Section 17(5) deals with blocked credit in GST. It enlists various circumstances under which the Input Tax Credit shall not be allowed to the Recipient irrespective of Section 16(1) & 18(1) of Central Goods and Services Tax Act, 2017.

Sub-Section(c) & (d) of section 17(5) deal with blocked credit relating to Works Contract Services and Goods & Services received for construction of immovable property respectively. For Understanding the blocked credit for construction of immovable property in GST a conjoint reading of Section 17(5)(c) & 17(5)(d) is required. Let us first understand the meaning of Works Contract and basics of Section 17(5)(c) & (d).

Definition of Works Contract

As per Section 2(119) of GST Act, Works Contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. The expression ‘works contract’ is limited to contracts to do with immovable property. A contract will amount to a ‘works contract’ only where the resultant which is immovable property.

Thus, from the above definition it can be seen that the term works contract has been restricted to contract for building construction, fabrication etc of any immovable property only. Any composite supply undertaken on goods say for e.g. a fabrication or paint job done in automotive body shop will not fall within the definition of term works contract per se under GST. Such contracts would continue to remain composite supplies, but will not be treated as a Works Contract for the purposes of GST.

Also, Para 6 (a) of Schedule II to the CGST Act, 2017 states that works contracts as defined in section 2(119) of the CGST Act, 2017 shall be treated as a supply of services.

Section 17(5)(c)

As per section 17(5)(c) of the CGST Act, 2017, input tax credit shall not be available in respect of the 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.

Thus, ITC for works contract can be availed only by one who is in the same line of business and is using such services received for further supply of works contract service. For e.g. a building developer may engage services of a sub-contractor for certain portion of the whole work. The sub-contractor will charge GST in the tax invoice raised on the main contractor. The main contractor will be entitled to take ITC on the tax invoice raised by his sub-contractor as his output is works contract service. However, if the main contractor provides works contract service (other than for plant and machinery) to a company say in the IT business, the ITC of GST paid on the invoice raised by the works contractor will not be available to the IT Company.

Section 17(5)(d)

As per Section 17(5)(d) of CGST Act’2017, ITC shall not be available for any goods or services used by a taxable person for the construction of immovable property (other than Plant & Machinery) on his own account even when used in course or furtherance of business.

Over here, understanding the scope of “Immovable property” is very important. Immovable property is well understood to be land and building but it also includes everything that is attached to or forming part of the land and rights-in-land. Credit is blocked on all inward supplies leading to the establishment of such immovable property. Inward supply of services from real estate agent, architect, interior decorators and contractors are all blocked as these are involved in the establishment of the immovable property. But, if inward supplies such as security, house-keeping and property maintenance are used after construction, then such credits are not blocked as these are received after establishment of the immovable property.

As per Explanation to 17(5)(c) & (d)

“Construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. Please note that ‘alterations’ and ‘repairs’ are also included in this definition if capitalized.

“Plant and machinery” means apparatus, equipment, machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes land, building or any other civil structures, telecommunication towers; and pipelines laid outside the factory premises.

Let us try to understand both the summary of above sections with the help of two Charts below:

Case(i)-Where Works Contract Service is taken for construction of Immovable Property or Plant & Machinery in course or furtherance of business.

immovable property

Case(ii)-Where the Taxpayer himself purchases the goods and takes Labour Contract, Architect etc. services from outside for construction of Immovable Property in course or furtherance of business.

Capitalised in Books

Recent Rulings:

1)We work India Management Private Limited (GST AAR Karnataka) (30.09.19)

Where the applicant was in the business of supplying shared works pace/office space to the freelancers, start-ups, small businesses and large enterprises by procuring goods and services from various contractors for fitting-out of the work spaces and providing the said work space on rent, to various companies and individuals as sharing work-spaces.

Held that GST Input would be allowed on (a) “Detachable 14mm Engineered Wood with Oak top Wooden Flooring” which is movable in nature and capitalized as “furniture and fixture”. No GST input on (b) “The detachable sliding and stacking glass partition” which is movable in nature and capitalized as furniture and fixture, as the fixing of sliding and stacking glass partitions amounts to addition or alteration to an immovable property and hence are used for the construction of an immovable property and hence input tax credit shall not be available.

2) Tarun Realtors Private Limited (GST AAR Karnataka) (30.09.19)

The Applicant was developing a Shopping Mall & was required to procure numerous goods and avail numerous services including works contract service from many suppliers like transformers, sewage treatment plant, Electrical Wiring and Fixtures, Surveillance systems, D.G. Sets, Lifts, Air Handling Units etc. The Applicant claimed that all the Installations would qualify as ‘Plant or Machinery’ under the CGST Act, 2017 and accordingly, taxes paid on procurement of goods or service for construction of such ‘Plant or Machinery’ would not be regarded as blocked credits under Section 17(5) (d) of the CGST Act, 2017 read with Explanation to Chapter V and Chapter VI of the CGST Act, 2017.

It was held that the provision of facilities like transformers, sewage treatment plant, Electrical Wiring and Fixtures, Surveillance systems, D.G. Sets, Lifts, Air Handling Units etc. are sine-qua-non for a commercial mall and hence cannot be considered separate from the building or civil structure. The provision of these are either statutory for a building or defines the nature of the building as a commercial mall. Hence, the input tax credit on the inward supplies of goods or services involved in the construction of immovable property which is a civil structure or building is not available to the applicant and hence blocked. AAR also stated that all the above facilities come under the category of Civil Structures and cannot be regarded as Plant & machinery as claimed by the assessee. Explanation to Section 17(5) specifically excludes any Land Building or Civil Structures.

3) Nipro India Corporation Private Limited (GST AAR Maharashtra) (28.05.18)

Reference may be had to Maha-AAR in the case of Nipro India Corporation Private Limited (ARA- 33/2017-18/B- 41 Mumbai, dt. 28.05.2018) where AAR has travelled to great lengths to collect data of plant and machinery embedded in the contract price and allowed credit to Applicant in respect of such plant and machinery although entire contract sum was taxed under HSN 9954 as ‘works contract service.

A single contract may be awarded for construction including interior works along with electronic installations comprising of audio-video equipment. As a composite supply, the electronic installations will also be taxed under HSN 9954 and be incapable of being extracted from the total contract price. But if this contract were treated as a mixed supply, the works contract too would be taxed at 28% (assumed for discussion purposes) can credit of the entire project be claimed including the works contract embedded in the single contract price even though taxed at 28%. Care appears to have been taken to permit credit only in respect of ‘plant and machinery’ which has been defined in an explanation that is made applicable to ‘this section as well all sections in Chapter VI of the Act’.

4) Safari Retreats Private Limited v Chief Commissioner of  GST (20.05.19)

The assessee is engaged in the business of constructing shopping malls and subsequently letting out the same to various tenants. In the instant case, the petitioner had purchased various goods and services for carrying out construction of one such shopping mall. However, in light of the restriction imposed under section 17(5)(d) of the CGST Act, 2017, the petitioner was advised against claiming the ITC by the revenue authorities. It was contented by the petitioner that, sale of an immovable property, post issuance of the completion certificate (CC), does not attract levy of GST, as it breaks the supply chain. The denial of credit on such transaction is being accordingly justifiable as GST is not applicable

The purpose of the CGST Act is to provide a uniform law for levy and collection of tax on intra state supply of goods and services, and to prevent multi taxation. Section 17(5)(d) of the CGST Act is to be read down and a narrow interpretation of Section 17(5)(d) of the CGST Act is frustrating the objective of the CGST Act. If the petitioner is required to pay GST on rental income arising out of the investment on which he has paid GST, he is entitled to avail the ITC for the inputs and input services consumed by them. Considering the above, the Hon’ble High Court of Orissa allowed ITC on goods and services used for construction of immovable property meant for letting out for commercial purposes (in the course or furtherance of business). It is a favourable judgement as the High Court has pronounced the ruling considering the intent of the law rather than the plain reading of the provisions contained therein. However, it needs to be seen, whether the Hon’ble Supreme Court would agree with the above view Case is still sub-judice as the dept. has filed an appeal against the same in Supreme Court. However, Input Tax credit claims on similar matters have been rejected in by AAR in recent case given below.

In case of M/s. Sree Varalakshmi Mahaal LLP (GST AAR Tamil Nadu) (03.01.20)

It has been ruled that “No Input Tax Credit is available against any goods or services received by the applicant for construction of the Marriage Hall on his own account even if used in course or furtherance of his business of renting the place.” Even though the taxpayer placed reliance on the  Orissa Judgement, the same was not considered by the AAR authorities stating as follows at the end of the judgement,” The applicant has further placed reliance on the judgment rendered by the Hon’ble High Court Orissa in the case of “Safari Retreats Private Limited v Chief Commissioner of  GST ”, It is seen that in the said case, the prayers are (a) eligibility to credit of input tax paid on goods/services used for construction which is rented for commercial purposes (b) to hold Section 17(5)(d) as ultra-vires. While the Hon’ble High court has granted the prayer at (a) has not accepted the prayer at (b) stating that they are not inclined to hold the provision ultra-vires. On a case to case basis, the High court has granted the credit. In as much as the said section is found to be valid by the Hon’ble High court, we do not find any reason to go beyond the Statutory Provisions.

5) M/s BAHL Paper Mills LTD. (GST AAR Uttarakhand) (04.05.18)

Where the question was whether credit will be available on office fixtures & furniture, AC, plant & sanitary fittings on the newly constructed building on its own account, for furtherance of business, and is capitalized in books of accounts.

It was held that as per the explanation to Section 17 of the CGST Act, availment of credit was not admissible in respect of land, building or any civil structure; therefore, sanitary fittings being the integral part of the Building or any civil structure, credit was not admissible. However, credit of GST will be available on office furniture & fixtures, A.C. plant. The said advance  ruling has placed reliance on the CBIC Board Circular No. 943/04/2011-CX dated 29th April 2011 wherein it was clarified that the goods such as furniture and stationery used in an office within the factory are goods used in the factory and are used in relation to the manufacturing business and hence the credit of the same is allowed.


Recent rulings by AAR authorities have denied credit to taxpayer in case of construction of Immovable property even where the same is used for furtherance of business. Although, the law is clear in the aspect that the same should be disallowed, but where the intent of the GST Law, which is to avoid cascading effect of taxation comes into play, it raises questions about the disallowance. The picture will get more clear with the final ruling by the Hon’ble Supreme Court in case of  Safari Retreats Private Limited v Chief Commissioner of  GST ”.


Various case laws and background material of ICAI on GST have been the source for this article. The views expressed in this article are strictly personal. For any queries please feel free to contact at [email protected] & Cont-9333674074.

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