GST update on whether credit admissible to builder under GST regime?

Whether credit admissible to builder under GST regime?

It was apprehended that there will be seamless flow of input tax credit in the GST regime but the hopes of the trade and industry appears to have been shattered as section 17(5) of the CGST Act, 2017 prescribes the restrictions in input tax credit. This update seeks to analyse the point whether builders engaged in construction of complex services for deferred payment will be eligible to avail input tax credit in light of clear cut prohibition given under section 17(5)(d) which reads as follows:-

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;

It provision as reproduced above clearly reflects that there is clear bar in availing input tax credit by taxable person for construction of an immovable property on his own account. Now, the question that arises is that whether the builders that are engaged in construction of buildings are eligible to avail the benefit of input tax credit or not.

If the meaning of construction is analysed as given in the explanation, it is found that prohibition is only regarding construction to the extent it is capitalized in the books of accounts and so one may conclude that if the construction services are expensed off then the input tax credit in relation to construction services shall be admissible. It is pertinent to mention that for builders, the buildings constructed by them are not capitalized in the books of accounts and rather they depict stock in trade in their financial statements. Consequently, one may also interpret that the builders will be allowed to tax input tax credit with respect to inputs/input services used in construction. However, one may also interpret that the phrase ‘to the extent of capitalisation is only to be read with the words re-construction, renovation, additions or alterations or repairs and not to be related to the construction services by the builder. In that case, it appears that the builder may not be able to avail the input tax credit at all.

The availment of credit on works contract services, construction services is matter of dispute in the present indirect taxation laws and the dispute should not be carried forward to the GST regime. Hence, a suitable clarification or amendment is the need of the hour.
Moreover, some authors have opined that builders will be covered under works contract and will get the credit of work contract services. We will analysis this provision in next updates.

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GST update on whether credit admissible to builder under GST regime?

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