2020 (3) TMI 981 - AAAR - GST

Input tax credit - Blocked Credits - Section 17(5) of the CGST Act, 2017 - taxes paid on procurement of goods and/or services for installation of various parts of AC - whether input tax credit against purchases of goods and services used for installation of the aforesaid items in the shopping mall under construction can be claimed and utilized to pay GST on the outward supply of services of renting of the shopping mall as retail shops, food courts, cinema theater, etc.? - challenge to AAR decision. HELD THAT - The word or in clause (d) of Section 17(5) of the CGST Act can be read as and since it appears to give effect to the intention of the legislature to allow input tax credit on the construction of plant and / or machinery. The restriction contained in Section 17(5)(d) is applicable to goods and services received by a taxable person for construction of an immovable property. When goods and services are received by a taxable person for construction of plant or machinery, there is no bar on eligibility to input tax credit. The appellant has argued that all the installations mentioned in his application qualify as Plant or Machinery . The items such as Chiller, Air Handling Unit, Indoor/Outdoor Surveillance System (CCTV), electrical wiring and fixtures, Public Health Engineering (PHE), Fire-fighting and water management pump system do not appear to be apparatus/equipment/machinery which are fixed to the earth. The appellant has also not submitted any information as to how these items are getting embedded to the earth since the criteria for terming such items as Plant and Machinery is that they have to be fixed to the earth either by foundation or structural support. In the absence of such information we hold that Chiller, Air Handling Unit, Indoor/Outdoor Surveillance System (CCTV), electrical wiring and fixtures, Public Health Engineering (PHE), Fire-fighting and water management pump system do not qualify as plant or machinery but are items which are procured for the purpose of construction of the immovable property. Hence, the appellant is not eligible for the input tax credit of the tax paid on the procurement and installation of Chiller, Air Handling Unit, Indoor/Outdoor Surveillance System (CCTV), electrical wiring and fixtures, Public Health Engineering (PHE), Fire-fighting and water management pump system. In respect of the Water treatment Plant and Sewage Treatment Plant, as can be seen from the photographs, they form part of the civil structure of the immovable property. Civil structures are specifically excluded from the definition of Plant and machinery . So also, the DG Set and Transformer - they are procured as independent items and their installation becomes part of the civil structure of the immovable property - the appellant is not eligible of the credit of the taxes paid on the procurement of the Water Treatment Plant, Sewage Treatment Plant, DG Set and Transformer. Ruling of AAR upheld.

Summary

Issues Involved:
1. Eligibility for input tax credit on goods and services used for the installation of various items in a shopping mall under construction.
2. Interpretation of "Plant and Machinery" under Section 17(5) of the CGST Act, 2017.
3. Applicability of judicial pronouncements and precedents in determining the eligibility for input tax credit.
4. Impact of the Orissa High Court judgment in the case of Safari Retreats Pvt Ltd.

Detailed Analysis:

1. Eligibility for Input Tax Credit:
The appellant sought advance ruling on whether taxes paid on procurement of goods and/or services for installations such as Chillers, AHU, Lift, Escalators, WTP, STP, HSD Yard, MLCP, CCTV, DG Sets, Transformers, Electrical wiring and fixtures, and PHE systems are blocked credits under Section 17(5) of the CGST Act, 2017. The Authority for Advance Ruling held that these are regarded as blocked credits under Section 17(5).

2. Interpretation of "Plant and Machinery":
The appellant argued that the definition of "Plant and Machinery" in the CGST Act should not apply to the phrase "Plant or Machinery" in Section 17(5). They contended that the installations qualify as "Plant" or "Machinery" and thus should not be blocked credits. However, the appellate authority held that the general understanding of "Plant and Machinery" includes apparatus, equipment, and machinery fixed to earth by foundation or structural support, excluding civil structures, telecommunication towers, and pipelines outside factory premises.

3. Applicability of Judicial Pronouncements:
The appellant relied on various judicial pronouncements to support their claim that the installations qualify as "Plant" or "Machinery." However, the appellate authority found these arguments irrelevant, stating that the restriction in Section 17(5)(d) applies to goods and services received for the construction of immovable property, except for "Plant and Machinery."

4. Impact of Orissa High Court Judgment:
The appellant cited the Orissa High Court judgment in Safari Retreats Pvt Ltd, which allowed input tax credit on goods/services used for construction rented for commercial purposes. However, the appellate authority noted that this judgment is under appeal in the Supreme Court and has not attained finality, thus not having persuasive value.

Findings and Conclusion:
The appellate authority examined the nature of the installations. Items like Lift, Escalator, Travellator, WTP, STP, HSD Yard, MLCP, DG Sets, and Transformers were considered "Plant and Machinery" as they are fixed to earth by foundation or structural support. However, items like Chiller, AHU, CCTV, Electrical wiring and fixtures, and PHE systems were not considered "Plant and Machinery" due to the lack of evidence showing they are fixed to earth. Consequently, the appellant was not eligible for input tax credit on these items.

Order:
The appellate authority upheld the Order No. KAR ADRG 103/2019, dismissing the appeal filed by the appellant on all counts.