ITC reversal under Section 17(5)(d) for building and civil structure expenses

When an enterprise builds a factory, warehouse, commercial complex, or office extension, procurement invoices for steel, cement, architectural design, electrical cabling, and civil works arrive in large volumes. Because these inward supplies are used directly for business expansion, finance teams often wonder why tax credit cannot offset outward GST liability. The restriction comes directly from statutory provisions governing immovable property.

The statutory rule under Section 17(5)(d)

Under Section 17(5)(d) of the CGST Act, input tax credit is not available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

The statute attaches two critical explanations to this clause:

• Meaning of construction: Explanation 1 states that the expression construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.
• Meaning of plant and machinery: The Explanation at the end of Chapter V of the CGST Act defines plant and machinery as 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 land, building or any other civil structures, telecommunication towers, and pipelines laid outside factory premises.

Distinguishing civil building columns from plant foundations

The critical technical boundary lies between a general building structure and an integrated machine foundation. The statutory carve-out in the Explanation to Section 17 explicitly permits input tax credit on foundation and structural supports that fix plant and machinery to the earth.

To establish eligibility during departmental audit or scrutiny under Section 65, your engineering designs, purchase orders, and contractor bills of quantities (BOQ) must document this distinction clearly:

• General building columns (Blocked): Reinforced cement concrete (RCC) columns that support the factory roof, overhead civil trusses, outer brickwork, or intermediate administrative floors. These elements form part of the civil building and provide general shelter. ITC on cement, rebar, and contractor labour for these works is completely disallowed by statute.
• Equipment mounting plinths (Eligible): Reinforced concrete pedestals, vibration-isolated machine beds, generator shock pads, and structural steel mounting frames fabricated solely to anchor production machinery (such as heavy stamping presses, CNC lines, turbines, or rotary kilns). These foundations exist exclusively to hold specific equipment in place for operational safety and calibration. They qualify as plant and machinery foundations under the statutory Explanation, making ITC fully admissible.

Detailed rules on the treatment of works contracts for construction appear in our guide to construction works contract ITC eligibility.

The Supreme Court ruling in Safari Retreats

In Chief Commissioner of Central Goods and Services Tax v. M/s Safari Retreats Pvt. Ltd. (Civil Appeal No. 2948 of 2023, judgment dated 3 October 2024), the Supreme Court of India examined whether a shopping mall constructed for the purpose of letting out commercial retail spaces could qualify for ITC despite Section 17(5)(d).

The Supreme Court established three fundamental principles:

1. Constitutional validity upheld: The Court rejected the constitutional challenge to Section 17(5)(c) and Section 17(5)(d), confirming that the legislature possesses wide discretion to grant or withhold tax concessions and credits. The provisions cannot be read down wholesale.
2. Functionality test applies: The Court ruled that whether a particular building or immovable property qualifies as plant must be determined on facts using the established functionality test. One must ask: is the structure merely the setting or venue in which business is carried on, or is it an active apparatus or tool with which the business is conducted?
3. Factual determination required: The Court remitted cases back to the High Court or appellate authorities to assess factual evidence on whether specialized commercial complexes (such as malls or cold storage warehouses) satisfy the functionality test to be treated as plant.

For standard manufacturing, trading, or corporate office buildings, the building remains a setting rather than a tool. Consequently, standard commercial civil structures cannot escape Section 17(5)(d) without meeting the strict threshold of being an essential operational apparatus. For a comprehensive overview of statutory exclusions, consult our list of blocked credit under GST Section 17(5).

Revenue repairs vs capitalisation test

Explanation 1 to Section 17(5)(d) specifies that construction includes renovation, additions, alterations, or repairs to the extent of capitalisation. This statutory phrasing makes accounting treatment decisive:

• Capitalised expenditure: If renovation, painting, roof replacement, or flooring costs are added to the carrying value of the building asset in your Balance Sheet under Indian Accounting Standard (Ind AS) 16 or AS 10, Section 17(5)(d) applies and ITC is blocked.
• Revenue expenditure: If routine maintenance, patching, or repainting is charged directly to the Profit and Loss Account as current repairs and maintenance under standard accounting principles, the expenditure is not capitalised. In that case, Section 17(5)(d) does not block the credit, and ITC is available under Section 16(1).

Worked example: plant foundations vs warehouse columns

Consider Om Precision Engineering Private Limited, an automotive component manufacturer in Pune. In October 2026, the company undertakes factory expansion involving three separate work packages:

• Package A (General Shed Civil Columns): Structural RCC columns, exterior perimeter walls, and roof trusses for the raw material storage bay. Taxable value: ₹40,00,000; GST at 18%: ₹7,20,000. Capitalised to Factory Building.
• Package B (Hydraulic Press Foundation): Deep reinforced concrete vibration plinth with embedded anchor bolts constructed specifically to seat a 500-ton stamping press. Taxable value: ₹15,00,000; GST at 18%: ₹2,70,000. Capitalised to Plant and Machinery (Machine Foundation).
• Package C (Factory Roof Waterproofing): Routine leak repair and bituminous coating on the existing factory roof to maintain current condition. Taxable value: ₹5,00,000; GST at 18%: ₹90,000. Expensed to Repairs and Maintenance in the Profit and Loss Account.

Out of ₹10,80,000 total GST charged by vendors, exactly ₹7,20,000 must be permanently reversed, while ₹3,60,000 (₹2,70,000 + ₹90,000) is validly retained as eligible input tax credit.

Accounting ledger entries

Proper bookkeeping prevents accidental double claims and ensures that statutory tax components are not depreciated under the Income-tax Act, 1961, which would violate Section 16(3) of the CGST Act.

For Package A (Blocked civil structure capitalised):

For Package B (Eligible plant foundation):

Reporting reversals in Form GSTR-3B

Reporting blocked credits follows the standardized workflow established by CBIC Circular No. 170/02/2022-GST and GSTN return guidelines:

1. Step 1 (Auto-population in Table 4(A)(5)): Inward tax invoices from civil contractors and material suppliers appear in your auto-drafted Form GSTR-2B. In Form GSTR-3B, the full ITC amount of ₹10,80,000 auto-populates into Table 4(A)(5) (All other ITC).
2. Step 2 (Declare permanent reversal in Table 4(B)(1)): Navigate to Table 4(B)(1) (Reversal of ITC as per rules 38, 42 and 43 of CGST Rules and section 17(5)). Enter the blocked amount of ₹7,20,000 for Package A. Do not place this under Table 4(B)(2), because Section 17(5) reversals are permanent and cannot be reclaimed.
3. Step 3 (Net credit calculation): Table 4(C) automatically computes net available ITC as Table 4(A) minus Table 4(B). Here, Table 4(C) reflects ₹3,60,000, which accurately credits your Electronic Credit Ledger for set-off against monthly output tax liabilities.
4. Step 4 (Reversal formulas): If an asset is used partly for taxable supplies and partly for exempt supplies, additional proportionate reversals under Rule 42 or Rule 43 may apply. Learn how these formulas work in our guide to ITC reversal under Rule 42.

Common audit pitfalls to avoid

Departmental auditors scrutinize capital asset additions in Form GSTR-9 and audited financial statements. Common exposure areas include:

• Composite contracts with single billing: Contracting a single vendor for building construction and machine foundation without itemized line items. If the invoice does not separate civil works from machine foundations, tax officers routinely disallow the entire credit. Require suppliers to bill equipment foundations on distinct purchase orders with explicit engineering references.
• Depreciating claimed GST: If an accountant capitalises basic value plus GST in the asset register and claims depreciation on both under Income Tax while also availing GST input credit, Section 16(3) triggers complete disallowance of the GST credit plus mandatory interest under Section 50.
• Misreporting in Table 4(D)(2): Table 4(D)(2) of GSTR-3B is an informational table intended for place-of-supply restrictions and time-barred claims under Section 16(4). Blocking under Section 17(5) must pass through Table 4(A)(5) and Table 4(B)(1).

Related guides

• ITC on demolition and reconstruction of building: plant vs civil structure rules
• ITC on free goods and samples under GST: Section 17(5)(h)
• Restaurant ITC blocked under GST 5 percent
• ITC reversal on sale of used business vehicle: margin scheme versus Section 18(6)
• ITC on CSR expenditure: Section 17(5)(fa) statutory amendment explained

Frequently asked questions

Last checked: 21 October 2026. Sources: Section 17 CGST Act (CBIC), CBIC Circular No. 170/02/2022-GST, Supreme Court Judgment in Safari Retreats (Civil Appeal No. 2948 of 2023), GSTN GSTR-3B User Manual.