The Supreme Court on Thursday (October 3) held that if construction of a building is essential for supplying services such as renting out, it could fall into the “plant” exception to section 17(5)(d) of CGST Act which provides that Input Tax Credit cannot be claimed for construction material (other than plant or machinery) for immovable property construction.
“If the construction of a building was essential for carrying out activity of supplying services such as renting or giving on lease or other transactions in respect of the buildings or part thereof which are covered by clauses 2 and 5 of the Schedule 2 of the CGST Act, the building could be held as a plant. Functionality test will have to be applied to decide whether building is a planť”, the Court held.
A bench of Justice Abhay Oka and Justice Sanjay Karol held that the functionality test will have to be applied to the facts of each case to decide whether a building is a plant.
The Court further held that it is not necessary to read down Section 17(5) (d) of the CGST Act so that it does not apply to cases where immovable property is constructed for the purpose of letting out on rent.
The bench held that the challenge to Section 17(5)(d) of the Central Goods and Services Tax (CGST) Act 2017 was rejected. The Court remitted the matter to the High Court to determine on facts if the case fell within the “plant” exemption for availing input tax credit as per Section 17(5)(d). Detailed copy of the judgment is awaited.
The Orissa High Court, in its judgment delivered in 2019, had said that Input Tax Credit (ITC) for construction materials cannot be denied under Section 17(5)(d) of the Central Goods and Services Tax (CGST) Act, 2017 to builders engaged in constructing property for letting it out on rent.
Section 17(5)(d) of the CGST Act specifies that ITC is not available on goods and services used in the construction of immovable property (other than plant and machinery) on one’s own account, including when such goods or services are used for business purposes.