As per 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.
So, from above section it is quite clear that ITC won’t be allowed on construction of factory building but if it is so clear than how can it be GST no ?
So, in contrary to the above section there is a ruling of M/s Safari retreats Private limited in which the Hon able HC has allowed credit of Input works contract services where the outward service was Renting services:-
On a plain reading of Section 17(5)(d), it is clear that what it contemplates and provides for is a situation where inputs are consumed in the construction of an immovable property which is meant and intended to be sold. The sale of immovable property post issuance of completion certificate does not attract any levy of GST. Consequently, in such a situation, there is a break in the tax chain and, therefore, there is full justification for denial of input tax credit as, on the completion of the transaction, no GST would at all be payable and, therefore, no set-off of the input tax credit would be required or warranted or justified. But the position is totally different where the immovable property is constructed for the purpose of letting out the same, because, in that event, the tax chain is not broken and, on the contrary, the construction of the building will result in a fresh stream of GST revenues to the Exchequer on the rentals generated by the building. The denial of input tax credit in such a situation would be completely arbitrary, unjust and oppressive and would be directly opposed to the basic rationale of GST itself, which is to prevent the cascading effect of multi-stage taxation and the inevitable increase in costs which would have to be borne by the consumer at the end of the day. In the present case also, the effect of denial of input tax credit would be a sharp and inevitable increase in the cost which the owner of the building would be compelled to incur, which would render the building itself uncompetitive as compared to previously existing similar built-up units. Further, the denial of the input tax credit in respect of a building which is meant and intended to be let out would amount to treat it as identical to a building which is meant and intended to be sold. As already pointed out, these two types of transactions cannot possibly be compared or bracketed together, for the purpose of levy of GST, as already explained in detail earlier. The treatment of these two different types of buildings as one for the purpose of GST is itself contrary to the basic principles regarding classification of subject-matter for the levy of tax and, therefore, violative of Article 14 of the Constitution. Such a classification also constitutes the treatment of assesses like the Petitioner on a totally different footing as compared with other assesses who have a continuous business and an unbroken tax chain like the Petitioner and grant of input tax credit to others while denying it to the Petitioner. Thus, the same is violative of the Petitioners’ fundamental right to equality guaranteed by and under Article 14 of the Constitution, on this distinct and independent ground also.
Taking analogy from the abovementioned judgement, the construction of shed for a factory is an essential part for continuing production within the factory. Shed’s help factories to continue the production even if climate is not comforting the same. Hence if we do not have the shed it will affect the organisation ability to continue having outward liability Thus it is clear that construction of the shed will result in a fresh stream of GST revenues to the Exchequer. The denial of input tax credit in such a situation would be completely arbitrary, unjust and oppressive and would be directly opposed to the basic rationale of GST itself.
Author’s opinion:
In addition to the argument made in the abovementioned data it looks like we can take credit on construction of shed and till now there is no clarity on this from the department hence till the time the abovementioned article has any clarity from the department it is advisable to take credit of construction of Shed but the taxpayer should not utilize it as the same won’t attract any interest liability (as per the press release of GST council 45th meeting). In future if department upheld the ITC, the taxpayer would be able to utilize such credit as it was taken within the permissible time specified under section 16(4) and if the department does not upheld the same, the same amount of tax can be paid through DRC-03 without payment of interest.
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