ITC available on GST charged by contractor supplying service of works contract to extent of machine foundation

The Telangana AAR has ruled that Input Tax Credit (ITC) is available on GST charged by contractors for works contract services, specifically for machine foundations. This ruling clarifies that while ITC is generally blocked for constructing immovable property, it can be claimed for plant and machinery, including the foundations that support them. However, ITC is not applicable to other civil structures or buildings.

The Hon'ble AAR Telangana in the matter of M/S. Vijayneha Polymers Pvt. Ltd. [Advance Ruling No. A.R.Com/13/202 TSAAR Order No.29/2021 dated December 9, 2021] held that, Input Tax Credit ("ITC") can be availed on GST charged by contractor supplying service of works contract to extent of machine foundation as per Section 17(5)(c) of the Central Goods and Services Tax Act, 2017 ("CGST Act").

Facts

M/s. Vijayaneha Polymers Pvt. Ltd. ("the Applicant") has constructed a factory building wherein they have hired works contractors for executing the construction by way of providing material where contractor provided construction services or the contractor provided both material and services.

Such construction included foundation of machinery, rooms for chillers, boilers, generators and transformers, erecting of electrical poles, laying of internal roads, factory building, internal drainage, laboratory etc.,

Issue

Whether ITC is available on GST charged by the contractor supplying service of works contract?

Held

The Hon'ble AAR Telangana in Advance Ruling No. A.R.Com/13/202 TSAAR Order No.29/2021 dated December 9, 2021 held as under:

• Observed that, the Applicant has either purchased goods or services for construction of immovable property on his own account or engaged the works contractor for supply of construction services.
• Analysed Section 17(5) of the CGST Act and opined as under:
• ITC cannot be availed on works contract services for construction of an immovable property except for erection of plant & machinery.
• ITC can be availed on plant & machinery as defined in the explanation to Section 17 i.e., on apparatus, equipment & machinery fixed to earth by foundation or structural support; which means plant & machinery and machine foundation are eligible for ITC.
• Plant & machinery will not include building or other civil structures and pipelines laid outside factory premises.
• ITC cannot be availed on goods or services or both received by a taxpayer on his own account for construction of immovable property.
• Held that, the Applicant would be eligible for ITC to the extent of machine foundation only.