ITC AVAILABLE ON LIFT INSTALLED IN COMMERCIAL BUILDING GIVEN FOR RENT

[S.C. WADHWA]

Dear Expert,

We have purchased one lift leving gst and installed in building given on rent for commercial purpose. My query is whether GST paid on Lift in Dec.23 will be available till 30th Sept.24 as we have not show this in any gst return till now. Please give your expert opinion.

REGARDS,

WADHWA

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, Will you oblige me by decoding the version posted at serial no.20 dated 06.09.24? I could not grasp it.

Thanks a lot.

[Shilpi Jain]

From all the above discussions u can make out that this is an interpretation issue.

If credit amount is big and you are ok to take litigation on, pls proceed to take credit.

If u don't do this then do not feel disheartened in case in future u see a favourable HC decision or a circular being issued clarifying that credit is available in this situation.

[Sadanand Bulbule]

Dear Sh Sethi sir ji

I am not expert in decoding. However, law is like sky.It is not possible to see what is beyond sky.Interpretations are like "clouds" and our standpoint is the basis for formation of interpretation. They appear in different shades,sizes,images and move away.But the sky [facts] remains as it is. So I love the sky most.

[Sadanand Bulbule]

Dear querist

Please refer the following on precisely similar issue:

2024 (9) TMI 298 - APPELLATE AUTHORITY FOR ADVANCE RULING, TAMILNADU - IN RE: M/S. ARTHANARISAMY SENTHIL MAHARAJ

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, I have perused the decision of AAAR posted word for word. The ratio of the decision is applicable to the present issue raised by the querist. 

[Amit Agrawal]

Relying on 'Advance authorities rulings' is to decide any legal issues under GST can be very risky for the tax-payer point of view, as most of these rulings have pro-revenue bias. I never consider these rulings for taking any position on any legal issues. I see them from limited point of view of knowing Dept’s stand on any given issue and then, independently, examine issue/s on my own and then, take my call irrespective of what is stated in those rulings (& my views - generally specking - is contrary to these ARR rulings in majority cases).

W.r.t. available AAA/AAAR rulings on the subject matter under discussion (which are quoted by many contributors in earlier posts here) are grossly faulty in their reasoning & wrong application of various Apex Court rulings (which are also quoted by many contributors in earlier posts here), in my view.

In those Apex Court rulings, issues under consideration were very different (manufacturing of excisable goods V/s Erection of immovable property, Sale of goods V/s Works Contract involving immovable property etc). And various remarks & findings made by Apex Court must be seen from those context only where Court refused to accept Dept’s contention/s that activity of erection of lifts amounts to manufacture OR sale of goods. Basic reason behind those decisions is that ‘Erection of Lift’ amounts to ‘Works Contract’ (& NOT sale of goods per se) as ‘assembled / erected lift’ cannot be called as ‘goods’ (i.e. on principal of movability as essential future of any goods). Similarly, courts in those cases refused to accept Dept’s contention that ‘assembled / erected lift’ can be called as ‘goods’ manufactured (i.e. again on principal of movability). All court has said that ‘assembled / erected lift’ is an immovable property (i.e. non-goods) and hence, same cannot be called as ‘Sale of goods’ per se or manufacturing of excisable goods.

All these rulings of Apex court (which are also quoted by many contributors in earlier posts here) do NOT have any bearing on subject of issue under discussion here what-so-ever (i.e. availability of ITC in context of sub-clauses (c) & (d) of Section 17(5) read with explanations given thereunder).

It is worth noting that no court till date has decided on the subject issue which is under discussion here and hence, there is zero judicial precedent on this legal issue under discussion here.

As reported at 2021 (1) TMI 926 - KARNATAKA HIGH COURT, in case of M/S. KLUBER LUBRICATION (INDIA) PVT LTD VERSUS ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES ZONE-1, Para 21 is worth noting and same is as follows:

“It is well settled in law that a decision of the court is only an authority for what it decides and not what can logically be deduced therefrom. It cannot be quoted for a proposition that may seem to follow logically from it and such a mode of reasoning assumes that law is necessarily a logical code, whereas it must be acknowledged that law is not always logical. It is equally well settled legal position, that court should not place reliance on a decision without discussing as to how the factual situation fits in with the fact situation of the decision, on which reliance is placed. [See: ‘DELHI ADMINISTRATION (NCT OF DELHI) VS. MANOHAR LAL, 2002 (8) TMI 851 - SUPREME COURT and ‘HARYANA FINANCIAL CORPORATION VS. JAGADAMBA OIL MILLS’, 2002 (1) TMI 1266 - SUPREME COURT]. It is well settled in law that observations of the courts are neither to be read Euclid’s theorems nor as provisions of a statute and should not be taken out of their context. The observations must be read in the context, in which they appear to have been stated. The Judges interpret statutes and they do not interpret judgments. [See: ‘BHARAT PETROLEUM CORPORATION LTD. & ANR. VERSUS NR. VAIRAMANI & ANR 2004 (10) TMI 576 - SUPREME COURT).”

I can quote many more judgements on this, which basically says what is summarized by Karnataka HC above.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Raam Srinivasan Swaminathan Kalpathi]

To play safe, the querist can avail the ITC and reverse the ITC in GSTR-3B in the same month.  If there is a favourable ruling later, then the querist is always free to take re-credit and that too without any timelines.  Thanks   

[Sadanand Bulbule]

Dear querist

Taxman like Shylock is always quenched for his "pound of flesh". The twist in the story is not for for a single drop of blood. So taxman has to "re-think" and taxpayer has to be shrewd like Antonio and Bassanio to ensure that it is not for a drop of blood.This needs intelligent legal advisor and then law works in its own favour.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, From your views expressed at serial nos. 20 & 23, inference can be drawn as under :

"Intellect and insight both will be determinant factors".

[Amit Agrawal]

As per well settled legal position about how to see and read any judgement of Courts, which is explained by me in earlier post at Sr. No. 26 above, it is clear that remarks / observations made in various quoted SC rulings (about relationship between lift / elevators with building) has got no application what-so-ever on subject legal controversy under discussion here.

As quoted AAR / AAPR wrongly applied remarks made in those SC rulings, quoted AAA / AAAR (favoring revenue) has got lost even their persuasive values.

Now, to take this discussion forwards, let us take at the issue with fresh eyes:

A. Clause (c) & (d) of Section 17(5) specifically includes 'Plant & Machinery' (P&M) while blocking ITC.

B. P&M is explained below Section 17(6) as follows:

"Explanation.–– For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises."

B1. What is excluded from P&M is 'building or any other civil structures' and NOT 'building or any civil structures'. Thus, for purpose of exclusion of ITC under clause (c) & (d) of Section 17(5), building is specifically made equivalent to 'a civil structure' & nothing beyond. Lift / Elevators are NOT be called as 'Civil Structure' under common parlance.

B2. Without prejudice to above, Lift can be called as 'permanent fixture of building'. But calling it 'permanent fixture of building' itself means it is otherwise 'separately identifiable immovable property' from 'a civil structure of building'. And, separately identifiable immovable property (i.e. Lifts / elevators) fits perfectly into the explanation defining P&M for taking ITC even if it excludes 'buildings'.

B2.1 'Fixture' is defined in Oxford Language as follows: a piece of equipment or furniture which is fixed in position in a building or vehicle

B3. Thus, what is excluded from P&M is 'Civil structure of Building' and NOT P&M (i.e. Lift / Elevators' which is installed / erected in such buildings.

Summarizing above, I see not any reason why ITC against such lift / elevators cannot be claimed by a tax-payer in subject situation given by the querist. Exclusion from ITC under Clause (c) & (d) of Section 17(5) does not apply in given situation in my view.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Amit Agrawal]

Please read Para A from my last post above as follows: A. Clause (c) & (d) of Section 17(5) specifically excludes 'Plant & Machinery' (P&M) while blocking ITC against immovable property. 

[Amit Agrawal]

And for very same reasons, I am also of the view that ITC against a 'centralised air-conditioning plant' installed within a the building can also be taken when same is used for making outward supply of goods or services or both. And blockage to ITC against 'immovable property' under clause (c) & (d) of Section 17(5) does not apply to even such 'apparatus / equipment / machinery which is fixed to earth by foundation or structural support' within a building.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Amit Agrawal]

And my views in earlier posts (i.e. Post at Sr. No. 30, 31 & 32 read with post at Sr. No. 26) will remain the same even if tax-payer capitalized expenses incurred against erection / installation of such lifts / elevators / centralized air-conditioning plant under the head 'Building' in his books of accounts. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Amit Agrawal]

Despite my views shared in Post at Sr. No. 34 above & without contradicting them in any sense, I would prefer such tax-payer to capitalize  expenses incurred against erection / installation of such lifts / elevators / centralized air-conditioning plant under the head 'Plant & Machinery' in his books of accounts to the extent possible (i.e. unless and until someone can point out 'specifics' about applicable accounting standards, applicable provisions of laws like income tax act, companies act & rules made thereunder, which does not allow such capitalization under the head 'Plant & Machinery', as I do not deal in those areas professionally).

This is more so, generally specking,  when average working life of these 'apparatus / equipment / machinery which is fixed to earth by foundation or structural support' is less than 'Buildings' within which these are erected. If not permitted under income tax act, tax-payer need not claim depreciation against those assets while capitalizing them under the head P&M. This steps (i.e. capitalization under P&M) will further help tax-payer while defending itself in expected litigation against ITC so claimed.

And, IF such steps (i.e. capitalization under P&M) are not permitted due to some applicable accounting standards, applicable provisions of other law/s, 'such information & reasons' itself can be used to defend ITC (in addition to grounds taken by me in earliest posts above) while simultaneously capitalizing them under the head 'Building' in tax-payer's books of accounts. 

Either way, I do not see any legally valid reason to deny subject ITC. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[KASTURI SETHI]

Only time will tell.

[KASTURI SETHI]

In continuation of my view at serial no.35, I add that what is legally correct is in the lap of time.

[Raam Srinivasan Swaminathan Kalpathi]

I specifically refer to the case Safari Retreats Private Limited - 2019 (5) TMI 1278 - ORISSA HIGH COURT, wherein the Orissa HC had allowed ITC by reading down Sec.17(5)(d) for the purpose of interpretation to give benefit to the RTP, whereby it ruled that if ITC is denied on building meant and intended to be let out it would amount to treating the transaction identical to a building meant and intended to be sold.  HC further ruled that treatment of these two different types of transactions as one for the purpose of GST, is contrary to the basic principles regarding classification of subject matter of tax levy and, therefore, violative of Article 14 of the Constitution.

The Department has filed a SLP before the SC and same has been listed for hearing before a two member bench on 31-Aug-24.  Let's wait for the final judgment.  In the interregnum I would suggest to the querist to avail ITC in 3B and reverse the same in the same month and await the SC judgment in the case of Safari Retreats.  Thanks

[Amit Agrawal]

Dear Shri RaamSrinivasan Kalpathi Ji,

Reversal in ITC u/s 17(5) is 'permanent / absolute in nature' as per Point No. B (read with Point No. C) under Para 4.3 of Circular 170/02/2022-GST.

While one can always challenge validity of such circular etc. (with risk of it being upheld in court in future), but suggested course of action by you will lead to 'another set of legal challenges from Dept.' that the tax-payer will have to face if he reverses subject ITC now u/s 17(5) and try to re-claim it in distant future after getting favorable court ruling/s in future. 

With due respect, on net-net basis, I do not see any gain to the tax-payer to reverse subject ITC now u/s 17(5) with hope of re-claiming it in the distant future. Actually, such course of action can lead to loose-loose situation for the tax-payer (i.e. even when court rules in favor of tax-payer in future on the subject ITC under discussion here). 

It is better for any tax-payer to take definitive calls now about whether to take subject ITC or not, in my humble view. 

Of-course, as always the case for every controversial / litigation-prone issue, it is for every tax-payer who has to take these calls 'individually / for himself' depending upon so-many different factors (such as risk-appetite, quantum involved, willingness to go through judicial process/es & costs thereof, professional calibre and past record of his consultant handing complicated cases & so on).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Raam Srinivasan Swaminathan Kalpathi]

In response to the point raised by respected Shri. Amitji, I submit that this correspondent, being a CA, is not in the business of interpretation of statutes. I firmly believe that interpretation is in the realm of advocates, IRS, department officials and doctorates in law.  Nonetheless, this correspondent only attempts understand law.  

Coming to brasstacks - there is a specific column in Form 3B table which has been introduced from August 2023.  A separate module for the opening balance pertaining to this table was also provided which was open till Dec, 2023.  Table no. 4(B)(2) which allows a RTP to reverse ITC and reclaim it subsequently.  There is another ribbon provided below to furnish details of ITC pertaining to previous periods which have been reclaimed.  Dept with the help of these 2 modules monitors what has been reclaimed never exceeds what has been reversed.  A browse through the latest 3B Returns will through insight into this aspect.  Thanks

[Raam Srinivasan Swaminathan Kalpathi]

More specifically what is suggested to the querist is to reverse the ITC under table 4(B)(2) and then reclaim as when there is a favourable decision and report the same under Table 4(D)(1).  Technically, department will not have a case against the querist's client.  Format of Table 4 has been pasted from TMI Forms section.

4. Eligible ITC

Details	Integrated Tax	Central Tax	State/UT Tax	Cess
1	2	3	4	5
(A)  ITC Available (whether in full or part)
(1)   Import of goods
(2)   Import of services
(3)   Inward supplies liable to reverse charge (other than 1 & 2 above)
(4)   Inward supplies from ISD
(5)   All other ITC
(B)  ITC Reversed
(1)   [As per rules 38, 42 and 43 of CGST Rules and sub-section (5) of section 17]
(2)   Others
(C)  Net ITC Available (A) – (B)
(D)  [Other Details]
(1)   [ITC reclaimed which was reversed under Table 4(B)(2) in earlier tax period]
(2)   [Ineligible ITC under section 16(4) and ITC restricted due to PoS provisions]

AI Summary

Input tax credit availability for lifts in rented commercial buildings turns on plant-or-machinery character and functionality test.
The central issue is whether ITC on GST paid for a lift installed in a rented commercial building is blocked as part of immovable property or is allowable because the lift qualifies as plant or machinery or a separately identifiable asset used to make outward supplies. Opinions diverge: some authorities and rulings treat lifts as integral to the building and deny credit; others rely on statutory definition, accounting treatment, contractual terms and the functionality of the asset to support ITC. Recent Supreme Court guidance applying a functionality test may expand circumstances in which ITC can be sustained, but entitlement remains fact-sensitive and advisedly supported by documentation and specialist advice.