AAR Rules No ITC on HVAC & Ventilation Systems as Immovable Property

The Authority for Advance Ruling (AAR) determined that input tax credit (ITC) is not admissible on both the Air-conditioning and Cooling System and the Ventilation System under Section 17(5)(c) of the CGST Act. The AAR found that these systems, once installed, become immovable property based on the "test of permanency," as they are integrated into the building structure and cannot be moved without dismantling. Therefore, ITC was blocked as it pertains to works contract services for the construction of immovable property.

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Issues Involved:
1. Admissibility of input tax credit (ITC) on Air-conditioning and Cooling System.
2. Admissibility of ITC on Ventilation System.

Detailed Analysis:

1. Admissibility of ITC on Air-conditioning and Cooling System:
The applicant sought a ruling on the eligibility of ITC for the procurement and installation of an air-conditioning and cooling system under Sections 16 and 17 of the CGST Act, 2017. The applicant argued that ITC should be available as the system is used in the course of business. However, the Authority for Advance Ruling (AAR) examined whether the air-conditioning and cooling system qualifies as movable or immovable property.

The AAR noted that the system, once installed, becomes part of the building structure and cannot be moved without dismantling. The system comprises various components like compressors, ducting, piping, and cooling towers, which are assembled and connected at the site, making it an immovable property. The AAR referenced CBEC Order No. 58/1/2002-CX dated 15-1-2002, which clarifies that such systems are not considered excisable goods but rather immovable property. The AAR also cited several judicial precedents, including the Supreme Court's ruling in Municipal Corporation of Greater Bombay vs. Indian Oil Corporation Ltd., which established the "test of permanency" for determining immovable property.

Based on these findings, the AAR concluded that the air-conditioning and cooling system is an immovable property, and thus, the ITC is blocked under Section 17(5)(c) of the CGST Act, which restricts ITC on works contract services for the construction of immovable property (other than plant and machinery).

2. Admissibility of ITC on Ventilation System:
The applicant also sought a ruling on the eligibility of ITC for the procurement and installation of a ventilation system. Similar to the air-conditioning system, the ventilation system comprises various components like fans, ducting, and electrical panels, which are assembled and installed at the site, making it an immovable property.

The AAR observed that the ventilation system, once installed, becomes an integral part of the building and cannot be moved without dismantling. The AAR referenced the same CBEC Order and judicial precedents to determine the nature of the ventilation system. The "test of permanency" was applied, and it was found that the ventilation system qualifies as immovable property.

Consequently, the AAR ruled that the ITC on the ventilation system is also blocked under Section 17(5)(c) of the CGST Act, as it involves works contract services for the construction of immovable property.

Ruling:
Input tax credit is not admissible on both the Air-conditioning and Cooling System and the Ventilation System, as they fall under the blocked credit category specified in Section 17(5)(c) of the CGST Act.

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