Summary of case:
The applicant is constructing new administrative building and incurring cost of various services Such as (i) Central Air Conditioning Plant (ii) New Locker Cabinet (iii) Lift (iv) Electrical fittings, such as Cables, Switches, NCB and other Electrical Consumables Materials (v) Roof Solar (vi) Generator (vii) Fire Safety Extinguishers (viii) Architect Service Fees (ix) Interior Designing Fees.
The applicant has sought an advance ruling in respect of the following question:
Whether ITC will be available for the following:
(i) Central Air Conditioning Plant (Classified & Grouped under Plant & Machinery)
(ii) New Locker Cabinet (Classified & Grouped under Locker Cabinets)
(iii) Lift (Classified & Grouped under Plant & Machinery)
(iv) Electrical Fittings, such as Cables, Switches, NCB and other Electrical Consumables Materials (Classified & Grouped under Separate Block namely Electrical Fittings)
(v) Roof Solar (Classified & Grouped under Plant & Machinery)
(vi) Generator (Classified & Grouped under Plant & Machinery)
(vii) Fire Safety Extinguishers (Classified & Grouped under Plant & Machinery)
(viii) Architect Service Fees (Charged to Profit & Loss Account)
(ix) Interior Designing Fees (Charged to Profit & Loss Account)
Section 17(5) of the CGST Act, 2017, blocks the input tax credit on certain goods or services even though these goods or services are used or intended to be used in the course or furtherance of business. Clause (c) of the said section restricts input tax credit on the following:
(c) 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 service;
The Air Conditioning plant is basically a system comprising of compressors, ducting, pipings, insulators etc. They are in the nature of systems and are not machines as a whole. They come into existence only by assembly and connection of various components and parts. Hence there is no merit to assume the central air conditioning system as a machine. Further the AC system as a whole cannot be transported from one place to another, only after the system is dismantled and individual parts of the air conditioning system are removed then they can be transported. Further, Air Conditioning system once installed and commissioned in the building is transferred to the building owner and this involves transfer of property. Hence there is no merit to treat an entire Central Air conditioning system a movable property. Hence it was held that supply of centralised air conditioning plant covered at Section 17(5)(c) CGST Act.
The lift comprises of several parts and components such as 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. The lift does not have an identity when dismantled and removed as parts and components from the said Administrative Building. Therefore it was held that lift is an immovable property and merits classification under works contract service and is covered at Section 17(5)(c) of CGST Act 2017.
Electrical fittings, such as cables, switches, NCB and other electrical consumables materials like wiring and switches are so integrated to form a network. The installation of electrical fittings are covered under works contract, where these fittings are fitted/installed and usually concealed/ piped into the wall of the administrative building and transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. These electrical fitting cannot be shifted from one place to another without dismantling/ cutting the wire and switch board/ removing the switches. This supply being essential and integral to the administrative block and can be treated as a subset within the immovable administrative building, treating the building a whole set.
The Roof solar 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. The Roof Solar plant attached to the roof on concrete base cannot be sold as such. It means for sale/shifting to another place the whole Solar Plant is required to be dismantled and then only be sold/shifted and re-erected at the site. Thus held that it is an immovable property and is a composite supply of works contract and covered at Section 17(5)(c) CGST Act.
Fire Safety Extinguisher's installation requires attachment of metal framing on the earth and to build the concrete structure, including cementing the floor to install the metal framing. The parts of the fire safety extinguisher attached on the metal framing with nut bolts is attached on the concrete structure. The Fire Safety Extinguisher structure contains various types of metal pipes, different types of motors and equipments etc. and all these parts/equipments are assembled at site for the complete set of ‘Fire Safety Extinguisher’ to came into existence. The said Fire Safety Extinguisher cannot be shifted as a whole as such to another place without dismantled. It was held that the system assembled, erected and attached to the earth by a foundation is immovable property and supply is covered within the definition of works contract supply.
The generator is a movable item and its expenses are capitalised by the applicant and Locker Cabinet is also a movable goods. There is no element of works contract involved in generator & Locker Cabinet, the restriction of Section 17 (5) of the CGST Act, 2017 does not apply on these and hence the ITC is available on these without any restriction.
Architect service fees and Interior designer fees: As per the applicant both these services are revenue expenditure. The applicant gave the reference to the explanation to Section17(5) which are as follows:
‘the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property’.
However the advance ruling authority found no merit to extend the explanation to subject administrative building, as the said administrative building is a new construction and not falling under reconstruction/ renovation/additions/alterations/repairs. Further the explanation defines an inclusive definition of Construction, defining construction to include, inter alia, re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. This definition is not exhaustive and does not bar within the definition of Construction, new construction. Whether the supply of architect service or interior decorator service supplied for the new administrative building is revenue or capital expenditure, it does not matter as long as the construction is new and thereby subject supplies are covered at Section 17 (5) (d) CGST Act, reproduced as follows:
"goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business"
CRUX: 1. Input Tax Credit is admissible on New Locker Cabinet and Generator.
2. Input Tax Credit is blocked under Section 17(5)(c) of CGST Act for: Central Air Conditioning Plant; Lift; Electrical Fittings; Fire Safety Extinguishers, Roof Solar Plant.
Input Tax Credit is blocked under Section 17 (5) (d) CGST Act for : Architect Service and Interior Decorator fees.