Goods and Services Tax – GST – By: – Saurabh Chokhra – Dated:- 2-2-2019 Last Replied Date:- 13-2-2019 – Topic: ITC eligibility on works contract and construction activities Impacted Industry: Construction, Works Contract Definition of works contract and construction under GST law Works contract has been defined u/s 2(119) of the CGST Act, 2017 as 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. It is worthwhile to note that the above definition covers only certain works performed on immovable property as works contract. Unlike the service tax regime the works contract no longer cover works performed on movable property. Further, it is only when there is transfer of property in goods involved is the
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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 this Chapter and Chapter VI, the expression plant and machinery means apparatus, equipment, and 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 – (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises. The provisions restrict credit of works contract services for works to be performed on immovable property and also restrict the credit of construction related activity of immovable property even when construction activity not fall into
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contractor is supplying service only without any supply of goods. Works contract may or may not be a construction. Like there may be activities like installation, fabrication, which may qualify as works contract but cannot be covered in the definition of construction. Test of immovable property: It is important to determine whether property is movable or immovable as it is first and foremost thing which include or exclude the activity from the scope of works contract or construction activity and will have impact of ITC eligibility or otherwise. The term has not been defined in GST law. Immovable property is defined in Section 3(26) of the General Clauses Act, 1897 to include land, benefits to arise out of land and things ATTACHED TO THE EARTH, or permanently fastened to anything attached to the earth. Further, test of immovable property to be applied on the totality basis. For instance- the doors of building are movable and can be removed but the same are integral part of building and
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charged off to revenue. 2. FIXING OF DOOR- Door which is fixed to complete a room will be integral part of the building and therefore, will be immovable property if seen along with building. Fixing of door is alteration/addition to building (immovable property) is covered in the definition of construction as defined under sec 17(5)(c) and (d) and therefore, works contract, if the cost of renovation is capitalised. ITC not available if the cost of construction is capitalised. If the cost charged to revenue then ITC is available. 3. Renovation of security office located at the entry gate Such renovation is covered in the definition of construction as defined under sec 17(5)(c) and (d) and therefore, works contract, if the cost of renovation is capitalised. ITC not available if the cost of construction is capitalised. If the cost charged to revenue then ITC is available. Crux of determination of ITC on works contract and construction activity: Step 1: Check if the activity is to be perfor
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