GST Input Tax Credit on Prefabricated Structures

What are Prefabricated Structures?

Prefabricated structures, or prefabs, are buildings made in a factory and assembled on-site. They can be fully or partially constructed in the factory, then transported for assembly. A key advantage of prefabs is their ability to be easily disassembled and relocated, making them popular for commercial uses like manufacturing facilities and warehouses.

Eligibility for Input Tax Credit (ITC) in GST

Input tax credit (ITC) under the CGST Act, 2017 is not allowed on:

• Works contract services received for constructing immovable property (excluding plant and machinery).

• Goods or services received for constructing immovable property on one's own account.

As seen above, ITC is not allowed if inputs are used for construction of immovable property. Therefore, to decide whether ITC is available on prefabricated structures, we have to determine whether they would constitute immovable property upon installation or whether they remain movable.

What is immovable property?

Immovable property is defined in Section 3(26) of the General Clauses Act, 1897, to include land, benefits to arise out of the land, and things attached to the earth, or permanently fastened to anything attached to the earth. In turn, "attached to the earth" is defined in section 3 of Transfer of Property Act, 1882 to mean anything that is rooted in the earth, embedded in the earth or and attached to what is so embedded for permanent beneficial enjoyment of that to which it is attached. It may be noted that permanency is crucial.