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TMI Blog2020 (7) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... tract Service (WCS) provided for the construction of a road is liable to GST 12% (6 /o CGST + 6 /o SGST) as per SI. No. 3 (iv) (a) of Notification No.11/2017-CT(Rate) dated 28-6-2017 as amended. There is no restriction on availment of ITC in the said Notification. Eligibility of the applicant to claim input tax credit in respect of the supply of Works Contract Service - HELD THAT:- It is evident that the inputs and input services of the applicant arc used in the course or furtherance of business i.e., works contract business and the said works contract service is a taxable service under GST and liable to tax at the rate of 12%. At this juncture it is made clear that compliance with the provisions of Section 16 (2) is a matter of fact and procedure and the applicant is to comply with the same to be finally eligible for ITC. This procedural compliance is not being challenged here and hence not commented upon by this Authority. Having said that, it is noted that the applicant is a Registered Taxpayer under the GST law, he is engaged in the provision of a taxable service (works contract service) in the course of business. As such, the applicant satisfies the basic requirements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of 30 days from the date on which the ruling sought to be appealed against is communicated to the applicant. The appellant in this case approached this authority within the time limit. 1. Brief History of the Case: The appellant i.e., Superintendent of Central Tax, Central GST Ravulapalem Range filed an application in Form GST ARA-03 on 29.01.2019 before the Appellate Authority for Advance Ruling, Andhra Pradesh seeking clarification in the case of M/s. Vinayaka Constructions, ubalanka, East Godavari District. M/s. Vinayaka Constructions is a works contractor executing the works awarded by the Government of Andhra Pradesh, Panchayat Raj Department, Eluru Circle. The name of works being executed by the applicant is Reconstruction of the road work Penugonda to Munamarru in Penugonda Mandal of Achanta Assembly Constituency, West Godavari District. The scope of the work is clearing and grubbing, stripping excess soil, earthwork, GSB WMM, BT Prime coat, Tack Coat BM, CD works BT tack coat, BM, SDBC, CC pavement Shoulders Road Furniture by mechanical means and disposal of unserviceable materials and stacking of serviceable material as per schedule-A of the agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and machinery) except where it is an input service for further supply of works contract service; ILLUSTRATION : When reading the above sentences in continuity as below, eligibility/admissibility of ITC may be able to be understood in respect of woks contract service when supplied for construction of immovable Property (other than Plant and machinery) under GST; Input tax credit shall not be available in respect of 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 from the above two sentences, what this office understood that the words it and input service in the second sentence relates to or speaks about the work works contract services in the first sentence. Therefore, in common parlance, as per first sentence, the input tax credit shall not be available in respect of works contract service. However, on harmonious reading the second sentence combining with the first sentence, the eligibility / admissibility of input tax credit may be very clear that receiver of service and supplier of service both shall be in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession construction included re-construction, renovation, additions or alterations or repairs to the extent of capitalization, to the said immovable property; 5. Upon the study and examination of the provisions of Section 17 (5) (c) and the definition of works contract, the appellant submitted that there are 14 activities for which execution of works contract may be undertaken. However, out of 14 , the activity of construction of immovable property (other than plant and machinery) under Section 17 (5) (c) and 17 (5) (d) only is restricted in respect of availment of input tax credit under CGST Act,2017. Therefore, it appears that the Govt. of India had taken care of providing input tax credit benefits to the GST Credit aspirants very cautiously, in all respects. Therefore, it appears that the Govt. of India would not have erred in drafting the provisions of Sections 17 (5) (c) and 17 (5) (d) of GST Act,2017 which have specific inbuilt restrictions. 6.1: Further, it is submitted that the findings given on clause (c) of sub section 5 of Section 17 of the GST Act,2017 by the Hon'ble the authority for advance ruling under GST, Madhya Pradesh, 2018 (17) GSTL 690 (AAR-GST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 16(1) of the CGST Act, 2017. The appellant opined that, upon perusal of the above findings and Advance Ruling, the Authority for Advance Ruling might have read out clauses (c) and (d) along and not made efforts to read in combination of (c) (d) with sub-section 17 (5) as furnished hereunder. Had they done so, they might have understood the meaning of sub-section 17 (5) (c) properly and the advance ruling would have been otherwise. Section-17(5):- notwithstanding anything contained in sub-section (1) of Section 16 and sub-section (1) of Section 18, input tax credit shall not be available in respect of the following namely: (a) (b) (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; Further, the provisions of Section 16 (1) and Section 18 (1) were over ridden or overruled by sub-section 17 (5) i.e., notwithstanding anything contained in sub-section (1) of Section 16 and sub-section (1) of Section 18. Therefore, it is submitted that though the circumstances and output service of works contract ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y use the following goods and services as inputs for rendering the output service i.e. works contract service. 1. Crushed metal chips 2. Bitumen 3. Gravel 4. Hot mix or Batch Mix plant 5. Road rollers, 6. Paver Finishers 7. Tippers, earth moving machinery, 8. Using the services of consultants, hiring of machinery, vehicles and sub contractors 9. Repairs and maintenance of machinery etc. 10. Any other inputs, services and machinery used for executing the works, which was not specified above. It is submitted that they strongly and vehemently object the stand taken by the learned Superintendent Central Tax. He totally misread and misinterpreted the provisions related to blocking of input credit. Fundamentally the eligibility and conditions for claiming input credit will be governed by Sec 16 of the CGST Act but not by Sec 17. Sec 17 of CGST Act deals with apportionment and blocking of input tax credit. 1.2 Every registered person is eligible to take credit of input of GST paid on the goods purchased and incorporated in the works and services taken for completion of works as per the provisions of Sec 16 of the CGST Act 2017. Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e/it purchases goods and services provisions of sec 17 (5) ( c) are not applicable and that is the reason in Sec 17 (5) (c) exception clause was incorporated. 1.5 Clause (c) and clause (d) of Sec 17 (5) are by its very nature when read in isolation point to blocking of input tax credit vis a vis building construction expenditure. Explanation below the two clauses (c) and (d) of Sec 17 (5) excludes from the ambit of input tax credit certain amounts of expenditure and in this regard limit such blocking to the extent amount of expenditure capitalized in the books of account. In other words, any expenditure that is not capitalized but charged to revenue in the books will not be subject to credit blocking. Thus, ITC on input goods and services supplied within the scope of the two clauses (c) and (d) as well as under the explanation when capitalized will be subject to credit blocking. Here in the instant case all the inputs and input services used for execution of works will be charged as revenue expenditure in the books hence will not be subject to credit blocking. 1.6 Intention of the legislature is also important while interpreting the provisions of law. As per Sec 16 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) reads as under: 17 (5) Not withstanding anything contained in sub-section (1) of Section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely: a) . b) 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; Explanation - For the purpose of clauses (c) and (d), the expression construction includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property; As explained in paras 1.3, 1.4 and 1.5 above Sr No. 6 (a) of Schedule II of CGST Act states that composite supply of 'works contract' shall be treated as 'supply of service'. This is a deeming provision, as clarified in section 7 (1A) of CGST Act. For executing works contracts both input and input services will be procured/ used. Ld. Superintendent wrongly interpreted the expression except where it is an input service for further supply of works contract service as only when the input service is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Department of the Andhra Pradesh Government, clause no 5 clearly mentioned that ITC is available for Government works contracts. That is the reason the Government eliminated all the subsumed taxes while finalizing the SOR rates for 2017-18. The Government finalized the basic rates in the SOR 2017-18 without any tax elements. As per this G.O estimated contract values quoted by Government Engineering department are basic rates only exclusive of all indirect taxes. AP Government has done like this because the ITC is available to works contractors on inputs and input services utilized for executing works. In view of the above submissions and legal position the respondent humbly submitted that argument put forth by the Ld. Superintendent of Central Tax has no weight and legal backing. 4. Discussion Findings: We have gone through the entire records of the appeal, facts of the case, and also considered the written and oral submissions made at length by the appellant and the respondent as well, in light of the Ruling pronounced by the AAR. 4 (i) Consequent upon the extension of time limits for completion of any proceeding or passing of any order ... vide Notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amended. There is no restriction on availment of ITC in the said Notification. 4 (iii) Next in line is to determine the eligibility of the applicant to claim input tax credit in respect of the supply of Works Contract Service. Section 16 of the CGST Act, 201.7, is reproduced hereunder for ready reference: Section 16 explains the Eligibility and conditions for taking input tax credit. 16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; (b) he has rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 (5) (c) is best revealed by the explanation given by CBIC in its e-flyers on Works contract is presented below. As per section 1/(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 example a building developer may engage services of a subcontractor for certain portion of the whole work. The subcontractor 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. It is clearly evident t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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