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For Indian GST, construction-related input tax credit (ITC) is not decided simply by whether a business makes taxable supplies. Section 17(5)(c) blocks specified works-contract services used to construct immovable property, while section 17(5)(d) addresses goods or services used for construction of immovable property on a taxable person’s own account. The procurement route, property, capitalisation, any statutory exception and the law applicable to the claim period all matter.
Which construction credits do sections 17(5)(c) and (d) block?
These clauses create distinct restrictions under the Central Goods and Services Tax Act, 2017 (CGST Act). They must be tested separately from the ordinary eligibility requirements in section 16: meeting those requirements does not override a specific section 17(5) block. The explanations below concern the central CGST provisions; check the corresponding law and applicable rules for the relevant jurisdiction and claim period.
Works-contract services received for construction: section 17(5)(c)
ITC is blocked on works-contract services supplied for construction of immovable property, except where the service is an input service for a further supply of works-contract service. That is a specific downstream works-contract exception, not a general exception for any taxable business activity.
The statutory definition is important when classifying the inward supply. A works contract is a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of immovable property in which transfer of property in goods is involved in executing the contract. A pure service or a supply of goods alone is not automatically a works contract under this definition.
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Own-account construction: section 17(5)(d)
This clause addresses goods or services received for construction of immovable property on the taxable person’s own account, including property used in the course or furtherance of business. A business purpose, such as using the premises as an office or renting them out, does not by itself remove the block. The clause’s exception refers to “plant or machinery”; its current wording and legal effect for the relevant period need particular care, as discussed below.
How do repairs, renovations and fit-outs affect ITC?
For clauses (c) and (d), the statutory explanation includes reconstruction, renovation, additions, alterations and repairs within “construction” to the extent that their cost is capitalised to the immovable property. The accounting treatment and the connection between the work and the property are therefore relevant. The wording does not say that every routine repair or maintenance invoice is blocked regardless of treatment.
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For an invoice involving a fit-out, addition or repair, identify whether it concerns immovable property, whether the cost is capitalised to that property, and whether the restriction arises under clause (c), clause (d), or both. Do not treat the invoice label alone as decisive.
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What did the Supreme Court decide about buildings and “plant”?
In Safari Retreats, decided October 3, 2024, the Supreme Court distinguished clause (d)’s wording “plant or machinery” from the defined expression “plant and machinery.” As reproduced in the GST Council’s official record of its 55th meeting, the Court said: “Functionality test will have to be applied to decide whether a building is a plant.” Whether a building qualifies depends on the facts, including the business and the building’s role. The Court noted that a building essential to providing services such as renting or leasing could qualify on the facts; that does not mean every rental building automatically qualifies.
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The Council’s 55th meeting record and CBIC’s corresponding press release report a recommendation to replace “plant or machinery” with “plant and machinery” in section 17(5)(d), retrospectively from July 1, 2017. A Council recommendation is not itself proof that Parliament enacted the change or that it commenced. The central enactment, exact wording and commencement applicable to a particular claim period must be verified before relying on either the recommendation or the decision’s interpretation. The material cited here does not establish that later legislative status.
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How does the rule apply to common construction claims?
| Situation | What to examine | What the rule establishes |
|---|---|---|
| Developer constructing units for taxable pre-completion sale | Identify the inward supply, whether it is a works contract, who is undertaking construction, the property and the applicable statutory exception. | Taxable outward supplies alone do not establish entitlement to every construction credit; clauses (c) and (d) still require separate analysis. |
| Contractor receiving subcontract works-contract services and making an onward supply | Confirm that the inward service is an input to the onward supply and that the onward supply is itself a works-contract service. | Clause (c) expressly excepts works-contract services used as input services for a further supply of works-contract service. |
| Business constructing its own office, warehouse, mall or other premises | Consider own-account construction, the property’s actual function, the plant wording, the claim period and the central law then in force. | Clause (d) expressly reaches own-account construction used for business. A building-as-plant argument is fact-dependent and must be assessed against the applicable statutory text. |
| Repairs, additions, renovations or fit-outs | Determine whether the work relates to immovable property and whether the expenditure is capitalised to it. | The construction explanation includes the listed work to the extent of capitalisation. |
| Separately identifiable machinery or equipment installed at a site | Assess the item against the statutory definition of plant and machinery, separately from the building or civil structure. | The definition covers apparatus, equipment and machinery fixed to earth by foundation or structural support and used to make outward supplies, including the foundations and supports. It excludes land, buildings or other civil structures, telecommunication towers, and pipelines outside factory premises. |
How should a business assess a specific claim?
- Identify the inward supply. Decide whether it is a supply of goods, a pure service or a works-contract service under the statutory definition.
- Establish the construction arrangement. Determine whether the work is on the recipient’s own account or is an inward works-contract service used for a further works-contract supply.
- Classify the asset and work. Distinguish the immovable property or civil structure from separately identifiable plant and machinery, and record the property’s actual function.
- Check capitalisation. For reconstruction, renovation, additions, alterations and repairs, establish whether the cost is capitalised to the immovable property.
- Apply the law for the claim period. Verify the central statutory wording and commencement dates relevant to that period, especially for a clause (d) claim relying on the “plant” interpretation after Safari Retreats.
- Apply ordinary ITC conditions as well. A claim must satisfy the usual eligibility requirements; passing those checks does not neutralise a section 17(5) restriction.
What records help support the analysis?
- Contracts, purchase orders and invoices describing the work and identifying any transfer of goods in executing it.
- Project and asset records showing who undertook construction, what property or equipment was created, and how it functions in the business.
- Accounting records showing whether repair, renovation or fit-out costs were capitalised to immovable property.
- For a clause (c) exception, records linking the inward works-contract service to the onward works-contract supply.
- The statutory text and commencement position applicable to the claim period, together with the facts supporting any plant-or-machinery analysis.
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