GST AAR: ITC Not Allowed for Shed Construction Made from Prefabricated Technology

Two member-bench of the Telangana Authority for Advance Ruling (AAR), S.V. Kasi Visweswara Rao and Sahil Inamdar, unanimously ruled that using prefabricated technology for shed construction is not eligible for input tax credit (ITC) under the Goods and Services Tax (GST).

According to the applicant, M/s. Sanghi Enterprises, they are building a shed on leased land, and the building is a prefabricated shed system. It was mentioned that the shed is just an assembly of the system, which consists of prefabricated and pre-engineered components fixed together in a modular form without welding, just using nuts and bolts so that it may be quickly and easily unfixed.

It was noted by the Additional Commissioner of State Tax, S.V. Kasi Viswesware Rao that the Supreme Court considered even a provisional structure like a hut as an immovable property as long as it is used for the beneficial enjoyment of the land to which it is attached. The Supreme Court of India decided that doors and shutters, which are typically fixed to the door frame in the wall with nuts and bolts, are considered immovable property by this approach.

The concern is whether the applicant is eligible for ITC in light of the provisions in Section 17(5)(d) of the Central Goods and Services Tax, 2017, and the Telangana Goods and Services Tax Act, 2017, it was admitted as given the applicant’s claims that the acquisition of “PFS” and subsequent fitting to be in the course of business.

Sahil Inamdar (Additional Commissioner of Central Tax), taking the Supreme Court’s decision into consideration made it abundantly clear that the “PFS” is built to utilise the space created over the land on which it is constructed. As a result, the warehouses constructed by the applicant using prefabricated structures constitute immovable property and are not eligible for an Input Tax Credit under Section 17(5)(d) of the Central Goods and Services Tax Act.

The authorities noted that the “PFS” has no absolute existence if not for the benefit of engaging in beneficial activity via the RCC platform.

The AAR bench also observed that because the “PFS” being constructed is an immovable property, the Input Tax Credit is not provided on inward supplies for its construction, including works contract services, as the credit falls under the category of blocked input tax credits under sections 17(5)(d) and (c) of the CGST/TGST Act 2017.