ITC restriction under Section 17(5)(c) and (d) for construction
Two clauses, two exceptions, and one retrospective amendment. The bifurcation of the project cost is the whole exercise.
Section 17(5)(c) blocks credit on works contract services for construction of an immovable property other than plant and machinery, except where it is an input service for the further supply of works contract service. Section 17(5)(d) blocks credit on goods or services received for construction of an immovable property on one's own account, other than plant and machinery. The Finance Act, 2025 substituted plant and machinery in clause (d) with retrospective effect from 1 July 2017, following Safari Retreats, and barred refund of credit already reversed.
What remains available
Plant and machinery, defined in the explanation to Section 17 as apparatus, equipment and machinery fixed to earth by foundation or structural support that is used for making outward supply, excluding land, building or other civil structures, telecommunication towers, and pipelines laid outside factory premises.
Lifts, escalators, chillers, air handling units, transformers, high tension panels, diesel generator sets, process equipment, cranes and similar apparatus are within the definition where fixed as described.
Fire detection and suppression systems, building management systems and specialised installations are contested, and the argument turns on independent functionality and the manner of installation.
Repairs and maintenance charged to revenue rather than capitalised are outside the explanation's reach to the extent of capitalisation, which makes the capitalisation policy a tax decision.
The bifurcation exercise
Start with the capitalisation schedule and split every line into civil structure, apparatus fixed to earth, and consumables or revenue expenditure.
For each apparatus line, hold the erection drawing, the foundation certificate and the commissioning record; that is what establishes the manner of fixing.
Where a works contract covers both civil and equipment, obtain a bill of quantities split from the contractor at the time of billing. Splitting a lump sum invoice later is far harder.
Where the department denies a single project figure without bifurcation, ask for the line item finding and supply your own bifurcation with the reply.
The exceptions in clause (c)
Where a works contract service is an input service for the further supply of works contract service, credit is available. This protects the main contractor and sub contractor chain.
It does not protect the end customer building for its own use, and it does not protect a developer constructing for lease where the retrospective amendment now applies.
The chain must be documented: the main contract, the sub contract, and the correspondence establishing that the sub contracted work forms part of the onward works contract supply.
Where a developer both sells and leases units in the same project, the apportionment between the two must be computed and documented.
Authorities relied on
Plant or machinery in clause (d) was distinct from the defined plant and machinery and a building could be a plant on a functionality test; the provision was subsequently amended retrospectively.
What to do on Monday
Bifurcate every project capitalisation schedule into civil structure, apparatus and revenue expenditure.
Obtain a bill of quantities split from contractors at billing time, not at audit.
Hold erection, foundation and commissioning records for every apparatus claim.
Review the capitalisation policy on repairs and renovation with the explanation in mind.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Is credit available on a factory building?
No. Building and civil structure are expressly excluded. The equipment inside it may be eligible.
Are lifts and chillers eligible?
Generally yes as apparatus fixed to earth by structural support, provided the installation is documented.
Does the retrospective amendment end the dispute?
It closes the textual argument on clause (d). The plant and machinery bifurcation and the validity of the retrospective change remain live.
Is credit available on repairs?
The explanation covers construction including repairs to the extent of capitalisation. Expenditure charged to revenue is outside it.
Can a lessor claim credit on the building?
Not after the retrospective substitution. The argument now lies in the bifurcation and in the challenge to the amendment.
In this cluster
- GST on real estate: the complete developer position
- Munjaal Manishbhai Bhatt: the one third land deduction is optional, not mandatory
- Joint development agreements: who pays, when, and on what value
- Transfer of development rights: the exemption and its conditions
- Works contracts under GST: classification, rate and the credit position
- Government contracts, escalation clauses and rate changes
- Preferential location charges, club charges and society transfer fees
- Affordable housing at one percent: the conditions that decide eligibility
- Redevelopment, slum rehabilitation and the value of free flats
- Leasing of land and buildings: the exemption boundary
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.