Tax credits denied for procurement of essential installations under CGST Act; key for

The taxes paid on procurement of goods and/or services for the installation of specific items, including transformers, sewage treatment plants, electrical wiring, surveillance systems, DG sets, lifts, and AHUs, were deemed as blocked credits under Section 17(5) of the CGST Act, 2017. The Authority ruled that these installations, although essential for the mall's operation, are considered part of the immovable property and integral to the building's functionality, thus not eligible for input tax credit.

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Issues Involved:

1. Whether taxes paid on procurement of goods and/or services for installation of specific items are regarded as blocked credits under Section 17(5) of the CGST Act, 2017.

Issue-wise Detailed Analysis:

1. Applicant's Business Activity and Procurement:

The applicant, a Private Limited Company developing a shopping mall, has entered into lease agreements with customers/tenants, leasing units along with common areas and facilities. The applicant procured various goods and services for installations such as Chillers, Air Handling Units (AHU), Lifts, Escalators, Water Treatment Plants (WTP), Sewage Treatment Plants (STP), High-Speed Diesel Yards (HSD), Mechanical Car Parks (MLCP), CCTV systems, DG Sets, Transformers, Electrical wiring and fixtures, and Public Health Engineering (PHE), Fire-fighting, and water management pump systems. These installations are essential for the mall's operation and are capitalized in the books of accounts.

2. Applicant’s Interpretation of Plant or Machinery:

The applicant contends that all installations qualify as "Plant or Machinery" under the CGST Act, 2017, and thus, taxes paid on their procurement should not be regarded as blocked credits under Section 17(5)(d) of the CGST Act, 2017. The applicant references legal dictionaries, judicial pronouncements, and definitions under other laws to support this interpretation. The applicant argues that the installations are distinct from the building or civil structure and should be eligible for input tax credit.

3. Relevant Provisions and Definitions:

Section 17(5)(d) of the CGST Act, 2017, states that input tax credit is not available for goods or services received for the construction of an immovable property (other than plant or machinery) on one’s own account. The Explanation to Chapter V and Chapter VI defines "plant and machinery" as apparatus, equipment, and machinery fixed to earth by foundation or structural support used for making outward supply of goods or services, excluding land, building, or any other civil structures.

4. Authority’s Examination and Findings:

The Authority examined the applicant's transactions and lease agreements, noting that the property leased includes common areas and facilities, with charges for rent, maintenance, and HVAC. The Authority considered whether the installations qualify as "plant and machinery" and whether they are part of the immovable property.

5. Determination of Blocked Credits:

The Authority concluded that the installations, although essential for the mall’s operation, are part of the immovable property (building or civil structure). The installations like transformers, sewage treatment plants, electrical wiring, surveillance systems, DG sets, lifts, and AHUs are integral to the building's functionality and cannot be considered separate from the building or civil structure. Therefore, input tax credit on goods or services used for these installations is blocked under Section 17(5)(d) of the CGST Act, 2017.

Ruling:

The taxes paid on procurement of goods and/or services for the installation of the listed items are regarded as blocked credits under Section 17(5) of the CGST Act, 2017.

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