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

[Sadanand Bulbule]

Dear Sir 

“ Darkness cannot drive out darkness. Only light can do that”. 
—- Martin Luther King

Deeply obliged Sir. 
 

                      To be continued—-. 

[Amit Agrawal]

Sir,

Kindly also give 'legal reasoning' explaining how there is 'Abuse of ITC' which will lead with 'twisting the arms of tax-payer mercilessly' by tax-Department in the context of situations under discussion here (i.e. taking ITC in view of Section 17(5)(d) as interpreted by Hon'ble Supreme Court in the case of Safari Retreat reported as 2024 (10) TMI 286-SC by passing 'functionality test').

With greatest respective, I would humbly submit that metaphor or generic / vague / open ended statements does not substitute 'legal reasoning' to claim 'Abuse of ITC' requiring 'twisting the arms of tax-payer mercilessly' by tax-Department. 

Thank you!

[Sadanand Bulbule]

Dear all

My post at Sl No. 84:

The intrinsic intent embedded here is a word of caution not to take ITC for granted. Rather it is to double check the entitlement before one ventures for it. Admittedly the subject judgement is not a signed blank cheque for taxpayers to write any amount. So there is every possibility of its wishful interpretation by both sides which should not push them in troubled waters again.

Coming back to the word 'drug', it has multiple shades both positive and negative. In the context of on going discussion, we have to prudently derive its positive meaning rather than focusing only on its negative shade. Of course one's thinking pattern decides it and one person cannot think for another. So it need not be blown disproporntionately, lest readers should get confused. 

In a plant, both rose flowers and thorns grow together. Both have mutual purpose. So also, ITC being a very delicate matter, it cannot be taken for granted. If taken for granted, Section 74, 122, 132 and many more jump into the play. Can these sections be called threatening by the legislature? Can an abuser plead like that in the court of law? Never. So these sections are  there to protect ITC, among other things. The bottom line here is,  a stich in time saves nine.

Secondly no one can obstruct the taxpayers availing ITC as per law. The pathway is clear, smooth and after SC judgement it is made wider also. Now it is the choice of taxpayers to choose what is legal and safer for them.

 With this I conclude and  welcome all experts to make it more brainstorming. 

[Amit Agrawal]

Dear Shri Sadanand Bulbule Sir,

Thank you for your response. 

I again found no legal reasoning what-so-ever in your post explaining how there is 'Abuse of ITC' which will lead with 'twisting the arms of tax-payer mercilessly' by tax-Department in the context of situations under discussion here, even though I had specifically requested them.

And I cannot comment on metaphor or generic / vague / open ended statements by treating them as 'solid legal reasoning'. 

And in earlier posts, I already said what I believed in & still believes in. Hence, I refrain from commenting anything further. 

Moreover, I noted two line from your post (i.e. Secondly no one can obstruct the taxpayers availing ITC as per law. The pathway is clear, smooth and after SC judgement it is made wider also.) which is something I can wholeheartedly agree with. This is precisely the point/s I was making in all my earlier the posts here (i.e. starting with ITC against Lift in given situation and then, ITC against Building/s in given situations).

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

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, Metaphors and simile are figures of speech and these make the messages crystal clear. So these are very useful in understanding the essence of the sentence where these are fitted in. So the usage of both the above phrases/words is not misfit here.

[Sadanand Bulbule]

Dear all 

 I came across an analysis on recent Safari Retreat judgement and its conclusive part is extracted hereunder: 

”This emphasis on favouring taxpayers in ambiguous situations also reflects a protective stance toward individuals and businesses against arbitrary or unfair tax claims. It creates an environment where taxpayers can operate with greater certainty and less fear of unexpected liabilities arising from ambiguous provisions”.

So this is what  I was canvassing throughout my posts especially at Sl. No. 84 onwards, may be in different version. And the niddle of entire discussion pointed at the same theme.  That’s all. 

[Amit Agrawal]

Dear All,

When this discussion started, many contributors quoted numerous Supreme Court rulings (besides so many AAR / AAAR which relies those SC rulings) to say that ITC against lift cannot be claimed. At that time, their sense was that that is well settled position of law and how can someone argue against their views. 

And contributors like me (who always believes that ITC against lift is available in given situation) had a very hard time on explaining why numerous Supreme Court rulings (so many AAR / AAAR which relies those SC rulings) are NOT judicial precedent for issue under discussion here. 

Our views were countered using generic statements such as the followings: Interpretations cannot tinker the well settled law per se, Legal battle is more preferable than legal adventure, what is legally correct is in the lap of time & so on. Ignoring those statements, I continued explaining various facets & solid legal reasoning behind position taken by me. 

After recent Safari Retreat ruling by SC which directly deals with clause (c) & (d) of Section 17(5), few among those holdings the view that 'ITC against lift cannot be claimed' stopped quoting any ruling or provide any legal reasoning to justify their stand.

But ironically, they now refused to treat ruling as 'judicial precedent' for various issues under discussion here. Instead they started attacking Apex Court itself, again without providing any legal base to do so. They did not follow RULES REGARDING THE INTERPRETATION OF TAXING STATUTES which is beautifully summarized in Para 25 of said ruling. 

Not stopping there, they then started issuing threats to the the tax-payer ('twisting the arms of tax-payer mercilessly' by tax-Department, ITC is like drugs, Abuse of ITC) who will be taking ITC by relying on this SC ruling, that too, without providing any legal base to do so.

Everything is done by completely discarding well-settled legal principals of Apex court (including protective stance toward individuals and businesses against arbitrary or unfair tax claims from Tax-Dept. when two interpretation is possible) and somehow, they continue defend their views with metaphor or generic / vague / open ended statements. 

This is despite the fact that I clearly said that such tax-payer should take assistance of an expert consultant since beginning of construction project before taking ITC against any building while relying on this ruling. I also explained that such expert will ensure passing of 'functionality test'.

That's all!

[Amit Agrawal]

This is how 'Tax Terrorism' actually works and why India gets blamed for it from time to time.

But & as said before, I do know how deal with such threats to my clients professionally using judicial means and same will not scare me in helping clients to take all benefits allowed under law. I believe every other expert worth his salt in this field feels the same way.

[Alkesh Jani]

Dear All,

I would like to extend my gratitude to all the experts for their thorough deliberation on this issue. The Hon'ble Apex Court has delivered its verdict and has remanded the case back to the Hon'ble High Court. Now, we must await the decision of the Hon'ble High Court, which may either remand the case to the Original Adjudicating Authority or the Appellate Authority for the purpose of conducting the "functionality test."

Should the case be remanded, the respective authority will issue a fresh order. Alternatively, if the High Court chooses to pass the order itself, we will need to wait for it, as it will provide greater clarity on the application of the functionality test.

In summary, we must await the final order from the appropriate legal authority. Until then, the decision of the Apex Court should serve as a guiding principle, as the matter cannot be said to have attained its finality or has not yet reached its conclusion.

In light of the above, I suggest that we may consider this issue concluded for now and reopen the discussion once the proper order has been passed.

With this, I conclude my part in this discussion.

Thank you.

[Amit Agrawal]

Dear Shri Alkesh Jani Ji,

I agree with you except the following:

A. Apex Court ruling is 'guiding principal' only from point of proving 'functionality test'. 

B. Apex Court has settled the legal controversy about what sub-section (3) &(4) of Section 17(5) & explanation given thereunder actually means and how to apply the same. 

C. Any expert worth its salt will prove 'functionality test' though this aspect can see around round of litigation ... one way or other.

C1. But, looking at benefits to the tax-payer which will be very substantial, the tax-payer should not be afraid of any such the litigation but should seek advice from an expert in this field of GST from initial stage of construction of the project itself. 

So unless someone wants to counter, I also conclude my part in this discussion.

Thank you.

[Amit Agrawal]

For my last post above: These are ex facie views of mine and the same should not be construed as professional advice / suggestion or recommendation.

[Amit Agrawal]

Dear All,

By the way, I am working on the following questions:

A. Weather SC was correct in excluding 'a hotel or a cinema theatre' from getting treated as 'Plant' for purpose of GST (i.e. Reading of case of Anand Theatres & with the case of Karnataka power corporation, in the context of gst provisions)? 

B. Weather SC was correct in remanding the matter back to HC under undisputed facts noted in Para 2 of the order, instead of directly allowing ITC to the said tax-payer?

Of-course, these are merely 'questions' at this stage and I will let you know my views thereon once my study completes. 

[Amit Agrawal]

*Whether & not Weather. Typo mistake ... apologies!

[Amit Agrawal]

Dear All,

Sharing my views on second question first from post at Sr. No. 112 (i.e. Whether SC was correct in remanding the matter back to HC under undisputed facts noted in Para 2 of the order, instead of directly allowing ITC to the said tax-payer?)" 

(IF OBJECTIVELY SEEN, this post will give many of you a some of 'reasons' (not all reason) about 'why I am so confident to what-ever I said in my posts here from Sr. No. 67 to my post at Sr. No. 110' and how I have interpreted said Safari Retreat Ruling). 

Para 31 & 32 of judgement of Safari Retreat reported as 2024 (10) TMI 286-SC is worth noting: 

" 31. Now, we analyse clauses (c) and (d) of Section 17(5). Clause (c) applies when works contract services are supplied for constructing immovable property. The definition of “works contract” under Section 2(119) is extensive. It reads thus:

 ..................................

Thus, in the case of works contract services supplied for the construction of immovable property, the benefit of ITC is not available. However, there are exceptions to clause (c). First is when goods or services, or both, are received by a taxable person for the construction of “plant and machinery”, as defined in the explanation to Section 17. The second exception is where the works contract service supplied for the construction of immovable property is an input service for further supply of the works contract.

32. Clause (d) of Section 17(5) is different from clause (c) in various aspects. Clause (d) seeks to exclude from the purview of sub-section (1) of Sections 16 and 18, goods or services or both received by a taxable person to construct an immovable property on his own account. There are two exceptions in clause (d) to the exclusion from ITC provided in the first part of Clause (d). The first exception is where goods or services or both are received by a taxable person to construct an immovable property consisting of a “plant or machinery”. The second exception is where goods and services or both are received by a taxable person for the construction of an immovable property made not on his own account. Construction is said to be on a taxable person’s “own account” when (i) it is made for his personal use and not for service or (ii) it is to be used by the person constructing as a setting in which business is carried out. However, construction cannot said to be on a taxable person’s “own account” if it is intended to be sold or given on lease or license.'

As can be seen, the Apex Court explained various differences between clause (c) & clause (d) which is reproduced above. As per SC, one of exception to Section 17(5)(d) is where goods and services or both are received by a taxable person for the construction of an immovable property made not on his own account.

Undisputed position from Para 2 of said ruling is as follows: "In Civil Appeal Nos. 2948 and 2949 of 2023, the first respondent is engaged in the construction of a shopping mall for the purpose of letting out premises in the malls to different tenants. Vast quantities of material, inputs and services are required for the construction of the malls in the form of cement, sand, steel, aluminium, wires, plywood, paint, lifts, escalators, air-conditioning plants, electrical equipment, transformers, building automation systems etc., and also consultancy services, architectural services, legal and other professional services, engineering services and other services including the services of a special team of international designers specialised in the construction of Malls. These goods and services used in the construction of the mall are taxable under the CGST Act. It is the case of the first respondent that it has accumulated input credit of GST amounting to more than Rs. 34 crores by the purchase/supply of goods and services consumed and used in the construction of the shopping mall. At the same time, the first respondent's letting out of units in the shopping mall attracts CGST based on the rent received by the first respondent since it amounts to the supply of service under the CGST Act. Therefore, the first respondent was desirous of availing the Input Tax Credit (ITC) accumulated against the rental income received by it upon letting out the mall premises. According to the first respondent, when it approached the concerned authorities, it was advised to deposit GST on rent without deducting ITC because of the exception carved out by Section 17(5)(d)"

As per Para 32, the Apex Court clearly held that 'construction cannot said to be on a taxable person’s “own account” if it is intended to be sold or given on lease or license'.

Thus, in given facts, it is clear that M/s Safari Retreat was NOT constructing shopping-mall on its “own account” as per reasoning given by the court in Para 32.

One of the principles governing the interpretation of the taxation statutes, as Para 25(h) of said ruling, is 'there is nothing unjust in the taxpayer escaping if the letter of the law fails to catch him on account of the legislature’s failure to express itself clearly'.

It also held constitutional validity of clauses (c) and (d) of Section 17(5) and in Para 64, further held that its plain interpretation does not lead to any ambiguity, the question of reading down the provisions does not arise

Hence, it is clear to me that ITC cannot be denied to said tax-payer u/s 17(5)(d) in given facts & circumstances IRRESPECTIVE of fulfilment of 'functionality test'. In other words, whether said 'shopping mall' is a 'plant' or 'building' is an "irrelevant question" in given fact & circumstances of the M/s Safari Retreat.

Hence, in my humble view, the Apex Court seems to be erred (why the word 'seems' is explained afterwards) in remanding the matter back to the High Court under undisputed facts noted in Para 2 of the order. There was no need to carry out 'functionality test' under admitted facts. It should instead have directly allowed ITC to the said tax-payer in view of exception to Section 17(5)(d). 

One possible reason behind remanding back the matter could be that Court wanted to be sure about the 'facts' involved (i.e. actually intention behind construction was to lease or ‘own use’). But, the Apex Court has not specifically so. But, other than Para 2 (which can be just submission by the parties involved or history in brief) which is not 'findings' by Apex court per se, it is worth noting that there is NO finding given in entire judgement about actual intention behind construction of subject shopping mall.

Only way, as far as I can see, to justify such order about remanding back (& not treating it as 'error' by Apex Court) is to understand reason behind seeking ‘functionality test’ laid down by the Apex Court in the following way:

1. Once, the tax-payer proves that that actually intention behind construction was to only for leasing / renting / licencing & not “own use’ by demonstrating the same with supporting evidences, this proof by-itself fulfils ‘functionality test’ and need NOT go into such other aspects of ‘functionality test’ at all, in my humble view. And blockage of ITC u/s 17(5)(d) will not apply.

 

2. Only when said shopping-mall is constructed by the tax-payer for his ‘own use’ (i.e. using that mall for selling various goods) & NOT with intention to ‘renting / leasing / Sale’, one need to carry out 'functionality test' to find whether shopping mall is 'plant' or 'building' for reasons explained above for the purpose of Section 17(5)(d).

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

[Amit Agrawal]

Please read last Para (i.e. Para B) of my last post above as follows: 

B. Only when said shopping-mall is constructed by the tax-payer for his ‘own use’ (i.e. using that mall for selling various goods) & NOT with intention to ‘renting / leasing / Sale’, one need to carry out other aspects of 'functionality test' to find whether shopping mall is 'plant' or 'building' for reasons explained above for the purpose of Section 17(5)(d).

[sundar andCo]

ITC can be availed on lift if the said capital goods is not capitalized in the books of accounts and lift can be treated as movable property and very vital for business purpose under Section 16. Now a days there are lifts that are movable properties. 

The said stand is an aggressive one which will get resolved only in HC/SC.

[Sadanand Bulbule]

Dear all

By the way, what I feel is, this is unanswerable query at this point of time, if earlier discussions are not accepted unanimously. Every one has his/her own perception and they are right accordingly.

Let the Hon’ble Orissa High Court decide it in pursuance of Apex Court’s direction. And the ball rolls again in the domain of the adjudicating process to determine the facts via law through “merit prism”. 

I commend the intense efforts of all experts. 

[Amit Agrawal]

W.r.t. issue raised by the the querist (i.e. ITC against Lifts installed in commercial building on rent), there is no doubt left in my mind about availability of ITC against Lifts in given situation and SC ruling has made it more crystal clear by explaining 'functionality test'. My earlier posts has explained this.

As a matter of fact, even 'building' can be 'plant' if it satisfies 'functionality test' as per SC. And it remanded back the matter for limited purpose of checking if "entire building" (shopping mall etc. other than 'a hotel or a cinema theatre' & NOT merely Lift installed in such buildings) as 'plant' by applying 'functionality test'. 

Any expert worth its salt will prove 'functionality test' in my view for shopping mall etc. And looking at benefits to the tax-payer which will be very substantial, the tax-payer should not be afraid of any litigation from revenue but must seek advice from an expert in this field of GST from initial stage of construction of the project itself. Such expert will ensure that malls / buildings so constructed passes 'functionality test' laid by SC. 

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

[Amit Agrawal]

Attention is invited to Supreme Court ruling in case of M/s Bharti Airtel Ltd., dated 20.11.2024 (reported as c - SUPREME COURT), wherein concept of movable property & immovable property is minutely explained by the Apex Court. 

It is a landmark judgement worth through reading as it's implications are very significant & far reaching under GST law wherever issue involved is Movable V/S Immovable Property.

This ruling gives additional grounds in many situations to the tax-payer to defend ITC against blockage under clause (c) & (d) of Section 17(5) as for applicability of both clauses to deny ITC, underlying property has to be 'construction of immovable property' first. 

This ruling is directly help cellular & tower companies under GST (as mobile towers are held as movable property) thereby ITC blockage under clause (c) & (d) of Section 17(5) will NOT apply DESPITE the given explanation for 'Plant & Machinery' which specifically excludes 'telecommunication towers'. 

This ruling will also help tax-payers to avail ITC despite blockage under clause (c) & (d) of Section 17(5). For example: ITC against 'Factory Plants' can be claimed if it can proven that 'movable property' using yardsticks explained by SC. And, Safari Retreat reported as 2024 (10) TMI 286-SC can be used as additional defense (i.e. if it cannot be proven as 'movable property') by passing the 'functionality test' for such 'Factory Plant'. 

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

[Sadanand Bulbule]

Dear all

I wish to add here that, ITC benefit under Section 17[5][c] & [d] arising by way of Hon'ble Supreme Court's judgement rendered in Safari Retreat - 2024 (10) TMI 286 - SUPREME COURT case is not as easy as milking the cow or plucking the hanging fruits in the tree.

Rather it is in the wisdom & discretion of the adjudicating authority. So taxpayers/professionals need not relax banking upon the ratio of the said judgement. They need to continue the fight against fallible orders to off load the burden of tax liability saddled on the taxpayer.

Authority prevails over the rulings and not vice versa. Knocking the doors of court once again is only the remedy. I have no words to describe such fallible orders, whether it is tax vulturism or what? Readers to decide it.

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.