2024 (3) TMI 319 - AAR - GST

Input tax credit blocked for runway and terminal construction services under Section 17(5)(c) CGST Act

In Re: M/s. Kannur International Airport Ltd

The AAR Kerala ruled that input tax credit claimed by the applicant for services supplied by a contractor in connection with runway and passenger terminal ... Blocking of credit - Reversal of Input Tax Credit - services supplied by Larsen and Toubro Ltd in connection with the construction of runway and passenger terminal building of the applicant - ineligible credits that the applicant has taken in respect of certain supplies specifically listed in the statement of relevant facts in Annexure-1 or not - HELD THAT:- The provisions of Section 17(5)(c) and 17(5)(d) of the CGST Act relate to blocking of ITC in relation to goods or services or both used for construction of immovable property. The provisions of both the said sub-sections are to be read along with the explanations given after section 17(5) (d) and section 17(6). The provisions of both clauses (c) and (d) are inter-linked to each other and are to be read conjointly. The applicant has entered into two common contracts with L&T; the first one being EPC contract for construction of Runway with Basic Strip, Turning Pads, Taxiways, Apron, Access Roads, Drainage System, Related Retaining Structures, Formation of Platforms for Landslide Facilities, and installation of Airfield Ground Lighting System, Visual Aids for Navigation and Bird Hazard Reduction System etc and the other being for construction of Passenger Terminal Building [PTB] with ATC, substations, installation of HVAC system, Plumbing, Fire Alarm, Fire Fighting System, CCTV, PA system, Flight Information Display system, Interior Design, internal and external finishing, Building internal access control system, Hydro pneumatic pumping system for buildings, STP, and rain water harvesting system etc. - the predominant and principal supply involved in both the contracts is construction of immovable property hence the contract cannot be artificially vivisected to consider it a contract for supply of various goods / services as contended by the applicant and the eligibility of input tax credit determined accordingly. The supply of goods/services are integral part of the overall contract for supply of works contract services for construction of immovable property and hence the entire input tax credit of tax paid on the works contract services as per the Running Bills of L & T are not eligible being blocked credit in terms of provisions of Section 17 (5) (c) of the CGST Act, 2017. Issues Involved:1. Admissibility of input tax credit (ITC) on services supplied by Larsen and Toubro Ltd (L&T) in connection with the construction of the runway and passenger terminal building.Summary:Issue 1: Admissibility of Input Tax Credit on Services Supplied by L&TApplicant's Contentions:The applicant argued that certain services related to the construction of the runway and passenger terminal building should be eligible for ITC. They highlighted that Section 17(5)(c) and (d) of the CGST Act block credit only for construction of immovable property, not for other activities such as fabrication, completion, erection, modification, etc. They claimed ITC should be allowed for services like signage, flooring, ceiling work, partition work, electrical fittings, water supply system, and engineering consultancy, as these are not directly for construction but related to it.Additionally, the applicant contended that ITC should be allowed for plant and machinery as defined in the explanation to Section 17, which includes apparatus, equipment, and machinery fixed to earth by foundation or structural support. They listed items like airfield lighting and control systems, runway roadside pipe drain, pipe culvert, and runway electrical fittings as eligible for ITC.Jurisdictional Officer's Comments:The jurisdictional officer submitted that the applicant is liable to reverse the ITC availed on works contract services for the construction of immovable property, as they are not engaged in supplying works contract service. The ineligible ITC availed was approximately 15 Crores.Discussion and Conclusion:The authority examined the facts and submissions, noting that the applicant entered into two contracts with L&T for constructing the runway and passenger terminal building. The services provided by L&T under these contracts are considered composite supply of works contract services for construction of immovable property. Therefore, the entire ITC of tax paid on these services is blocked under Section 17(5)(c) of the CGST Act.The authority concluded that the supply of goods/services listed by the applicant are integral parts of the overall contract for works contract services for construction of immovable property. Hence, the ITC on these supplies is not eligible.Ruling:The applicant is not eligible for the input tax credit in respect of the tax paid on the supplies of goods/services received by them that are specifically listed in the Statement of Relevant Facts in Annexure-I to the application.