The Bombay High Court has issued notices to the Centre and the Maharashtra government over a petition that seeks to declare as unconstitutional, a provision in the GST laws which empowers the authorities to block input tax credit (ITC) on works contract services in the real estate.
The petitioner, which is engaged in the business of renting and leasing out movable and immovable properties, challenged the section 17(5)(c) of the Central GST (CGST) Act and the same section in the Maharashtra GST Act. The section prohibits input tax credit to the works contract service for construction of an immovable property other than the plant and machinery except where it is an input service for further supply of works contract.
Works contract is essentially a contract of service which may also involve supply of goods in the execution of the contract.
The petitioner entered into a master rental agreement with a company to provide it furnished premises on lease. The petitioner procured works contract services to make the premises.
By virtue of the section cited above, ITC on works contract services used by the petitioner stands denied.
Relevant Statutory provisions:
Section 17(5)(c) of the CGST Act,2017 reads as under:
(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;
Further Section 17(5)(d) blocks ITC on 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;
Explanation.- For the purposes of this Chapter and Chapter VI, the expression “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 such 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.
Source: business-standard.com
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