SC Allows GST Input Tax Credit Claim For Rental Construction

A bench of Justices Abhay Oka and Sanjay Karol stated that the functionality test should be applied case-by-case to assess whether a building qualifies as a plant for tax purposes

The Court ruled that Section 17(5)(d) of the CGST Act does not need to be interpreted to exclude situations where immovable property is built for rental purposes

Source : PTI

The Supreme Court of India on Thursday ruled that if a building's construction is necessary for providing services such as leasing or renting, it may qualify for the ‘plant’ exception under Section 17(5)(d) of the CGST Act. This section generally prohibits claiming Input Tax Credit (ITC) for construction materials used in building immovable property, except for plant and machinery.

The Court clarified, “If the construction of a building is essential for the activity of supplying services like renting or leasing, as outlined in clauses 2 and 5 of Schedule 2 of the CGST Act, the building may be considered a plant. A functionality test must be applied to determine if the building qualifies as a plant.” 

A bench of Justices Abhay Oka and Sanjay Karol stated that the functionality test should be applied case-by-case to assess whether a building qualifies as a plant for tax purposes.

The Court ruled that Section 17(5)(d) of the CGST Act does not need to be interpreted to exclude situations where immovable property is built for rental purposes.

The bench dismissed the challenge to Section 17(5)(d) of the Central Goods and Services Tax (CGST) Act 2017. The Court has sent the matter back to the High Court to assess whether the case qualifies for the "plant" exemption for input tax credit under Section 17(5)(d). A detailed copy of the judgment is pending.

In 2019, the Orissa High Court ruled that developers who build properties intended for rental cannot be denied an input tax credit (ITC) for construction materials under Section 17(5)(d) of the CGST Act, 2017.

Section 17(5)(d) states that ITC is not available for goods and services used to construct immovable property (except plant and machinery) if the property is intended for the builder’s own use, regardless of whether these goods or services are utilised for business purposes.