Can We Avail ITC on Repairing of Roads GST?

The question of whether businesses' "Can we Avail ITC on Repairing of Roads GST" repair expenses often cause confusion under GST laws. Many wonder if such expenses qualify as business-related. This article explains the rules and practical aspects of claiming ITC for road repair costs.

Legal Outline

As mentioned under Section 16 of the CGST Act, 2017, how to avail right ITC for goods and services used in the course or furtherance of business is granted to a registered taxpayer, but this is subject to certain restrictions placed under Section 17(5) called "Blocked Credits."

Blocked Credit Provisions for Road Repairs:

The following provisions of Section 17(5) are particularly relevant to the provisions of Block Credit for Road Repairs:

Works Contract Services (Section 17(5)(c))

ITC is not allowed on works contract services used for the construction of immovable property (except when the service is used for further supply of works contract services).

Construction or of Immovable Property (Section 17(5)(d))

In this case, ITC is restricted or say not allowed on goods or services used for the construction of immovable property (other than plant and machinery), whether it is used for business purposes.

Note: For the term of construction its include reconstruction, renovation, additions, and repairs.

Classification of Road Repairs

Repairs for Public Roads

Expenses related to the repair of public roads, such as CSR activities or contributions to  projects, are generally not eligible for ITC. These expenses are not directly linked to taxable business operations.

Repairs for Private Roads (within Business Premises)

If the repairs are for roads within a business premise, such as internal factory roads, parking lot roads, or pathways used for business purposes:

ITC might be claimable if these repairs do not fall under the definition of construction of immovable property.

Such expenses must be directly connected to taxable business activities.

Nature of the Contract

If the road repair involves substantial reconstruction or results in the creation of an immovable property, it may fall under works contract services, making ITC ineligible.

Key Points to Consider

Direct Connection to Business

    Ensure that the expense is directly linked to taxable supplies or business operations.

Nature of Repair Work

   Minor repairs or maintenance (such as pothole filling or resurfacing) may not fall under the ambit of "construction" and could be eligible for ITC.

Proper Documentation

    Maintain proper invoices and agreements clearly specifying the nature of the work.

Advanced Rulings

Decisions by Advance Ruling Authorities in specific cases may guide whether ITC is available, depending on the facts.

Practical Examples

Scenario	ITC Eligibility
Repair of public roads	Not Eligible
Repairs of internal factory	May be Eligible if not immovable property
Road reconstruction resulting in immovable property	Not Eligible

Case Law Reference and Ruling

In some instances, businesses have argued that the repair falls under maintenance and does not result in the construction of immovable property. However, rulings vary with the specifics of the repair work and its classification.

Here is given some Advance Ruling for your reference

Advance Ruling in Wipro Enterprises Pvt. Ltd. (KAR/AAR/16/2018):

ITC was denied for expenses related to the construction of immovable property, including infrastructure like roads, as it was classified as a blocked credit under Section 17(5).

Advance Ruling in Sree Varalakshmi Mahaal LLP (TAMIL NADU AAR, Order No. 24/AAR/2021)

Repairs involving additions or alterations to immovable property were deemed ineligible for ITC. However, minor maintenance costs were found eligible.

Advance Ruling in Dwarikesh Sugar Industries Ltd. (UP AAR, 2020):

The authority allowed ITC on repair and maintenance of factory premises, provided the work was not classified as construction of immovable property.

Conclusion

Whether ITC can be availed on road repairs largely depends on the nature of the expense, the classification of the service, and its direct relevance to business operations. Taxpayers must carefully analyse these factors and consult a GST expert for clarification. Proper documentation and a clear understanding of the law will help avoid disputes during audits.