ITC on Warehouse Construction under GST (Gujarat)
Relevant GST Provisions – Construction of Immovable Property and ITC
Under the GST law, Section 17(5)(d) of the CGST Act, 2017 blocks input tax credit (ITC) on goods or services used for the construction of an immovable property (when capitalized), except for “plant and machinery.” The provision disallows ITC on construction even if the expense is incurred in the course or furtherance of business.
The term “construction” includes reconstruction, renovation, additions, or repairs to the extent they are capitalized. A warehouse, being an immovable structure capitalized in the books, typically falls under this disallowance.
Plant and Machinery Exception
As per the Explanation to Section 17, “plant and machinery” includes apparatus, equipment, and machinery fixed to earth by foundation or support, used for making outward taxable supplies. It includes their foundations and supports, but excludes:
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Land, building, or any other civil structures,
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Telecommunication towers,
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Pipelines laid outside a factory.
Hence, a conventional warehouse—being a building fixed to the earth—is excluded from the scope of “plant and machinery.”
ITC Eligibility for a Newly Built Warehouse in Gujarat
For a warehousing company in Gujarat, ITC is not allowed on materials (cement, steel, PEB structures) or services (construction, architectural) used to build a warehouse, if the cost is capitalized. The output services (warehousing/storage) being taxable does not override the explicit ITC block under Section 17(5)(d).
Several Advance Rulings across India have consistently denied ITC in such cases, even when the warehouse is constructed for renting or providing taxable services.
Can the Warehouse be Treated as ‘Plant and Machinery’?
While the term “plant and machinery” is clearly defined (and excludes buildings), the Supreme Court in the Safari Retreats case (October 2024) briefly allowed a broader interpretation using the functionality test. The Court held that if a building is core to delivering taxable services (e.g., leasing, warehousing), it could be treated as “plant”—permitting ITC.
However, this interpretation was short-lived. In December 2024, the GST Council, acknowledging the ambiguity, clarified that the term in Section 17(5)(d) was intended to be “plant and machinery” (as defined) and not “plant or machinery.”
Consequently, the Union Budget 2025 amended the law retrospectively from July 1, 2017, restoring the block on ITC for civil structures. This change nullifies the Supreme Court’s functionality-based relaxation.
Practical Implications in Gujarat
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Gujarat GST follows CGST provisions uniformly.
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No contrary High Court or AAR decisions in Gujarat exist to allow ITC on warehouse construction.
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The retrospective amendment to Section 17(5)(d) ensures that no such ITC is allowed, even for past periods.
Exceptions and Special Considerations
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Works Contract for Others: If the company constructs the warehouse as a service provider (for another party), ITC on inputs is allowed under Section 17(5)(c). But if it is for own use, credit is blocked.
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Resale or Leasing During Construction: If warehouse units are sold under construction (a taxable supply), ITC may be allowed. However, selling after completion (as immovable property) is not taxable, and ITC is blocked.
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Auxiliary Equipment: ITC is allowed on movable assets like racks, forklifts, CCTV, and equipment installed after construction that are not capitalized as part of the building.
Conclusion
For a warehousing company in Gandhidham, Gujarat, constructing a new warehouse:
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ITC on construction-related materials and services is disallowed under GST.
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The building is not considered “plant and machinery,” and the retrospective amendment closes the loophole created by the Safari Retreats verdict.
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The company can only claim ITC on movable equipment or non-structural machinery used for warehouse operations.
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The law is now unambiguous and strictly enforced.
This position reflects current law, judicial rulings, and departmental stance, and must be factored into the company’s financial and tax planning to ensure compliance.
