is exempt and ITC is blocked.
Practical interpretation:
Stage ITC Allowed? Remarks
During construction phase Yes Inputs used for works contract service are inputs for further supply of works contract service
On completed immovable property sale No Sale of immovable property (except plant & machinery) is exempt; ITC blocked by Section 17(5)(c)
Inputs used for plant & machinery Yes ITC allowed on inputs related to plant & machinery
Why the confusion?
The language of Section 17(5)(c) is strict, denying ITC on works contract for immovable property.
But it has a carve-out “except when such works contract service is an input service for further supply of works contract service” — allowing ITC during construction.
Some interpret this strictly to disallow ITC even during construction.
Others (and the government's intent) allow ITC during construction but block it once property is sold.
Judicial/Expert Opinions:
So far, the general consensus and government practice is:
ITC is allowed during construction (works contract supply phase).
ITC is disallowed on sale of completed property.
This aligns with government’s policy to avoid cascading tax but prevent credit abuse on exempted sale.
Your Article and Discussion:
Your article rightly points out the strict language.
But practically, the builders can claim ITC on inputs used in construction phase as these are inputs for further supply of works contract services.
It is important that the builder maintains proper records and claims ITC only on construction inputs and services, not on completed sales.
Summary:
Builders can claim ITC during construction (works contract service phase).
ITC is disallowed on completed property sale (exempt supply).
The key is the concept of “input service for further supply of works contract service” in Section 17(5)(c).

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