2021 (8) TMI 740 - AAR - GST

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 ... Input tax credit admissibility - blocked input tax credit under Section 17(5)(c) of the CGST Act, 2017 - works contract service classification - movable versus immovable property - test of permanency for attachment - SITC (supply, installation, testing and commissioning) - CBEC Order No.58/1/2002-CX regarding refrigeration/air-conditioning plantsInput tax credit admissibility - blocked input tax credit under Section 17(5)(c) of the CGST Act, 2017 - works contract service classification - test of permanency for attachment - SITC (supply, installation, testing and commissioning) - CBEC Order No.58/1/2002-CX regarding refrigeration/air-conditioning plants - Input tax credit on the Air conditioning and Cooling System is not admissible as it is blocked under Section 17(5)(c) of the CGST Act, 2017. - HELD THAT: - The Authority examined the contract (SITC) and invoices and found that the centralised air conditioning/cooling installation is a system assembled on site from multiple components which, after installation, lose their separate identity and cannot be taken to market or shifted except after dismantling. Applying the Supreme Court's 'test of permanency' and the reasoning in the cited precedents, and having regard to CBEC Order No.58/1/2002 CX which treats refrigeration/air conditioning plants as systems that become immovable when erected, the installation qualifies as supply of an immovable (works contract) and not as supply of goods. Section 17(5) is a non obstante provision and clause (c) covers works contract services for construction of immovable property (other than plant and machinery); the Authority held the centralised AC system to fall within the blocked category. The invoices for goods and labour and the terms of the work order (including transfer of system to owner on commissioning and comprehensive maintenance) support this classification and the conclusion that ITC is blocked. [Paras 11, 12, 14]ITC on the Air conditioning and Cooling System is not admissible as it is blocked under Section 17(5)(c) CGST Act.Input tax credit admissibility - blocked input tax credit under Section 17(5)(c) of the CGST Act, 2017 - works contract service classification - movable versus immovable property - test of permanency for attachment - CBEC Order No.58/1/2002-CX regarding refrigeration/air-conditioning plants - Input tax credit on the Ventilation System is not admissible as it is blocked under Section 17(5)(c) of the CGST Act, 2017. - HELD THAT: - The ventilation installation comprises fans, ducting, supports, panels and allied components supplied and assembled on site under the same HVAC work order. After installation these parts lose individual identity and form an integrated ventilation system which cannot be marketed or shifted without dismantling, thereby satisfying the permanency test. The Authority treated such on site assembled ventilation works as erection resulting in immovable property and therefore as works contract supply. Reliance on the CBEC clarification and relevant Supreme Court authorities led to the conclusion that the supply is covered by Section 17(5)(c) and that input tax credit is accordingly blocked. [Paras 11, 12, 14]ITC on the Ventilation System is not admissible as it is blocked under Section 17(5)(c) CGST Act.Final Conclusion: The Authority rules that input tax credit is not admissible on the Air conditioning and Cooling System and the Ventilation System supplied, installed and commissioned under the HVAC work order, as these supplies are works contract/immovable installations and constitute blocked credit under Section 17(5)(c) of the CGST Act, 2017. 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.