Suggestions on GST Implementation Issues 28.09.2017 by ICAI Indirect Tax Committee
Law Related Issues
37. Disallowance of Credit in respect of works contract services
Clause c Section 17(5) of CGST Act provides that works contract services when supplied
for construction of immovable property, other than plant and machinery, except where it is
an input service for further supply of works contract service.
Clause d provides that goods or services received by a taxable person for construction of an
immovable property on his own account, other than plant and machinery, even when used in
course or furtherance of business.
Explanation 1.- For the purpose of this clause, the word “construction” includes re-
construction, renovation, additions or alterations or repairs, to the extent of capitalization, to
the said immovable property.
• Works contract is already limited to immovable property; hence the current language is
• Further, suppose that a person constructs a Factory Building, Hotel Building or a
building which he wants to or has let out on rent, as per provisions of Section 17(4) (c)
and (d) of the CGST Act, credit of any taxes paid on construction of Immovable property
would not be allowed. This is a differential treatment being laid out that firstly where
being a tenant of a building, a person would be getting the credit of the taxes paid on the
rent to the owner of the Immoveable property but if a person has constructed building
himself, then he would not be getting any credit of the taxes paid. This would be a huge
negative for the Hotel Industry or the Manufacturing Industry wherein large investment
is required in Building for the rendering of the supplies. Immovable Property in case of
Hotel Industry, Industries and used in Letting out on rent forms an important part of the
supply chain and cannot be treated as being used for self-consumption.
• It leads to cascading of taxes which is not the spirit of GST Law, as to provide seamless
• It is suggested that clause c be rephrased as “works contract and goods or services used
in a works contract except where it is an input for further supply as works contract”.
• It is suggested that the provisions under Section 17 relating to the Input Tax Credit be
rationalized and brought at par with the simple concept that if outward supplies of a
person are taxable then the inward supplies of the goods or services or both may be
allowed as credit.
• Further, it is suggested that renovation works, repairs etc. be eligible for credit if they
are in course / furtherance of business.
• The restriction of ITC in respect of all works contracts resulting in immoveable property
at large be removed since in large number of contracts which qualify as works contracts,
the end result would be immovable property’.
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