The Uttar Pradesh Authority of Advance Ruling (AAR) ruled that Input Tax Credit (ITC) is not admissible on the construction of immovable property used for business.

The Applicant, Tianyin Worldtech India Private Limited is engaged in the manufacturing of Charger of Mobile Phone & its Parts or Sub-Parts. The Applicant has purchased an old Factory for Expansion of their business and in said factory applicant shall also make new construction to set up plant and machinery.

The Applicant has approached the authority of Advance ruling to determine the admissibility of input Tax Credit of Tax paid on cost proposed to be incurred in relation to Activity construction of immovable property used for business.

The Coram of Vivek Arya and Abhishek Chauhan ruled that the Input Tax Credit of Tax paid on cost proposed to be incurred in relation to Activity mentioned is not Admissible. When the goods or services are bought for the construction of immovable property which will be used in the course of business, the GST paid on such goods or service is also not eligible- to be claimed as an input tax credit if the immovable property is constructed for own purpose, as the owner will become the end user and he cannot avail ITC of the cost incurred on construction goods, as there is a break in the tax chain.

“We find that the applicant had submitted details of nature, function, use, the utility of different items on which admissibility of the input tax credit has been sought. We proceed to examine one by one,” the AAR said.

“The first Major head mentioned at Sl. No. 1 is Building Work wherein ITC availability on (1) Cement, iron, dust, sand, bricks, bonding chemicals, concrete used in building for construction and repairing of production floors (2) labour contractor payment (used in making of production area) (3) Painting of building (4) False sealing and lights (5) Wire Fitting on Production Floor (6) Furniture & Fixture for Production Floor (7) Furniture & Fixture for office and (8) Tiles used in production area have been sought by the applicant. According to the provisions of Sec. 17(5) read with the explanation to it, credit of civil structure is covered under blocked credit. Clause (c) and (d) of section 17(5) restrict ITC in respect of Works Contract services and goods or services used towards construction of immovable property As such, input tax credit (ITC) of GST paid in relation to building or any other civil structure is not available,” the AAR added.