2025 (8) TMI 1325 - AAR - GST

GST input tax credit denied for supply and installation of fire-fighting and public-health equipment as immovable works under Section 17(5)(c)/(d)

In Re: M/s. Shibaura Machine India Private Limited

AAR held that GST credit on supply and installation of fire-fighting and public-health equipment for a new factory is not admissible. The installations ... Eligibility of ITC - fire-fighting system and public heath equipment for expansion of factory for manufacturing activity - timeline to avail ITC on tax invoice raised by supplier to bill “Advance Component” of the contract - HELD THAT:- The embargo in relation to availment of ITC in the instant case revolves very much around clauses (c) and (d) of Section 17(5) of the Act, ibid, and both the clauses restricts ITC availment on receipt of Works Contract service, or on receipt of any goods or service or both, when made for ‘construction of an immovable property. It could be seen from the provisions of section 17(5)(c) of the Act, that the phrase, viz., ‘other than plant and machinery’, finds a place under the said clause, from which it gets conveyed that availment of ITC on ‘plant and machinery’ is not blocked under the said provision. It is to be noted here that even the phrase ‘other than plant or machinery’ that was part of clause (d) of Section 17(5), now stands amended as ‘other than plant and machinery’, retrospectively with effect from 1.07.2017 onwards, through SI.No.124 of the Finance Act, 2025 (No.7 of 2025). From the scope of the contract entered into between the parties, it could be seen that the agreement is not just for installation/commissioning of Fire-Fighting System and Public Health Engineering and it is a composite one of ‘Works Contract’ Service, wherein the break-up of the cost involved on Supply and Installation of Fire-Fighting System and Public Health Engineering has been provided separately - when a comprehensive installation for a new factory set-up begins, these fittings are mostly concealed into the wall/floor of the building. They are concealed or fitted on to the building through pipes as it serves the dual purpose of safety and aesthetics. Further, on installation of the above fittings meant for the factory/facility, they do not have an independent existence and it becomes part and parcel of the entire building/infrastructure and thereby a part of the immovable property. This apart, we find under the General Clauses Act, 1897, ‘Immovable Property’ has been defined under Section 3(26) as “Immovable Property shall include land, benefits arising out of land and things attached to the earth, or permanently fastened to anything attached to the earth.” It could be seen that these installations are normally fastened to the wall or roof of the building which in turn is attached to earth. The fact that the clause in the contract itself, which specifies the permanent and immovable nature of the executed project, viz., “(3) The Contractor shall complete the Work and deliver the Permanent Work to the owner in accordance with the Contract,”, proves the case in point. The GST paid on the receipt of ‘Works Contract’ service involving the said installations for the new factory project, do not become eligible for availment of ITC as they are blocked under clause (c) of the Section 17(5) of the CGST/TNGST Act, 2017. Notwithstanding the same, even in the event of considering the said supply as an independent ‘Construction Service, the same again stands blocked under clause (d) of the Section 17(5) of the CGST/TNGST Act, 2017. As per the records furnished by the Applicant, the Contract is for installing the fire-fighting systems and public health equipment permanently to the building. These items once fitted, no longer remains movable goods as it gets assimilated in a permanent structure. As the supply and installation of fire-fighting systems and public health equipment as pointed out above, makes it an immovable property, it ceases to be a plant and machinery. Hence, in view of the above discussions, it is found that the Applicant is not entitled to ITC of GST paid on Fire Safety Systems & Public Health Equipment in view of the provisions of Section 17(5)(c) of CGST /TNGST Act, 2017. Thus, once it is held that the ITC related to fire-fighting systems and public health equipment for the new factory is not available to the applicant in the instant case, the question of answering the other query, viz., “What should be the basis to arrive the timeline to avail ITC on tax invoice raised by Supplier to bill “Advance Component” of the Contract and Subsequent Adjustment of Advance in the Service Bills showing both Gross and Net amount.”, does not arise, as the same is directly related to the specific contract involved in the instant case, and is very much dependent on the main query. ISSUES PRESENTED AND CONSIDERED 1. Whether input tax credit (ITC) is admissible on GST paid for supply, installation, testing and commissioning of fire-fighting systems (FFS) and public health engineering (PHE) works executed as part of expansion of a factory. 2. If ITC on invoices issued for an advance component (mobilisation advance) can be availed when actual receipt of goods/services (and final adjustment of advance) occurs after the statutory time-limit prescribed under Section 16(4) of the Act. (Considered contingent upon resolution of Issue 1.) ISSUE-WISE DETAILED ANALYSIS Issue 1: Eligibility of ITC on FFS and PHE works Legal framework: Section 16(1) entitles ITC for inputs/inputs services 'used or intended to be used in the course or furtherance of business', subject to conditions. Section 17(5) lists blocked credits, notably clauses (c) and (d) which deny ITC for works contract services and goods/services received for construction of immovable property (other than plant and machinery). The Explanation to Section 17 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. Precedent treatment: Applicant relied on a Maharashtra AAR ruling (Nipro) that allowed ITC on certain fire alarm and PHE items; cited a Delhi High Court decision accepting fire-fighting equipment as plant/machinery for investment allowance; applicant cited other supportive authorities. The Authority considered later AAR/Appellate AAR rulings (Karnataka AAR in Embassy Industrial Park; Gujarat Appellate AAR in Varachha) which held similar installations assimilate into immovable property and are not plant and machinery for Section 17(5) purposes. Interpretation and reasoning: The contract is a composite 'works contract' for supply, installation, testing and commissioning and delivers 'Permanent Work' to the owner. The Authority examined: (a) whether the executed output creates immovable property; (b) whether resultant installations qualify as 'plant and machinery'; and (c) whether the contract qualifies as a works contract. The Authority found the installations are normally concealed/fixed into building structure, become part of the building (immovable), and are delivered as permanent work per contract terms. The statutory definition of 'plant and machinery' requires apparatus/equipment fixed to earth AND used for making outward supply of goods or services; even if components satisfy the first limb (fixed to earth/structural support), they do not satisfy the second limb because FFS/PHE are not used directly for making outward supply of goods or services. Accounting classification by the taxpayer (capitalising as plant/machinery) does not determine legal character. Treatment of precedents: The Authority treated the Maharashtra AAR ruling as persuasive but fact-sensitive and distinguished it on facts; it found later AAR decisions (Karnataka; Gujarat Appellate AAR) more consistent with the present facts where installations were held to lose independent existence and become part of immovable property. The Delhi High Court revenue (investment allowance) decision was noted but not treated as decisive for GST-Section 17(5) analysis because GST statutory tests differ (especially the 'used for making outward supply' requirement). Ratio vs. Obiter: Ratio - Where supply, installation and commissioning of FFS/PHE in a new factory are part of a composite works contract that results in permanent works assimilated with building/infrastructure, such works constitute construction of immovable property and are blocked from ITC under Section 17(5)(c)/(d). Obiter - Discussion of dictionary definitions and Factories Act safety/mandate considerations; persuasive citations to investment allowance jurisprudence do not alter statutory GST test. Conclusion: ITC on GST paid for the FFS and PHE works carried out for the new factory is not admissible; such supplies are blocked by Sections 17(5)(c) and 17(5)(d) because the contract constitutes a works contract producing immovable property and the installations do not qualify as 'plant and machinery' under the statutory definition. Issue 2: Timeline for availing ITC on invoices issued for advance (mobilisation) payments Legal framework: Section 16(2) prescribes conditions for availing ITC including receipt of goods/services; Section 16(4) imposes a time limit - ITC cannot be taken after 30th November following the end of the financial year to which the invoice pertains (or filing of annual return, whichever is earlier). Section 16(2) contains a non-obstante clause. Precedent treatment: Applicant relied on an Allahabad High Court decision (Century Laminating) in erstwhile excise/modvat context to contend procedural rules should not disallow bona fide claims where goods/services receipt straddles time limits; the Authority noted that such precedents are procedural and fact-sensitive and that Section 16(4) imposes a statutory outer limit. Interpretation and reasoning: The Authority declined to answer the timeline question substantively because admissibility of ITC on the contract was decided negatively on Issue 1, making the second question contingent and moot. The Authority observed that if the primary supply is ineligible for ITC, questions about timing for availing such ineligible credit do not arise. The Authority also noted the doctrine of harmonious construction but emphasised that Section 16(4) sets an express statutory cutoff which interacts with the receipt condition in Section 16(2); resolution of that interaction would be unnecessary where the underlying credit is blocked. Ratio vs. Obiter: Obiter - observations on interplay between Section 16(2) and Section 16(4) and on procedural precedents; Ratio - the second query is non-justiciable once the main query (ineligibility of the credit) is resolved adversely. Conclusion: The question of the timeline to avail ITC on the advance component does not arise because ITC on the underlying contract (FFS/PHE) is ineligible; therefore no ruling on the timing of availing such advance-related credit was given. Cross-references and ancillary points 1. The Authority reiterated statutory binding effect and limits of advance rulings: they bind only the applicant and the concerned officers and are void if obtained by fraud/suppression (Sections 103-104 referenced). 2. The Authority emphasized that factual matrix (contract scope, manner of installation, permanence, whether items retain independent existence) is decisive; prior rulings carry persuasive value only to the extent facts align.