2021 (8) TMI 740 - AAR - GST

Admissibility of input tax credit - blocked credit or not - GST paid on the procurement of plant and machines including the service of installation and commissioning - Section 16 and 17 of the CGST Act, 2017 - HELD THAT - The applicant has awarded a singleWork Order dated 1-9-20 to M/s Skai Air Control pvt.ltd., to supply, install and commission HVAC worksfor proposed Factory building, Assembly building, Admin Building, Staff facility(existing) associated works. We understand that HVAC acronym stands for Heating, Ventilation and Air Conditioning system. The said Work order covers the scope of supply, installation, testing and commissioning( SITC) and maintenance and warranty of subject Airconditioning Cooling system and the Ventilation system of the applicant and of its performance guarantee at site. The total contract value of the subject supply is inclusive of cost of materials, labour, machineries etc. and that GST will be payable extra at actual as per the statutory norm at the time of billing. The contract value is for the entire scope of supply. The applicant has entered into a work order for supply, installation, erection and commissioning (SITC), maintenance and warranty of HVAC worksin the Building comprising the Factory building, assembly building, the Admin Building and Canteen Building - all the parts of Air conditioning and cooling system get assembled at the site and fitted on the wall and roof and the floor of the building. All the different parts of Air conditioning and cooling system after being fitted in the building loose their identity as machines or parts of machines and become a system, namely Air conditioning and cooling system . This AC System is in nature of a system and not machine as a whole. It come into existence only by assembly and connection of various components and parts. Though each component is dutiable to GST, the air conditioning plant as such is not a good under HSN (customs Tariff Heading). We note that Air conditioning unit , however, is dutiable as per HSN but not Air conditioning plant . Whether the air conditioning plant is a movable or immovable property? - HELD THAT - The supply of centralised air conditioning plant is covered at Section 17(5)(c) CGST Act - section 17(5) CGST Act is a Non obstante sub section, overriding the provisions of section 16(1) and Section 18(1) CGST Act. Ventilation system - HELD THAT - The Ventilation system fitted in the building cannot be taken as such to the market for sale and cannot be shifted from oneplace to another as such to erect at another site. It can be shifted only after dismantling the said system which cannot be called Ventilation system after it is. The Ventilation system once installed and commissioned in the building is transferred to the building owner and this involves the element of transfer of property, thereby Ventilation system supply merits to be classified as work contract supply as the system per se is an immovable property - thus, Ventilation system is a combination of various components and partsresulted into an immovable property. Thus, Input tax credit is not admissible on Air-conditioning and Cooling System and Ventilation System, as this is blocked credit falling under Section 17(5)(c) CGST Act.

Summary

Issues Involved:
1. Admissibility of input tax credit (ITC) on Air-conditioning and Cooling System.
2. Admissibility of ITC on Ventilation System.

Detailed Analysis:

1. Admissibility of ITC on Air-conditioning and Cooling System:
The applicant sought a ruling on the eligibility of ITC for the procurement and installation of an air-conditioning and cooling system under Sections 16 and 17 of the CGST Act, 2017. The applicant argued that ITC should be available as the system is used in the course of business. However, the Authority for Advance Ruling (AAR) examined whether the air-conditioning and cooling system qualifies as movable or immovable property.

The AAR noted that the system, once installed, becomes part of the building structure and cannot be moved without dismantling. The system comprises various components like compressors, ducting, piping, and cooling towers, which are assembled and connected at the site, making it an immovable property. The AAR referenced CBEC Order No. 58/1/2002-CX dated 15-1-2002, which clarifies that such systems are not considered excisable goods but rather immovable property. The AAR also cited several judicial precedents, including the Supreme Court's ruling in Municipal Corporation of Greater Bombay vs. Indian Oil Corporation Ltd., which established the "test of permanency" for determining immovable property.

Based on these findings, the AAR concluded that the air-conditioning and cooling system is an immovable property, and thus, the ITC is blocked under Section 17(5)(c) of the CGST Act, which restricts ITC on works contract services for the construction of immovable property (other than plant and machinery).

2. Admissibility of ITC on Ventilation System:
The applicant also sought a ruling on the eligibility of ITC for the procurement and installation of a ventilation system. Similar to the air-conditioning system, the ventilation system comprises various components like fans, ducting, and electrical panels, which are assembled and installed at the site, making it an immovable property.

The AAR observed that the ventilation system, once installed, becomes an integral part of the building and cannot be moved without dismantling. The AAR referenced the same CBEC Order and judicial precedents to determine the nature of the ventilation system. The "test of permanency" was applied, and it was found that the ventilation system qualifies as immovable property.

Consequently, the AAR ruled that the ITC on the ventilation system is also blocked under Section 17(5)(c) of the CGST Act, as it involves works contract services for the construction of immovable property.

Ruling:
Input tax credit is not admissible on both the Air-conditioning and Cooling System and the Ventilation System, as they fall under the blocked credit category specified in Section 17(5)(c) of the CGST Act.