2023 (10) TMI 473 - AAAR - GST

Appeal dismissed for blocked input tax credit on office construction items under Section 17(5)(c) and 17(5)(d)

AAAR Gujarat dismissed the appeal regarding blocked input tax credit for construction of new administrative office. The authority held that central air ... Input tax credit - blocked credits under Section 17(5)(c) - blocked credits under Section 17(5)(d) - works contract services and construction of immovable property - plant and machinery - permanency/assimilation test - capitalisation and accounting treatment of professional feesInput tax credit - works contract services and construction of immovable property - plant and machinery - permanency/assimilation test - blocked credits under Section 17(5)(c) - ITC on supply and installation of Central Air Conditioning Plant - HELD THAT: - The advance ruling that ITC on the central air-conditioning plant is blocked was upheld. The authority examined the nature and installation of a central AC system and relied on administrative guidance and precedent holding that such systems, once assembled and fixed, become part of the building and constitute immovable property. Consequently, where the supply comprises supply and erection (works contract), it falls within the prohibition in Section 17(5)(c) and ceases to be plant and machinery for purposes of ITC. [Paras 15]ITC on Central Air Conditioning Plant is blocked under Section 17(5)(c).Input tax credit - works contract services and construction of immovable property - plant and machinery - permanency/assimilation test - blocked credits under Section 17(5)(c) - ITC on supply and installation of Lift/Elevator - HELD THAT: - The supply and installation agreement for the lift was held to constitute a works contract. The authority relied on case law recognising that lifts, when erected and installed as part of a building, become integral to the immovable property. Once so assimilated, the item ceases to qualify as plant and machinery for ITC purposes and falls within the exclusion in Section 17(5)(c). [Paras 16]ITC on Lift/Elevator is blocked under Section 17(5)(c).Input tax credit - works contract services and construction of immovable property - blocked credits under Section 17(5)(c) - ITC on electrical fittings (cables, switches, NCB and other electrical consumables) installed in the building - HELD THAT: - The authority found that the supply of electrical fittings involves installation and becomes concealed within or fixed to the building structure. That installation renders the fittings part of the immovable property; the supply thus falls within works contract services for construction of immovable property and credit is excluded by Section 17(5)(c). The appellant's reservation of ITC only for fittings not used in civil construction did not alter this conclusion. [Paras 17]ITC on the electrical fittings as installed is blocked under Section 17(5)(c).Input tax credit - plant and machinery - permanency/assimilation test - ITC on Roof Solar Plant - HELD THAT: - On review of the installation details and proposal, the authority concluded that the roof solar plant is mounted on foundations using nuts and bolts with no permanent welding, is not permanently fastened to the building and retains the character of plant and machinery. It was capitalised in accounts and intended for captive consumption in supplying taxable services. Therefore it does not qualify as immovable property and is not hit by the blocked credit provisions. [Paras 18]ITC on Roof Solar Plant is admissible.Input tax credit - works contract services and construction of immovable property - plant and machinery - permanency/assimilation test - blocked credits under Section 17(5)(c) - ITC on supply and installation of Fire Safety Extinguishers - HELD THAT: - The authority found the fire safety installations to be an integral and mandatory part of the building under the Gujarat Fire Prevention and Life Safety Measures Act, 2013 and concluded there is an intention for permanent installation. Relying on precedent that items permanently fixed to a structure lose their movable character, the supply and installation were held to result in immovable property and thereby fall within the exclusion in Section 17(5)(c). [Paras 19]ITC on Fire Safety Extinguishers is blocked under Section 17(5)(c).Input tax credit - capitalisation and accounting treatment of professional fees - blocked credits under Section 17(5)(d) - ITC on Architect service fees and Interior Designing fees - HELD THAT: - The authority observed that services of architects and interior designers relate to construction of the appellant's immovable property. Accounting Standard AS 10 identifies professional fees as directly attributable costs that are ordinarily capitalised as part of property, plant and equipment. Accordingly, the mere booking to profit and loss account does not alter the legal character of these services. As services received for construction of immovable property, they are excluded from ITC under Section 17(5)(d). [Paras 20]ITC on Architect and Interior Designer fees is blocked under Section 17(5)(d).Final Conclusion: The appeal is dismissed and the Advance Ruling is upheld except in respect of the roof solar plant: ITC is allowed for the roof solar plant, while ITC is disallowed under Section 17(5)(c) for central air-conditioning plant, lift, electrical fittings and fire safety extinguishers, and disallowed under Section 17(5)(d) for architect and interior designer fees. Issues Involved:1. Eligibility for Input Tax Credit (ITC) on various goods and services used in the construction of a new administrative building.2. Interpretation of Section 17(5) of the CGST Act, 2017 regarding blocked credits.Summary:Central Air Conditioning Plant:The appellant argued that the Central Air Conditioning Plant should not be considered immovable property as it does not involve assimilation with the property. However, the court found that the plant becomes part of the building once installed, making it immovable property. Thus, ITC on the Central Air Conditioning Plant is blocked under Section 17(5)(c) of the CGST Act, 2017.Lift:The appellant claimed ITC on the lift, classifying it under 'Plant & Machinery.' The court, referencing the case of M/s. Otis Elevator Company (India), held that the lift becomes an integral part of the immovable property once installed. Therefore, ITC on the lift is blocked under Section 17(5)(c) of the CGST Act, 2017.Electrical Fittings:The appellant sought ITC on electrical fittings not used in civil construction. The court found that electrical fittings, once installed, become part of the building and thus immovable property. Therefore, ITC on electrical fittings is blocked under Section 17(5)(c) of the CGST Act, 2017.Roof Solar Plant:The appellant argued that the roof solar plant should be considered 'Plant and Machinery' as it is not permanently fastened to the building. The court agreed, stating that the roof solar plant qualifies as plant and machinery and is not immovable property. Therefore, ITC on the roof solar plant is admissible.Fire Safety Extinguishers:The appellant claimed ITC on fire safety extinguishers, arguing they are mandatory under the Gujarat Fire Prevention and Life Safety Measures Act, 2013. The court found that fire safety extinguishers become part of the building and are thus immovable property. Therefore, ITC on fire safety extinguishers is blocked under Section 17(5)(c) of the CGST Act, 2017.Architect Service Fees and Interior Designing Fees:The appellant argued that these fees should be eligible for ITC as they are charged to the Profit & Loss Account. The court found that such professional fees should be capitalized as per Accounting Standards. Therefore, ITC on architect service fees and interior designing fees is blocked under Section 17(5)(d) of the CGST Act, 2017.Conclusion:The appeal was rejected, and the Advance Ruling No. GUJ/GAAR/R/37/2021 dated 30.07.2021 was upheld, except for the roof solar plant, where ITC was deemed admissible.