Blocked Credit – Role of word Capitalisation in claim of Input Tax Credit

Section 17(5) of CGST Act 2017 deals with Blocked Credit, means for which Input Tax Credit is not admissible.

sub section (c) & (d) of Section 17(5) reads as below

Section 17(5) (c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

Section 17(5) (d) 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;

Section 17(5)(c)(d), deals with works contract services or construction of immovable property (other than Plant & Machinery) subject to extent of capitalization.

Here in explanation “construction” includes reconstruction, renovation, addition or alteration or repair.

The word “Capitalisation” is playing a most important role to decide whether ITC can be availed or not.

This means if above activities eg repair or painting work etc to building (immovable property) has been booked as revenue expenses in books of account then input tax credit is admissible.

If cost of the repair is capitalized in books of accounts then Input Tax credit will not admissible, as it will come under blocked credit definition.