Section 17 of Central Goods and Services Act, 2017, provides for apportionment of credit and blocked credits. Explanation to clause (c) and (d) of sub-section 5 of said section 17, states as the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. Clause (c) and (d) is reproduced below for reference.
(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;
(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;
The aforementioned explanation clearly states that construction services related to new construction or re-construction or renovation or additions / alternations or repair if not capitalized in the books of accounts, then it is not covered in the section 17 i.e. the credit is not blocked.
In other words, GST paid on inward works contract service or goods or services received for the purpose of carrying out construction work is eligible for credit if they are not added to respective fixed assets block in the balance sheet of the books of accounts. They are instead debited to profit and loss account of the books of account as are revenue expenditure in nature.
However, the authority may question on the ground for not capitalizing the asset if the value of such expenditure is considerably high.
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