2019 (10) TMI 1021 - AAR - GST

Blocked credits or not - Section 17(5) (d) of the CGST Act, 2017 read with Explanation to Chapter V and Chapter VI of the CGST Act, 2017 - taxes paid on procurement of goods and/or services for installation of Chillers, Air Handling Unit (AHU), Lift, Escalators and Travellator, Water Treatment Plant (WTP), Sewage Treatment Plant (STP), High Speed Diesel Yard (HSD), Mechanical Car Park (MLCP), Indoor / Outdoor Surveillance System (CCTV), D.G.Sets, Transformers, Electrical wiring and fixtures, Public Health Engineering (PHE), Fire-fighting and water management pump system, referred to as Installations - Applicant submits that although the Installations are fixed to the building/ earth, they qualify as Plant or Machinery under the CGST Act, 2017 and accordingly, the taxes paid on procurement of goods or services for such Installations should not be regarded as blocked credits in terms of Section 17(5) (d) of the CGST Act, 2017 read with Explanation to Chapter V and Chapter VI of the CGST Act, 2017. HELD THAT - The property in question is given on rent for enjoyment of the tenant and the additional charges are charged for the maintenance - The applicant has installed Chillers, Air Handling Units, Lift, Escalator, Travellator, Water Treatment Plant, Sewage Treatment Plant, HSD Yard, Mechanical Car Park, Surveillance System, DG Sets, Transformers, Electrical Wiring and fixtures and PHE, Firefighting and water management pump system and other facilities of the building. The applicant has procured the goods and services for installation of these. The applicant has stated that he has procured goods or services or both for the purposes of additions to the said immovable property and has capitalized them in his books of accounts. Therefore, the same are covered under the expression construction of an immovable property and hence the input tax credit on the goods or services or both received by a taxable person in respect of such construction is not available - The claim of the applicant that the immovable property is a plant and hence the covered under the exception in Section 17(5)( d) is verified and it boils to the issue whether the listed items are covered under the definition of plant . The definition of Plant and Machinery is in the context of plant and machinery and includes apparatus, equipment and machinery and contextually, the word plant could include apparatus and equipments fixed to the 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, whereas machinery would be covered separately. The exclusion clause relating to land, building and any other civil structure would be applicable to this plant and hence input tax credit is not available as it is a civil structure. The provision of facilities like transformers, sewage treatment plant, Electrical Wiring and Fixtures, Surveillance systems, D.G. Sets, Lifts, Air Handling Units etc. are sine-qua-non for a commercial mall and hence cannot be considered separate from the building or civil structure. The provision of these are either statutory for a building or defines the nature of the building as a commercial mall. Hence the input tax credit on the inward supplies of goods or services involved in the construction of immovable property which is a civil structure or building is not available to the applicant and hence blocked. Thus, the taxes paid on procurement of goods and/or services for installation of the Installations as listed in the application are regarded as blocked credits under Section 17(5) of the CGST Act, 2017.

Summary

Issues Involved:

1. Whether taxes paid on procurement of goods and/or services for installation of specific items are regarded as blocked credits under Section 17(5) of the CGST Act, 2017.

Issue-wise Detailed Analysis:

1. Applicant's Business Activity and Procurement:

The applicant, a Private Limited Company developing a shopping mall, has entered into lease agreements with customers/tenants, leasing units along with common areas and facilities. The applicant procured various goods and services for installations such as Chillers, Air Handling Units (AHU), Lifts, Escalators, Water Treatment Plants (WTP), Sewage Treatment Plants (STP), High-Speed Diesel Yards (HSD), Mechanical Car Parks (MLCP), CCTV systems, DG Sets, Transformers, Electrical wiring and fixtures, and Public Health Engineering (PHE), Fire-fighting, and water management pump systems. These installations are essential for the mall's operation and are capitalized in the books of accounts.

2. Applicant’s Interpretation of Plant or Machinery:

The applicant contends that all installations qualify as "Plant or Machinery" under the CGST Act, 2017, and thus, taxes paid on their procurement should not be regarded as blocked credits under Section 17(5)(d) of the CGST Act, 2017. The applicant references legal dictionaries, judicial pronouncements, and definitions under other laws to support this interpretation. The applicant argues that the installations are distinct from the building or civil structure and should be eligible for input tax credit.

3. Relevant Provisions and Definitions:

Section 17(5)(d) of the CGST Act, 2017, states that input tax credit is not available for goods or services received for the construction of an immovable property (other than plant or machinery) on one’s own account. The Explanation to Chapter V and Chapter VI 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, excluding land, building, or any other civil structures.

4. Authority’s Examination and Findings:

The Authority examined the applicant's transactions and lease agreements, noting that the property leased includes common areas and facilities, with charges for rent, maintenance, and HVAC. The Authority considered whether the installations qualify as "plant and machinery" and whether they are part of the immovable property.

5. Determination of Blocked Credits:

The Authority concluded that the installations, although essential for the mall’s operation, are part of the immovable property (building or civil structure). The installations like transformers, sewage treatment plants, electrical wiring, surveillance systems, DG sets, lifts, and AHUs are integral to the building's functionality and cannot be considered separate from the building or civil structure. Therefore, input tax credit on goods or services used for these installations is blocked under Section 17(5)(d) of the CGST Act, 2017.

Ruling:

The taxes paid on procurement of goods and/or services for the installation of the listed items are regarded as blocked credits under Section 17(5) of the CGST Act, 2017.