Summary of case:
Wago private limited

The applicant is in the process of establishing their new factory at Vadodara, Gujarat and are procuring various assets to install and commission them in their factory/ The applicant has entered into a work order for installation, erection and commissioning, maintenance and warranty of heating, ventilation and air conditioning system (HVAC) works in the building comprising the factory building, assembly building, the admin building and canteen building.

The applicant has sought an advance ruling in respect of the following questions:
The admissibility of input tax credit of GST paid on the procurement of Air-conditioning and Cooling System and Ventilation System, including the service of installation and commissioning the same in terms of the provisions of Section 16 and 17 of the CGST Act, 2017.

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) and (d) 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;
(d) 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.

In respect of the given case it was found that 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 comes 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 it was observed that 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.

Similarly the ventilation system comprises of fresh air fans, exhaust fans, electrical panel, GI ducting, threaded rod with PU coating, beam clamp, piping support for copper pipe and drain pipe, drain pipe U clamp, brid screen and cowls, grill, MS structure, regulators, suitable PU coated GI perforated cable trays with cover with necessary structural supports. All these different parts of ‘Ventilation system’ after being fitted in the building loose their identity as individual goods and become Ventilation system. Further the Ventilation system fitted in the building cannot be taken as such to the market for sale and cannot be shifted from one place 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.

In view of the above it was held that ITC is not admissible on Air-conditioning and Cooling System and Ventilation System, as it is blocked credit under Section 17(5)(c) of CGST Act 2017

CRUX: Input tax credit is not admissible on Air-conditioning and Cooling System and Ventilation System, as this is blocked credit under Section 17(5)(c) of CGST Act 2017.