♠ As per Section 16(1) of CGST Act 2017, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
♠ In Section 17(5) of CGST Act 2017 there are certain situations which block the credit and input tax credit shall not be available. One of the situation as per Section 17(5)(d) which states that goods or services or both received by a taxable person for construction of immovable property ( other than plant or machinery ) on his own account including when such goods or services or both are used in the course of furtherance of business.
Explanation- For the purposes of clauses ‘c’ and ‘d’, the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.
Explanation- For the purposes of this Chapter & Chapter VI, the expression “plant and machinery” means apparatus, equipment and 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.
♠ This is to apprise about the recent decision of AAR of MP in the case of M/s Jabalpur Hotels Pvt Ltd. Dt: 08.06.2020 ( Order No. 10/2020 ), where it was held that 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. The findings were that a lift comprises of components or parts(goods) like lift car, motor, 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 immense 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 a particular building and are not something sold out of shelf and in fact the value of goods and cost of the components used in the manufacturing and installation of lift are subject to taxation while the element of labour and service involved cannot be treated as goods. Parts of the lift are assembled at the site in accordance with its design and requirement of the building which may include the floor levels and the lift has to open on different floors or otherwise depending upon the requirement. It has to synchronize with the building and each door has to open on the level of each floor. The lift therefore becomes part of the building and is not a separate thing per se. A lift does not have an identity when removed from the building. Therefore the lift cannot be said to separate from a building. Also it has to be borne in the mind that a lift is not a item that is purchased and sold. It is customised mechanism for transportation, designed to suit a specific building. Upon piece by piece installation, it becomes an integral part of the building.
♠ AAR of Karnataka in the case of M/s Tarun Realtors Pvt. Ltd. Dt: 30.09.2019( Order No. KAR ADRG 103/2019 ) , held that the provision of facilities like transformers, sewage treatment plant, electrical wiring and fixtures, DG sets, lifts Air handling units etc are sine-qua non for a commercial mall and hence cannot be considered separate from the building or civil structure. Hence the input tax credit on the inward supplies of goods or services involved in the construction of the immovable property which is a civil structure or building is not available to the applicant and hence blocked.
♠ AAR of Maharashtra in the case of M/s Lal Palmas Co-operative Housing Society Limited DT: 22.01.2020 ( Order No. GST-ARA-31/2019-20/B-13), which was further confirmed by AAAR Maharashtra DT: 20.07.2020 Order No. MAH/AAAR/RS-SK/24/2020-21, held that GST ITC shall not be available on replacement of existing lift/elevator. The AAR said that the erection of lift cam be done only inside the building structure as an integral part of the building in which lift is to be installed. The erection of a lift has to be correlated and tailored to meet the needs and requirements of a particular building. Once the lift is installed and commissioned in the building it becomes integral part of the immovable property that is the building. The lift when installed in the building makes the building fir for occupation and becomes a permanent fixture of the building itself. Hence the same will be considered as an immovable property. The Honourable Apex Court in the case of Triveni Engineering & Industries Ltd. vs C.C.E., 2000(40) RLT 1 (SC)-2000 (120) ELT 273 clearly laid down that after assembling, on completion of process of erection, the item becomes a part of the building or an immovable property. In the case of Quality Steel Tubes (P) Ltd. vs C.C.E., U.P. it was held by the Apex Court that erection and maintenance of the lifts forms part of the immovable property. In the case of Otis Elevator Company (India) vs S.C.E. on 27.08.2002, the Mumbai HC of Justices V daga and J Devadhar Equivalent citations: 2003 (151) ELT 499 Bom, observed that” ‘Having heard the rival contentions and having examined all the citations referred to hereinabove , we are clearly of the opinion that the same shall apply to the facts of this case in full force and item in question being immovable property cannot be subjected to excise under the tariff heading claimed by the Revenue. The case sought to be made out by the petitioner is also covered by the decision of Government of India in reference, Otis Elevator company (India) Ltd. 1981(3) ELT 720(GOI), wherein it was clearly held that if an article does not come into existence until it is fully erected or installed, adjusted, tested and commissioned in a building, and on complete erection and installation of such article when it becomes part of immovable property.’ In the view of the above we have no doubt that the lift would become an immovable property after being erected and installed as it is attached to the building itself. The lift after erection and installation is an immovable property that is a building. In other words it is to be considered as an integral part of the building itself. It is not a separated part of the building like storage water tank etc. The AAAR further relied on the Larger Bench of the SC in the case of M/s Kone Elevators vs State of Tamill Nadu ( Writ petition No. 232 of 2005, DT: 06.05.2014) has held that in the case of installation of lift after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building. Once it has been established that the lift after its erection, installation and commissioning would be considered as part of the building and hence immovable property.
{Kindly note that SC in the case of Kone Elevator India Pvt ltd [2014 (34) STR 641], has held that the activity of supply and installation of list is a work contract services and it cannot be regarded as sales of good under the erstwhile VAT or sales tax but this ruling have not decided that whether installation, commissioning and erection of lift results in an immovable property. }
COMMENT
♠ It would not be wrong, if it is stated that what is an immovable property and what’s not has become the key litigation under GST. Immovable property has not been defined in the GST Act. Definition of Immovable Property in Clause 3(26) of General Clauses Act, 1897:- “ land and benefits arising out of land and things attached to earth permanently fastened.” 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 attached.
♠ CBEC Circular Number 58/1/2002-CX, dated 15/1/2002 where in para (v) of Point No. 4 it has been clarified that “if items assembled or erected at site and attached by foundation earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore not be excisable goods”.
Further where in para (vi) of Point No. 4 it has been clarified that “If any goods installed at site (example paper making machine) are capable of being sold or shifted as such after removal from the base and without dismantling into its components/parts, the goods would be considered to be movable and thus excisable. The mere fact that the goods, though being capable of being sold or shifted without dismantling, are actually dismantled into their components/parts for ease of transportation etc., they will not cease to be dutiable merely because they are transported in dismantled condition. Rule2(a) of the Rules for the Interpretation of Central Excise Tariff will be attracted as the guiding factor is capability of being marketed in the original form and not whether it is actually dismantled or not, into its components. Each case will therefore have to be decided keeping in view the facts and circumstances, particularly whether it is practically possible (considering the size and nature of the goods, the existence of appropriate transport by air, water, land for such size, capability of goods to move on self propulsion -ships- etc.) to remove and sell the goods as they are, without dismantling into their components. If the goods are incapable of being sold, shifted and marketed without first being dismantled into component parts, the goods would be considered as immovable and therefore not excisable to duty.”
Further in Point No. 5 of said Circular as follows:
(i) Turn key projects like Steel Plants, Cement plants, Power plants etc. involving supply of large number of components, machinery, equipments, pipes and tubes etc. for their assembly / installation / erection / integration / inter-connectivity on foundation/civil structure etc. at site, will not be considered as excisable goods for imposition of central excise duty – the components, however, would be dutiable in the normal course.
(ii) Huge tanks made of metal for storage of petroleum products in oil refineries or installations. These tanks, though not embedded in the earth, are erected at site, stage by stage, and after completion they cannot be physically moved., On sale/disposal they have necessarily to be dismantled and sold as metal sheets/scrap. It is not possible to assemble the tank all over again. Such tanks are therefore not moveable and cannot be considered as excisable goods[ Reference para 15 of Triveni judgement supra and the case of CCE Chandigarh vs Bhagwanpura Sugar Mills reported in 2001(47)RLT409(CEGAT-Del)]
(iii) Refrigeration/Air conditioning plants . These are basically systems comprising of compressors, ducting, pipings, insulators and sometimes cooling towers 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. Though each component is dutiable, the refrigeration/air conditioning system as a whole cannot be considered to be excisable goods. Air conditioning units, however, would continue to remain dutiable as per the Central Excise Tariff.
(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 ELT 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 vs Kone Elevators India Ltd reported in 2001(45)RLT 676 (CEGAT- Chen)
♠ Considering above in my view GST of input tax credit paid on lift is not available since they are assembled/installed at the site to suit the requirement in a particular building. Lift cannot be dismantled without giving substantial damage to its components and thus cannot be reassembled. Lift is not being capable of being sold or shifted as such after removal, not capable of being marketed in the original form, loses it economic value after dismantling/removal. A lift does not have an identity when removed from the building. Lift is an integral part of the building. Lift is attached to building for the permanent beneficial enjoyment of building.
♠ Similarly GST paid on Centralised AC, roof water storage tank, window embedded to building, sanitary fittings on newly constructed building, cables, tiles, PVC pipes, wash basin, paint, marble and other bathroom sanitary fittings will not be available to the extent of capitalisation of the said goods as mentioned in Explanation of Section 17(5) of CGST Act 2017. [Similar view taken by Rajasthan AAR in case of M/s Rambagh Palace Hotels Pvt. Ltd. DT: 30.04.2019 Order No. RAJ/AAR/2019-20/05 & Uttarakhand AAR in case of M/s Bahl Paper Mills Ltd. DT: 04.05.2018 Order No. 03/2018-19].
DISCLAIMER: The views expressed are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.
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