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Usually, no. GST paid on works-contract services or on goods and services used to construct an immovable hotel or resort building is generally blocked by section 17(5)(c) and section 17(5)(d) of India’s Central Goods and Services Tax (CGST) Act. The restriction applies even when the property is built for a taxable hospitality business. Limited exceptions and separate apportionment rules can change the result for particular contracts, installed equipment, or mixed-use inputs.
The correct analysis is item-by-item: identify whether the work is a works contract or own-account construction, determine whether the relevant amount is capitalised, test whether the item is a building or qualifying plant and machinery, and then apply the business-use and exempt-supply rules. The statutory wording and any later amendment or court decision in force on the date of the claim must be checked before filing a project-specific position.
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The default rule for a hotel or resort project
Section 17(5)(c) blocks input tax credit (ITC) for works-contract services supplied for the construction of an immovable property, other than plant and machinery. Section 17(5)(d) separately blocks goods or services received by a taxable person for construction of an immovable property on the person’s own account, including when the property is used in the course or furtherance of business. A hotel, resort, guesthouse, conference building, or similar civil structure normally falls within the immovable-property restriction.
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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsConsequently, the fact that rooms, food, banquets, or other hospitality services are taxable does not by itself make GST on the building’s construction creditable. Output-tax classification and the blocked-credit provisions answer different questions.
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The relevant statutory text is in the CBIC copy of the CGST Act: section 17 and related provisions.
Section 17(5)(c): works-contract services
When the clause applies
This clause is relevant where the hotel owner, developer, or another taxable person receives a works-contract service for construction of an immovable property. Works contracts commonly cover civil, structural, electrical, plumbing, finishing, HVAC, fire-safety, and integrated building work supplied by a contractor. The recipient must test the actual scope and contract rather than rely on the invoice label.
Credit is blocked when the service is used for construction of immovable property other than plant and machinery. The restriction is tied to the use of the service, so a contract should be separated where it contains both blocked civil construction and potentially creditable machinery or equipment supplied and installed as distinct items.
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Section 17(5)(c) contains an exception where the works-contract service is an input service for the further supply of works-contract service. This is aimed at a taxable person who receives a works-contract service and then supplies a works-contract service onward, rather than an owner consuming the work to create its own hotel asset.
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For example, a principal contractor receiving subcontracted works-contract services and supplying a works-contract service to its customer may fall within the exception, subject to the precise contracts, registration, invoicing, and use of the service. A hotel operator hiring a contractor to build its own property generally is not making a further supply of works-contract service merely because it operates the completed hotel.
Section 17(5)(d): own-account construction
What “own account” covers
Section 17(5)(d) addresses goods or services received by a taxable person for construction of an immovable property on its own account. It expressly covers construction undertaken in the course or furtherance of business. Thus, a company developing and operating a resort cannot assume that business purpose preserves ITC on cement, steel, architectural services, project management, or other inputs used to create its own capitalised building.
The clause must be tested separately from section 17(5)(c). A project may involve both a contractor’s works-contract service and the owner’s direct purchases or internally arranged construction. The contracts, purchase orders, invoices, payment trail, and accounting treatment should show which person received each supply and for what purpose.
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Section 17(5)(d) is a specific blocked-credit rule. The general entitlement for inputs used in the course or furtherance of business does not override a specific restriction in section 17(5). Business use remains relevant to inputs outside the block, but it does not, by itself, unlock GST charged on construction of the immovable hotel building.
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What counts as “construction” for this restriction?
The statutory explanation extends “construction” beyond a new build. It includes reconstruction, renovation, additions, alterations, and repairs to the extent of capitalisation to the immovable property. A capitalised refurbishment of guest floors, a structural extension, a new wing, or a major renovation can therefore be within the same analysis as the original construction.
Capitalisation is an important boundary, but it is not an automatic entitlement test. Recording expenditure as a capital asset does not convert blocked credit into eligible credit. Conversely, the accounting treatment should be reviewed carefully where work includes both capitalised building improvements and ordinary operating repairs, because the statute refers to construction to the extent capitalised.
Maintain a project ledger that maps each invoice to the asset component, work order, location, and accounting treatment. The ledger should identify whether an amount relates to civil structure, a separately identifiable machine, routine maintenance, or a mixed contract requiring allocation.
Building versus plant and machinery
The Act defines “plant and machinery” as apparatus, equipment, and machinery fixed to earth by foundation or structural support and used for making outward supplies. The definition includes the foundations and structural supports for that apparatus, equipment, or machinery. It expressly excludes land, buildings, or other civil structures, telecommunications towers, and pipelines laid outside factory premises. See the statutory definition in the CBIC CGST Act text.
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The hotel building itself should therefore not be described as plant and machinery on the basis of its commercial use. Classification of a particular installed item can be fact-sensitive. A lift, central plant, specialised kitchen system, laundry machinery, power-generation equipment, or water-treatment unit may require analysis of its physical identity, attachment, function, and whether it is part of the civil structure. The available statutory material does not decide the treatment of any specific hotel system.
Use the following evidence for each disputed item:
- Technical specifications and equipment schedules.
- Separate purchase and installation invoices, where available.
- Engineering drawings showing whether the item is machinery or an inseparable civil component.
- Fixed-asset register descriptions and depreciation classes.
- Contract clauses allocating civil works, foundations, installation, commissioning, and testing.
- How the item is used to make the hotel’s outward supplies.
Separate restrictions for business and exempt use
Even when a purchase is not caught by section 17(5)(c) or (d), sections 17(1) and 17(2) can restrict the credit. Section 17(1) limits credit to the portion attributable to business use where inputs or services are used partly for business and partly for non-business purposes. Section 17(2) limits common inputs to the portion attributable to taxable and zero-rated supplies where they support both those supplies and exempt supplies.
A hotel group should therefore distinguish three questions:
- Is the supply blocked outright because it is construction of an immovable property under section 17(5)?
- If not blocked, is it used wholly for business or partly for a non-business activity?
- If used for business, does it support taxable or zero-rated supplies as well as exempt supplies, requiring attribution?
Document the allocation method, turnover data, periods used, and reversals or adjustments required under the applicable rules. Common services such as security, administration, information technology, maintenance, or utilities may need a different analysis from the building’s construction invoices.
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Project cases compared
| Project situation | Primary provision to test | Likely treatment on the stated facts | Evidence needed |
|---|---|---|---|
| Owner hires a contractor to build its hotel | Section 17(5)(c) | Works-contract ITC generally blocked, unless the further-supply-of-works-contract exception applies | Contract scope, recipient, end use, and whether the service is supplied onward as works contract |
| Developer buys materials and services to construct its own resort | Section 17(5)(d) | Own-account construction ITC generally blocked, including business-use construction | Purchase invoices, project ledger, ownership, capitalisation, and construction responsibility |
| Capitalised renovation, addition, alteration, or repair | Construction explanation to section 17(5) | Within the construction analysis to the extent capitalised; capitalisation alone does not make credit eligible | Work orders, asset register, invoices, and capital-versus-revenue accounting |
| Separately identifiable machinery used for hotel supplies | Plant-and-machinery definition and section 17(5) | May require item-specific analysis; building and civil structures remain excluded by the definition | Technical drawings, specifications, attachment, function, and separate invoicing |
| Common input used for taxable and exempt supplies | Section 17(2) | Credit restricted to the taxable and zero-rated portion under the applicable attribution rules | Supply classification, turnover workings, and periodic reversal records |
| Input used partly for business and partly for non-business purposes | Section 17(1) | Credit limited to business use | Use records, area or time allocation, and support for the apportionment basis |
A practical review process before claiming ITC
- Map the parties. Identify the registered recipient, landowner, developer, operator, principal contractor, and subcontractors. The same invoice can produce a different result depending on who receives and uses the supply.
- Split the project by supply. Separate civil works, design and consultancy, project management, furniture, loose equipment, fixed machinery, utilities, and post-opening repairs. Do not treat one large project value as one undifferentiated input.
- Classify the route. For each supply, record whether it is a works-contract service, a direct purchase for own-account construction, or a distinct equipment supply with installation.
- Test capitalisation. Reconcile the tax invoice to the fixed-asset register and general ledger. Identify the portion capitalised to the immovable property and any genuinely revenue repairs.
- Test plant and machinery carefully. Apply the statutory definition and exclusions. Obtain engineering support for items claimed to be machinery; do not rely only on a balance-sheet heading.
- Check the exception. If relying on the further-supply exception for works-contract services, prove that the recipient actually makes a further supply of works-contract service and that the input service is used for that supply.
- Apply sections 17(1) and 17(2). For items outside the construction block, calculate business-use and taxable/zero-rated-use portions and preserve the workings.
- Reconcile the claim. Match purchase registers, e-invoices or tax invoices, vendor GST details, payment records, and the return in which credit is taken. Flag disputed items for a written tax position before filing.
Output GST rates do not remove the construction block
CBIC’s GST rate schedule lists hotel accommodation up to a value of supply of ₹7,500 per unit per day in a 12% entry, while accommodation above that amount appears in an 18% entry. Restaurant service at specified premises appears in an 18% entry, and some restaurant entries carry conditions that input credit has not been taken. Check the current notification text and the premises classification for the property when determining output tax: CBIC GST Goods and Services Rates.
These rate entries determine the GST charged on outward supplies. They do not independently override section 17(5)(c) or (d). A hotel can charge GST on taxable accommodation and restaurant services while still being unable to claim GST paid on construction of its immovable building.
The unresolved section 17(5)(d) wording issue
On 21 December 2024, a CBIC GST Council press release reported a recommendation to replace “plant or machinery” with “plant and machinery” in section 17(5)(d), retrospectively from 1 July 2017, so the phrase would be read with the statutory explanation. The press release records a recommendation; it does not, by itself, establish the final enacted text, commencement provisions, or the effect of any later amendment.
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Before giving project-specific advice, check the operative Act, the relevant amending legislation and notifications, and decisions issued after the Supreme Court’s Safari Retreats ruling. The official recommendation is available at CBIC’s 21 December 2024 press release. Do not state that the recommendation automatically creates a new credit entitlement or settles every hotel-building claim.
Common mistakes and how to avoid them
- “The hotel is taxable, so all project GST is creditable.” Taxable output does not defeat a specific blocked-credit provision.
- “The invoice says equipment.” Labels do not establish plant-and-machinery status; inspect the item and its installation.
- “Capitalised means eligible.” Capitalisation identifies the statutory construction boundary but does not grant ITC.
- “A contractor was used, so section 17(5)(d) is irrelevant.” The contractor’s service may be tested under section 17(5)(c), while direct purchases and other own-account inputs may be tested separately under section 17(5)(d).
- “A rate notification allowing ITC solves the issue.” Output-rate conditions and section 17(5) restrictions must be read independently.
- “The 2024 recommendation is already settled law.” Verify enactment and operative status before relying on it.
What records should be retained?
Keep executed contracts and amendments, bills of quantities, architectural and engineering documents, tax invoices, goods-receipt records, work-completion certificates, payment evidence, capitalization schedules, fixed-asset registers, plant specifications, GST return reconciliations, and written allocation workings. Preserve a contemporaneous explanation for any item treated as outside the immovable-property block.
For a large project, obtain a written opinion from an Indian GST adviser who has reviewed the contracts and drawings. The decisive facts are often technical and commercial rather than visible from the tax invoice alone. Revisit the position when the project scope changes, a renovation is capitalised, the property changes use, or the law and case law develop.
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