GST Input Tax Credit Denied for Commercial Building Construction
The Tamil Nadu Authority for Advance Ruling decided that businesses cannot claim GST input tax credit on construction costs for commercial buildings.
- Ruling
- No. 61/ARA/2025, dated 16.12.2025
- Dated
- 16 Dec 2025
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- M/s Super Chips asked if they could claim GST credit on building costs.
- The authority ruled that construction of immovable property is a blocked credit.
- Buildings do not qualify as plant and machinery for tax credit purposes.
In short
The company asked if they could claim Input Tax Credit (ITC) on the GST paid for building a commercial mall intended for rental income. The Authority for Advance Ruling (AAR) decided that this credit is blocked under the Central Goods and Services Tax (CGST) Act.
What has changed
How it worked before
Businesses were uncertain about claiming ITC on construction costs for rental properties, especially after conflicting court cases like Safari Retreats.
What has changed
The authority confirmed that Section 17(5)(d) of the CGST Act strictly blocks credit for goods and services used to construct immovable property on one's own account. This means even if you pay GST on the rent you collect, you cannot recover the GST spent on building the property.
Who this affects
Commercial property developers and business owners constructing their own office or retail buildings.
An example
A retail business owner builds a new warehouse to store goods for their taxable business. They ask if they can claim the GST paid to the contractor as ITC. Based on this ruling, the answer is no, because the warehouse is an immovable property constructed on their own account.
What you should do
Do not claim ITC on construction expenses for your own buildings. Remember that an advance ruling only binds the business that asked and its specific tax officer; it is not a law that applies to everyone automatically.
If you do nothing
If you claim this credit and the tax department disagrees, they may issue a demand notice for the tax amount plus interest and penalties. You would then face a lengthy and costly legal process to defend your position.
The terms explained
- Input Tax Credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its own sales.
- Blocked Credit
- Specific expenses for which the government does not allow a business to claim a tax refund or credit.
- Immovable Property
- Physical property that cannot be moved, such as land, buildings, and structures attached to the earth.
The ruling in detail
Authority for Advance Ruling
M/s SUPER CHIPS
No. 61/ARA/2025, dated 16.12.2025 · Tamil Nadu
Questions before the authority
- Whether the applicant is eligible to claim Input Tax Credit (ITC) on goods and services used for construction of an immovable property (commercial building) which is intended to be used for the purpose of letting out on rental basis and on which output GST is charged?
Facts
The applicant is a proprietorship concern engaged in the business of trading snacks and leasing commercial properties. They are currently constructing a commercial building (mall) intended for rental purposes and have incurred expenses on various goods and services, including construction materials and contractor services. The applicant seeks to claim Input Tax Credit on these construction-related expenses.
Ruling
| Question | What the authority ruled |
|---|---|
| Eligibility of ITC on construction of commercial building for rental purposes | Not eligible The construction is considered to be on the applicant's own account, falling under blocked credit provisions. |
The Authority ruled that the applicant is not eligible to claim Input Tax Credit on goods and services used for the construction of the commercial building. The ruling confirms that such construction falls under the category of blocked credits as per the relevant provisions of the CGST Act.
Reasoning
The Authority relied on Section 17(5)(d) of the CGST Act, which blocks input tax credit for goods or services received for the construction of an immovable property on a taxable person's own account. It determined that the mall constitutes an immovable property and does not qualify as 'plant and machinery' under the provided definitions. Furthermore, the Authority noted that recent legislative amendments have clarified that the exclusion for 'plant and machinery' does not extend to buildings or civil structures. Consequently, the expenditure incurred for construction remains ineligible for ITC regardless of the intended use for taxable rental services.
Provisions relied on
- Section 17(5)(d) of the CGST Act, 2017
- Section 16(1) of the CGST Act, 2017
- Section 3(26) of the General Clauses Act, 1897
- Section 3 of the Transfer of Property Act, 1897
- Finance Act, 2025 (No. 7 of 2025)
For the practitioner
This ruling reinforces the **strict interpretation of blocked credits** under Section 17(5)(d) for construction of immovable property, even when the property is intended for taxable rental activities. It clarifies that buildings do not qualify as 'plant and machinery' for ITC purposes, effectively settling the debate following the Safari Retreats case by incorporating legislative amendments. Practitioners should note that this decision **denies ITC** for commercial real estate developers constructing on their own account.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/3-super_chips_aar_order-1.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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