ITC AVAILABLE ON LIFT INSTALLED IN COMMERCIAL BUILDING GIVEN FOR RENT, Goods and Services Tax - GST

[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

Posts / Replies

[Sadanand Bulbule]

Dear all

ITC on lift-- tsunami of divergent researched opinions are running in parallel on the same query.  The effect is, there is no unanimity on legal position. I feel this bitter truth really is stranger than fiction. Democracy guarantees freedom of expression. Everyone has to respect it.

[KALLESHAMURTHY MURTHY]

Dear all Experts, 

Installation of the lift in the building is not eligible to avail ITC since it is treated as part of immovable property. It is blocked u/s 17(5) (d).

During the VAT period also, there were cases of ITC disallowance.

With regards.

[Amit Agrawal]

Dear Shri KALLESHAMURTHY MURTHY Ji,

I think opposite sides of views on subject ITC are thoroughly presented on this discussion forum along-with legal reasoning backing such views. And both sides (i.e. contributors who feel subject ITC is available and contributors who feel subject ITC is not available) are not willing to change their position as they truly believe in respective position taken by them on the subject matter

W.r.t. your last post above, kindly let us know 'relevant provisions of VAT' under which subject ITC was denied along-with sample case-laws thereof.

This will help us to compare current gst provisions under discussion (i.e. sub-clauses (c) & (d) of Section 17(5) read with explanations given thereunder where ITC against construction of 'immovable property including land, building or any other civil construction' is denied while simultaneously 'P&M' was excluded from 'immovable property'). 

If similar provisions were existing under VAT laws & there are case-laws denying ITC using those similar provision, same will be very directly helpful to take this discussion towards some conclusion. 

Thanking you in anticipation!

[Amit Agrawal]

Also, I wonder how VAT tax-credit provisions & cases-laws thereof will be directly relevant in the situation under discussion here where issue is 'services' provided & not 'goods' sold. 

Anyway, I will wait for clarity (i.e. 'relevant provisions of VAT' under which subject ITC was denied along-with sample case-laws thereof) as requested in above post.

[KALLESHAMURTHY MURTHY]

Dear Amith Agarwal Ji, 

Sir, 

The query is about GST paid on Lift.

Here I am quoting three Advance Ruling cases referring to Sec. 17(5)(d) of the CGST Act.

Regarding cases under the VAT period, I have to verify the re-assessment orders which are not readily available now.   

1. The Maharashtra AAAR ruled that no Input Tax Credit (ITC) can be claimed on Lift Installation Charges. In the Judgment of M/S Las Palmas Co-operative Housing Society Ltd. (2020 (9) TMI 1144 - APPELLATE AUTHORITY FOR ADVANCE RULING, MAHARASHTRA).

The AAAR ruled that the Appellant would not be eligible to avail the ITC in respect of the GST paid to the lift contractor, in terms of Section 16(2)(b) read with Section 17(5)(d) of the CGST Act, 2017

2. AAR of MP in the case of M/s. Jabalpur Hotels Pvt. Ltd. 2020 (7) TMI 476 - AUTHORITY FOR ADVANCE RULING, MADHYA PRADESH).

In this, the AAR finds that the lift consists of components or parts (goods) like lift car, motor, ropes, rails etc. and each of them has its separate identity prior to installation and when they are assembled/installed together they create lift.

It is held that the lift has become part of the building and ITC shall not be available in terms of Section 17(5)(d) of the CGST Act, 2017.

3. Tarun Realtors Private Limited (2019 (10) TMI 1021 - AUTHORITY FOR ADVANCE RULING, KARNATAKA).

In this case, the installation of the lift is treated as blocked credits u/s 17(5)(d).

Expecting more clarity on the issue.

With respects.

[Amit Agrawal]

Dear Shri KALLESHAMURTHY MURTHY Ji,

I have already dealt with these GST AAR / AAR rulings in my earlier posts above (specially at my post at Sr. 26, 30 & 32) and explained my reasons for disagreement with them. I further elaborated my views and reasoning while answering various questions put by Shri Alkesh Jani Ji in my posts at Sr. No. 47 & 49 above. 

As you mentioned about some VAT cases on similar issue in your post at Sr. No. 52 above, I had sought clarity there-against. 

[KALLESHAMURTHY MURTHY]

Dear Amit Agarwal Ji, 

The two cases of ITC disallowed pertaining to the VAT period are referred to here. 

1. M/S.FERNS ICON VAT TIN-29980819608. Assessment Period: April 2017 to June 2017 

ITC was disallowed on the purchase of the lift installed for the building on lease rent on the grounds that "the lift is a part of the building, not a separate unit and not separable from a building and does not have an identity when removed from the building. Besides, the lift does not coming under the category of Plant & Machinery."

2. M/s Aurbis Business Parks Private Ltd. [GSTN- 29AAPCA0762R1ZV,] 

Adjudication order for the period 2017-18.

Engaged in the business of letting sub-lease rental of Commercial office premises for monthly consideration.  ITC disallowed on the grounds that “Irregular availment of Transitional Credit on the capitalized goods including intangible services, for the renovation of leased hold building and all the construction activities including capitalized intangible services.

There are other similar cases squarely applicable to the query.

This is for your perusal and further comments.

With respects.

[Amit Agrawal]

Dear Shri KALLESHAMURTHY MURTHY Ji,

Kindly provide TMI citations for said two rulings, so as to provide my comments thereon. Without going through full contents of such rulings, it is difficult - at-least for me - to offer comments thereon. 

W.r.t. first case quoted by you where period of April, 2017 to June, 2017 is mentioned & hence, assuming that said case is not denial of transitional credit using GST provisions, I wish to know under 'legal provisions of VAT' which are used to use such ITC. 

I like to see if they have different from 'other quoted AAR / AAAR' in their logic & legal reasoning to deny subject ITC.

If they are using very same Apex Court rulings & observations made therein to deny subject ITC, then, my reasons for disagreement with them is already explained in my earlier posts here (specially at my post at Sr. 26, 30 & 32 read with 47 & 49).

If there is anything new in referred rulings compared to 'other quoted AAR / AAAR' in their logic & legal reasoning to deny subject ITC, I will look into them and offer my comments.

[VENU K]

The beauty of law is that it is amenable to differing interpretations and there is no universal truth as far as legal issues are concerned. This is amply clear from the fact that many High Court decisions are routinely  overruled by the Supreme Court. This in itself does not make the original decision of the High Court illegal or delivered without understanding the law in any way. So it is futile to look for the last word in law. Supreme Court becomes the final authority , just because there are no higher authorities which we could approach. We have had  many instances where higher benches of the Supreme Court overturning  decisions of  lower benches.

So, according to me .... in litigation TRUTH does not matter but FACTS do. And in each case the facts and circumstances could be different, what was pleaded by each side could be different. So each judgement is unique in its own way and all judgements are made with the caveat....... In the facts and circumstances of the case ............

So unless there is a judge who has an authority to pronounce a final  judgement after hearing both sides , whether we like it or not,  legal deliberations would  continue endlessly till eternity.

[Sadanand Bulbule]

Dear all

Whatever comments I have posted so far on this Discussion Forum is not because I am an expert but being a seriously concerned person to uphold the system of equity to all the stakeholders in the GST era. Law belongs to all in the same ratios. No one owns it per se.

So the TMI visitors are at liberty to express their views openly without any restriction or hesitation. I am sure this would buttress the discussion forum on the queries in a more democratic way. It is the basic decency of public platform.

By the way, every seed has a chance to take strong root. So also every opinion has the power to free the querists from concern. Let our comments be the new content rather than old container.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Yes, Sir.  Agreed but at the same time we have to keep the essence of original thoughts intact. It must not be eclipsed by any decision of any court or any person.

[Sadanand Bulbule]

Dear Sethi Sirji

One should not repeat the same “ mantra” till cows come back. 

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, I agree. You are absolutely right. 

[KALLESHAMURTHY MURTHY]

Dear Sri Amit Agarwal Ji,

Sir, 

In response to the Sl. No. 58, I am submitting the information available for me. 

The orders under the Karnataka VAT Act were uploaded to the departmental website “e-filing system”. It does not bear TMI Citation. I tried to collect the information but the order copy was unavailable since it is password-protected and presently inoperative. 

However, I will explain the précised facts briefly. 

Ferns Icon:- The Firm is engaged in leasing movable and immovable properties.

There was a purchase of the lift for installation for the building owned by “M/s Ferns Builders & developers’ which was let on lease rent.

The purchase details are as follows.

Inv. No.	Date	Description of goods	Rate of tax	Input tax	Invoice value
KA01INMAJ161000482	20-10-2016	Modernisation Johnson Ele. Lift to Sy. No. 28 Ferns Icon	14.50%	63509	590386
KA01INMAJ161200611	06-12-2016	Passenger Lift-Electric Enduronic Lift	14.50%	63467	59000

During the VAT period, the firm though purchases were declared in the return has not claimed the ITC since it was not eligible.

When the GST was introduced the firm availed the ITC through transitional credit on the contention that Sec. 10 of the CGST Act-2017 for taking CENVAT credit in respect of Capital goods not carried forward in a return as per the provisions of Sec. 140(2) of the said Act also quoted the provisions that “ the registered person shall not be allowed to take credit unless the said credit was admissible in a CENVAT credit under the existing Law and is also admissible as input tax credit under this Act.”

The department rejected the claim on the grounds that the firm was a service provider only and the copy of the return produced Form ST-3 was related to services only.

The goods purchased were electrical goods such as panels, cable, motor and lift. There were also purchases of consumable goods like bleaching powder, garbage cover, broom, sponge etc. The electrical goods are not eligible for input tax as per Schedule V of the KVAT Act and the consumables are not for further sales but for own use. Therefore he is not eligible for transitional credit under GST not being eligible to carry over input tax credit/CENVAT credit under the existing Law.

There were also references made to Sec. 17(5)(d) in rejecting the lift.

From the above instance, the ITC  was not allowed on the lift during the VAT period.

With regards

[Amit Agrawal]

Dear Shri KALLESHAMURTHY MURTHY Ji,

Thanks for your effort in digging out contents of said order. 

In continuation of what I said in my posts at Sr. No. 53, 54 & 58 above, I have noted following line from your post at Sr. No. 64 (i.e. reason for denial of credit under VAT regime) read with Section 140 (2) of the CGST Act, 2017 (i.e. reason to deny such 'VAT credit' under GST Regime during transition): 

"The department rejected the claim on the grounds that the firm was a service provider only and the copy of the return produced Form ST-3 was related to services only."

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

[RaamSrinivasan Kalpathi]

The Supreme Court has pronounced the landmark Safari Retreats judgment on Oct 3, 2024 on denial of ITC on Construction of Immovable Property. Whilst upholding the constitutional validity of Sec.17(5)(d), Hon'ble Supreme Court clarified that the renting of a building could qualify as a “plant” exception under Section 17(5)(d) of the CGST Act is significant for businesses involved in leasing immovable property. By accepting the assessee's claim to ITC on GST paid for building construction, the court has provided relief in scenarios where the constructed property is essential to the taxable activity, such as renting.

In summary, while the court rejected the constitutional challenge, it provided relief to taxpayers by holding that ITC is allowed for construction activities that qualify as “plant or machinery,” based on the facts of each case. Tax authorities will need to determine eligibility on a case-by-case basis.

[Amit Agrawal]

Para 66 & 67 of above-said ruling dated 03.10.2024 by the Apex Court states as follows:

"66. In the light of what we have held above, by setting aside the impugned judgment in Civil Appeal Nos. 2948 and 2949 of 2023 - 2024 (10) TMI 286 - SUPREME COURT, the writ petitions are remanded to the High Court of Orissa for limited purposes of deciding whether, in the facts of the case, the shopping mall is a “plant” in terms of clause (d) of Section 17(5).  Appeals are partly allowed in above terms.  

67. While deciding these cases, we cannot make any final adjudication on the question of whether the construction of immovable property carried out by the petitioners in Writ Petitions amounts to plant, and each case will have to be decided on its merit by applying the functionality test in terms of this judgment. The issue must be decided in appropriate proceedings in which adjudication can be made on facts. The petitioners are free to adopt appropriate proceedings or raise the issue in appropriate proceedings."

By reading the entire ruling, I believe that it gives lots of 'additional' grounds of defense for taking ITC against 'Lifts installed in commercial building given for rent' (For example: Non-applicability of 'explanation' itself which is given after Section 17(6) while trying to deny ITC u/s 17(5)(d) by proving the lift in itself is 'immovable' 'plant or machinery' with help of supporting facts & circumstances). 

Moreover, it opens up a real possibility of taking ITC against construction of 'Building' itself by applying the functionality test and same will be depend on facts & circumstances in each case. 

Once thing, which is clear at-least for me, is that various AAR / AAAR ruling quoted in various posts above (in support of denial of ITC against lifts) deserves to be completely ignored while taking all these call. 

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

[Amit Agrawal]

Another thing which is also clear (at-least to me) is that various Apex Court rulings, which are quoted earlier in various posts above - do NOT have any bearing on subject of issue under discussion here what-so-ever. It simply does not matter that 'Lifts are part of building or permanent fixture of building etc.' while taking subject call under discussion here.

Apex Court has now clearly held that one can possibility of taking ITC against 'Construction of Building' itself by applying the functionality test and same will be depend on facts & circumstances in each case 

If anything, various court rulings from erstwhile regime read with this latest latest Apex Court ruling can be applied to demonstrate that such lilts are indeed 'Plant' in the context under discussion here. 

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

[Amit Agrawal]

Apex Court has not only overruled Safari Retreats Private Limited - 2019 (5) TMI 1278 - ORISSA HIGH COURT (which had read down those provisions) but went for beyond that by explaining difference between 'Plant & Machinery' and 'Plant or Machinery' while applying clause (c) & (d) of Section 17(5).

In this ruling, there are so many judgements quoted, relied upon & explained by Apex Court in the context of dispute before it which in-turn gives fairly broad range of legal arguments to justify ITC against lifts for situation under discussion here. 

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

[Amit Agrawal]

Just an update on my three posts above:

Para 65 of the this Apex Court ruling is also very worth noting:

"65. Some of our conclusions can be summarised as under: 

a. The challenge to the constitutional validity of clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act is not established;  

b. The expression “plant or machinery” used in Section 17(5)(d) cannot be given the same meaning as the expression “plant and machinery” defined by the explanation to Section 17;

c. The question whether a mall, warehouse or any building other than a hotel or a cinema theatre can be classified as a plant within the meaning of the expression “plant or machinery” used in Section 17(5)(d) is a factual question which has to be determined keeping in mind the business of the registered person and the role that building plays in the said business.  If the construction of a building was essential for carrying out the activity of supplying services, such as renting or giving on lease or other transactions in respect of the building or a part thereof, which are covered by clauses (2) and (5) of Schedule II of the CGST Act, the building could be held to be a plant.  Then, it is taken out of the exception carved out by clause (d) of Section 17(5) to sub-section (1) of Section 16.  Functionality test will have to be applied to decide whether a building is a plant. Therefore, by using the functionality test, in each case, on facts, in the light of what we have held earlier, it will have to be decided whether the construction of an immovable property is a “plant” for the purposes of clause (d) of Section 17(5)."

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

[Amit Agrawal]

W.r.t. my views shared earlier (i.e. ITC is available against 'a centralised airconditioning plant' installed in the building, on similar reasoning applied for 'ITC against lift' as per query raised), I want to draw your attention to COMMISSIONER OF INCOME-TAX, AP VERSUS TAJ MAHAL HOTEL (1971 (8) TMI 2 - SUPREME COURT) where Apex Court observed the followings:

"Now it is well-settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of every day use. Popular sense means that sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it ...........

............................

The heating installation, of a building may be passive in the sense that it involves no moving machinery, but few would deny it the name of 'plant'. The same thing could, no doubt, be said of many air conditioning and water softening installations." 

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

[Amit Agrawal]

For query raised by the querist (i.e. ITC against lifts), using recent Apex Court ruling in case of  M/S SAFARI RETREATS PRIVATE LTD. & ORS (2024 (10) TMI 286 - SUPREME COURT) read with observations from case of TAJ MAHAL HOTEL (1971 (8) TMI 2 - SUPREME COURT) quoted by me in earlier post, I would refine my earlier views & reasoning as follows:

Lifts / elevators are ‘separately identifiable immovable property' even within ‘overall building’ in common parlance (For example: Brake-down / Collapse of lift in a accident’ is NOT equated with ‘Break-down / Collapse of Building’ in common parlance, Lifts needs separate  'maintenance contract' with specific differentiated requirements and same does not get covered in 'house-keeping or maintenance contract' for building etc.).

And, hence, such 'separately identifiable immovable property' (i.e. Lifts / elevators) fits perfectly into "Plant' (being construed in its popular sense if it is a word of every day use. Popular sense means that sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it).

In other words, calling them 'Lift / Elevator' itself means that it is 'plant or machinery' & not 'building' in popular sense while applying either clause (c) or (d) of Section 17(5).

Hence, IMHO, subject ITC under discussion is indeed available.  

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

[Amit Agrawal]

W.r.t. my views shared earlier (i.e. capitalisation of 'lift' either under 'Building' or 'Plant & Machinery' in tax-payer's books of accounts does not matter for issue under discussion here), following observations by Apex Court from case of TAJ MAHAL HOTEL (1971 (8) TMI 2 - SUPREME COURT) are worth noting:

" ............The Tribunal rejected the appeal holding that the definition of "plant" must necessarily be the same, whether it was for claiming depreciation under section 10(2)(vi) or for development rebate under section 10(2)(vib) .............

..................................

The High Court was right in not accepting the reasoning of the Tribunal based on the rates relating to depreciation under section 10(2)(vi) and the assessee having claimed that the sanitary and pipe-line fittings fell within the, meaning of "furniture and fittings" in rule 8(2) of the Rules. It has been rightly observed that the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what wag conferred by the Act or whittle down its effect. If the assessee had claimed higher depreciation allowance that would not detract from the meaning of the word "plant" in clause (vib) of section 10(2)."

Thus, Supreme Court has ruled that two different classification i.e. "furniture and fittings & "plant" for very same asset (i.e. sanitary and pipe-line fittings) while allowing same tax-payer 'two different benefits' under very same Income Tax Act. Here, the tax-payer is giving differential treatment in two different acts (i.e. income tax & GST).

And hence, there is no legal bar in applying differential classification for very same asset (i.e. Lifts) while taking legally available benefits in two different act. 

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

[KALLESHAMURTHY MURTHY]

The Hon'ble Supreme Court delivered the judgment in the Civil Appeal No. 2948 of 2023 in the case of M/s Safari Retreats Private Ltd. - 2024 (10) TMI 286 - SUPREME COURT, who was engaged in constructing a shopping mall to lease out to different tenants, focusing on the constitutional validity of Sec. 17(5)(c) & (d) of the CGST Act which restricts the availment of ITC. The court has observed that sub-section (c) used the phrase "Plant & Machinery" whereas Sub-Sec. (d) used the phrase "plant or machinery". These phrases have different meanings and reject the plea of the Company to read "or" as "and".

The court rationally held that a building or immovable property could be classified as a plant if it is integral to business operations, such as in cases where a mall or warehouse is essential for supplying services (renting) subjected to determine it by applying the functionality test.

The court referred to the common understanding of a plant—whether it is movable or fixed to the earth. Items like equipment, machinery, or structural supports that are fixed but integral to the nature of business qualify as plant this may include lift also.

It has been remanded back to the Odissa High Court to determine the issue accordingly.

Though this has appeared to be given relief to the availment of ITC, it is subject to the determination of the Hon'ble HC Odissa.

Hence the Hon'ble Supreme Court has not conclusively given Judgement entirety to avail the ITC on construction materials used in the Building until it is decided whether it is a plant and the lift attached to the building is treated as a plant as part of the building or still, it holds as not having an identity on collapse or demolish of the building.

This is as understanding of the Judgement by me.

 

[KASTURI SETHI]

Sh.Murthy Ji,

Sir,  The best analysis by you. Indirectly Hon'ble Supreme Court has upheld the constitutional validity of Section 155 of CGST Act.  The ball is in the High Court again and the person taking ITC has to conform to the parameters laid down by Hon'ble Supreme Court.