QSR Chain — ₹38 Lakh GST ITC Recovery on Restaurant Renovations
A quick service restaurant chain had written off ₹38 lakh in GST input tax credit on renovation spend after blanket advice that Section 17(5) blocked all claims. The advice was partially right — and the distinction was worth ₹38 lakh.
What the engagement demanded.
A QSR chain operating six outlets across Mumbai and Pune had completed renovation of four of its locations, spending close to ₹1.6 crore on civil work, furniture, kitchen equipment, and fit-out. Their existing accountant advised them not to claim ITC on any of it, citing a blanket view that restaurants cannot avail input tax credit on construction-related expenses. As a result, the entire GST component of the renovation spend — roughly ₹38 lakh — had been written off as a cost. When the chain approached us before planning a seventh outlet, we reviewed the prior position and found the advice was a misapplication of Section 17(5) that had cost real money.
How we executed the engagement.
Invoice Review
Pulled all renovation invoices across the four outlets and listed every line item — civil work, furniture, commercial kitchen equipment, counters, electrical, and fit-out supplies — separately for classification.
Section 17(5) Analysis
Applied the legal distinction in Section 17(5): blocked credits apply to works contract services used for construction of immovable property. Movable fit-outs, kitchen equipment, loose furniture, and supplies are not blocked. Roughly 60% of the spend fell in the eligible pool; 40% of civil and structural work was legitimately blocked.
Legal Working Note
Prepared a category-by-category working note documenting the GST legal basis for each classification — eligible and ineligible — so the claim could withstand a departmental query without ambiguity.
Amended Return Filing
Filed amended GSTR-3B returns for the relevant periods claiming ITC on the eligible portion, with supporting documentation and the working note attached.
Procurement Framework
Implemented a capex and renovation procurement tagging process so all future renovation and capital spend is categorized at the time of purchase rather than retrospectively written off.
The capabilities we brought to bear.
Section 17(5) Blocked Credit Analysis
Precise reading of the works contract vs supply distinction to separate blocked renovation spend from legitimately eligible ITC — one of the most commonly misapplied provisions in GST.
Invoice Reclassification
Line-by-line categorization of ₹1.6 crore in renovation invoices into eligible and ineligible ITC pools, with each category documented.
Amended GSTR-3B Filing
Formal amendment of GST returns for the relevant periods with per-category legal documentation that could withstand a GST officer query.
Capex Procurement Framework
Forward-looking procurement tagging system to ensure future renovation and capex spend is classified correctly at the time of purchase, avoiding a repeat of the loss.
The results we delivered.
Section 17(5) is one of the most misapplied provisions in GST. A precise reading of what is blocked and what is not is worth doing before writing off any significant capital spend.
