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TMI Blog2021 (8) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... to Profit & Loss Account) (ix) Interior Designing Fees (Charged to Profit & Loss Account) 2. The applicant has submitted as follows: Section 17 (5) of CGST Act, 2017 deals with "Blocked Credit" in GST. Sub-Section (c) & (d) of Section 17 (5) deal with blocked credit relating to "Works Contract Services" and "Goods & Service" received for construction of Immovable Property respectively. For understanding the Blocked credit for construction of Immovable Property in GST a Conjoint reading of Section 17 (5) (c) & 17 (5) (d) is required. The meaning of "Works Contract" and basics of Section 17 (5) (c) & (d) are reproduced as follows. Definition of Works Contract As per Section 2(119) of GST Act, "Work Contract" means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. The expression "Work Contract" is limited to contract to do with immovable property. A contract will amount to a "Works Contract" on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional alteration or repairs only to the extent of capitalisation of Immovable Property excluding Plant and Machinery. 5.1 The applicant has submitted on availability of ITC on the goods and services as mentioned as follows: Sr.No. Nature of Cost/Expenses Head under which Exp. Will be booked Capitalized or Not Remark 1. Central Air Conditioning Plant Plant & Machinery Yes Being Plant not covered under Immovable Property & hence ITC available 2. New Locker Cabinet Locker Cabinets Yes Being Furniture not covered under Immovable Property & hence ITC available 3. Lift Plant & Machinery Yes Being Plant not covered under Immovable Property & hence ITC available 4. Electrical Fittings, such as Cables, Switches, NCB and other Electrical Consumables material Electrical fittings Yes Being Electrical Fittings not covered under Immovable Property & hence ITC available 5. Roof Solar Plant & Machinery Yes Being Plant not covered under Immovable Property & hence ITC available 6. Generator Plant & Machinery Yes Being Plant not covered under Immovable Property & hence ITC available 7. Fire safety Extinguishers Plant & Machinery Yes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Locker Cabinet: The said Supply will be booked under the head of "Furniture & Fixtures" in the Books of Accounts. Locker Cabinets will be ultimately used for provision of Supply of Taxable Service. The said Supply is "Supply of Goods" which is movable and there is no element of "Works Contract" resulting into "Immovable Property" at all. Further, even though, said "Supply" will be capitalized, it will be classified under "Furniture & Fixture". The "Supply" is of "Movable Goods" and there is no element of "Works Contract", the restriction of Section 17 (5) of the CGST Act, 2017 does not apply and hence the ITC is available without any restriction. (iii) Lift: The said Supply will be booked under the head of "Plant & Machinery" in the Books of Accounts. The Applicant had entered into a contract for "Supply & Erection" of "Lift". To see, whether the Machinery or Equipment after installation is permanently fastened or embedded to the earth, so that the activity would be treated as "Works Contract" under GST. Immovable property has not been defined in the GST Act. Definition of Immovable Property is given in Clause 3 (26) of General Clauses Act, 1897 which says that "land and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke any difference to the principle. The test is whether the Lift can be sold in the market and it is seen from record that it can be sold. Just because a plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property. The Supplier will himself buy several items and will complete the machinery. They will purchase a large number of components and fabricate a few and assemble the Lift at site. If it is sold, it has to be dismantled and reassembled at another site. Further, "Plant and machinery" means apparatus, equipment, machinery fixed to 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 but excludes land, building or any other civil structures, telecommunication towers; and pipelines laid outside the factory premises. Thus, the lift is nothing but the "Plant & Machinery" attached to earth which is movable as well as marketable also. The Applicant has relied upon the judgment of Apex Court in case of M/s. Sirpur Paper Mills reported in 1998 (97) ELT 3 (SC) wherein Apex Court upheld the view that where plant & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be dismantled and sold to him in parts". Further, it cannot be prudent to say that the "Roof Solar Plant" assembled and erected at the premises of the Applicant at its Office will be immovable property as something attached to earth like a building or a tree. If the Applicant want to sell the "Roof Solar Plant" it will always be removed / dismantled from its base and sell it. Further, whatever is embedded in earth must be treated as immovable property is basically not sound. For example, a factory owner or a house-holder may purchase a water pump and fix it on a cement base for operational efficiency and also for security. That will not make the water pump an item of immovable property. Some of the components of water pump may even be assembled on site. That too will not make any difference to the principle. The test is whether the "Roof Solar Plant" can be sold in the market and it is on record that as a fact that it can be sold. Just because a plant and machinery are fixed in the earth for better functioning, it does not automatically become an immovable property. The Supplier will himself buy several items and will complete the machinery. They will purchase a large numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Extinguishers The said Supply will be booked under the head of "Plant & Machinery" under the Books of Accounts. The Applicant will install "Fire Safety Extinguishers" at their Building to prevent any mishap. For this the Applicant will enter into Contract for Supply with Supply and "Installation of Fire Safety Extinguishers". Any Supply, to get covered under "Work Contract Services", shall first pass the test of "Permanency". To see, whether the Machinery or Equipment after installation is permanently fastened or embedded to the earth, so that the activity would be treated as "Works Contract" under GST. Immovable property has not been defined in the GST Act. Definition of Immovable Property is given in Clause 3 (26) of General Clauses Act, 1897 which says that "land and benefits arising out of land and things attached to earth permanently fastened." As per Section 3 of the Transfer of Property Act 1882, the phrase "attached to earth" means- (a) rooted in the earth, as in the case of trees and shrubs; (b) imbedded in the earth, as in the case of walls or buildings; or (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing which will be ultimately used for provision of Supply of Service. As mentioned in the Application, the said expenses will be booked as Revenue Expenditure in the "Profit & Loss Account". As per the Explanation to Section 17 (5), for the purposes of clauses (c) and (d), the expression "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. In the instant case, the said expenses is not being capitalized and charged to "Profit & Loss Account" and hence the ITC is admissible. Revenue's Submission: 7. The revenue vide letter F. No. TECH/ISSUE/32/2020-TECH-O/o COMMRCGST-SURAT dated 22.04.2021 submitted as follows: 7.1 The relevant provision under Section 17 (5) of CGST Act, 2017 reads as follows: (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of section 18, input tax credit shall not be available in respect of the following, namely:- (a)......... (b)........ (c) work contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le property. 9. The applicant has submitted that the cost/expenses towards Central Air Conditioning Plant, New Locker Cabinet, Lift, Electrical Fittings, such as Cables, Switches, NCB and other Electrical Consumables Materials, Roof Solar, Generator, Fire Safety Extinguishers, Architect Service Fees & Interior Designing Fees are for construction of "New Administrative Building" which is in the nature of works contract services and Section 17(5)(c) clearly states that no input tax credit would be available on the tax paid on works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract services. Clause (119) of section 2 of the CGST Act, 2017 defines the works contract as under: "(119) "works contract" means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract" 10. The Accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to Profit & Loss Account) (ix) Interior Designing Fees (Charged to Profit & Loss Account). Personal Hearing 14. Shri Hardik Shah, C.A. appeared for hearing (Video conferencing) on 30-6-21 and reiterated the contents of the application. Findings 15. At the outset we would like to make it clear that the provisions of CGST Act, 2017 and GGST Act, 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the GGST Act. 16. We have carefully considered both the applicant's and revenue's submissions. Revenue submits that all the said items mentioned by applicant are part and parcel of the building and do not have independent existence, hence excluded from Plant and machinery and ineligible for ITC. Further Revenue submits that subject activities are in nature of works contract and thereby ITC is blocked vide Section 17(5) CGST Act. 17. We find that the applicant had received the subject 9 supplies in relation to its new administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shifted from place to place. It was pointed out that the test was one of permanency; if the chattel was movable to another place of use in the same position or liable to be dismantled and re-erected at the later place, if the answer to the former is in the positive it must be a movable property but if the answer to the later part is in the positive then it would be treated as permanently attached to the earth. We note the applicants submission that only after the system is dismantled and individual parts of the air conditioning system are removed they can be transported. AC system/plant as a whole cannot be transported from one place to another. We find the test of permanency laid down by the Apex Court has been answered in subject case. The centralised Air condition plant comprises various parts viz. Inner and outer units, compressors, ducting, Copper pipe, flexible water pipe etc. and all these parts get assembled at the site and fitted to the building. All the different parts of centralised Air condition plant after fitted in the building loose their identity as "machine" and become a whole " Centralised Air conditioning plant". We find that the Central Air Conditioning plant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable property. We are bound by the law of the land, as per Article 141 of our Constitution. 19. Lift i. The applicant has entered into contract for supply and commissioning of Lift in the said Administrative building. We note that a lift comprises of several parts and components- lift car, motors, ropes, rails, etc. and each of them has its own identity prior to installation and they are assembled/installed to create the working mechanism called lift. The installation of these components/parts with skill is rendition of service and without installation in the building, there is no lift. Lifts are assembled and manufactured to suit the requirement in said administrative building and are not something sold out of shelf and, in fact, the value of supply and installation of this lift is subject to taxation as supply of service. Parts of the lift are assembled at the site in accordance with its design and requirement of the building. It has to synchronize with the building and each door has to open on the level of each floor. The lift does not have an identity when dismantled and removed as parts and components from the said Administrative Building. Therefore, we find that lift h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant under GST scheme of law also: 5 (iv) "Lifts and escalators. (a) Though lifts and escalators are specifically mentioned in sub heading 8428.10, those which are installed in buildings and permanently fitted into the civil structure, cannot be considered to be excisable goods. Such lifts and escalators have also been held to be non-excisable by the Govt. of India in the case of Otis Elevators India Co. Ltd. reported in 1981 (8) E.L.T. 720 (GOI). Further, this aspect was also a subject matter of C&AG's Audit Para No. 7.1(b)/98-99 [DAP No. 186] which has since been settled by the C&AG accepting the Board's view that such lifts and escalators are not excisable goods. Also refer CCE v. Kone Elevators India Ltd. reported in 2001 (138) E.L.T. 635 (Tri.-Chen.) = 2001 (45) RLT 676 (CEGAT-Chen" This supports our view that lift is an immovable property. iv. We note that The applicant referred to case of M/s. Sirpur Paper Mills reported in 1998 (97) ELT 3 (SC). The facts of said case are different from the present case as in Sirpur case, the issue was with respect to Paper making machine and not subject supply of Centralised Air Condition Plant, Lift, Fire Safety Extinguisher and So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstallation, Testing & Commissioning) with the vendor for installation of Roof Solar Plant. The said Plant will be attached on the concrete base with the nuts and bolts. It is a system specifically to fit the dimensions and orientation of the needs of the applicant. (ii) We cite Hon'ble Supreme Court Judgment in the case of M/s. T.T.G. Industries Ltd. v. Collector of Central Excise, [decided] on 7 May, 2004 (167) E.L.T. 501 (S.C.) in Appeal (civil) 10911 of 1996, wherein The Apex Court ruled that mudguns and the drilling machines erected at site by the appellant on a specially made concrete platform is immovable property which could not be shifted without first dismantling it and then re-erecting it at another site. We apply this ratio decidendi in our subject matter also. (iii) We shall also refer to the Supreme Court decision in the case of Duncans Industries Ltd. v. State of U.P. & Ors on 3 December, 1999 held: "The question whether a machinery which is embedded in the earth is movable property or an immovable property, depends upon the facts and circumstances of each case. Primarily, the court will have to take into consideration the intention of the parties when it decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the said explanation to said sr no 234 has been inserted w.e.f 1-1-19. But plain reading of the said Schedule II sr no 6 (a) and the nature of supply at hand, we find this is a composite supply under works contract. The applicant submitted that if resold, the entire system needs to be dismantled and had to be reassembled at another site. Further the said system/ plant has different goods which when assembled and installed become a roof solar plant. The specific valuation and tax determination does not change the scope of supply under Works contract . We hold that Roof Solar plant is a composite supply of works contract and covered at Section 17(5)(c) CGST Act. 22. Fire Safety Extinguisher The applicant contract for supply and installation of Fire Safety Extinguishers at Administrative building, has been depicted by the applicant as reflected at para 6(vii).We note that the installation of said system requires attachment of metal framing on the earth and to build the concrete structure, including cementing the floor to install the metal framing. The different parts of the fire safety extinguisher attached/ embedded on the metal framing with nut bolts is attached on the concrete ..... X X X X Extracts X X X X X X X X Extracts X X X X
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