ITC not admissible on AC & Cooling/Ventilation System in the process of establishing new factory

In re Wago private limited (GST AAR Gujarat)

Input tax credit is not admissible on Air-conditioning and Cooling System and Ventilation System, as this is blocked credit falling under Section 17(5)(c) CGST Act. Read AAAR Order: ITC on GST for Plant, Machinery & Installation Services: AAAR Gujarat Ruling

FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING,GUJARAT

BRIEF FACTS

The applicant M/s.Wago Private Limited 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 and therefore, the applicant sought Ruling on the admissibility of input tax credit on the same in terms of the provisions of Section 16 and 17 of the CGST Act, 2017. They have submitted the brief description of the assets to be procured along with its main function/usage as follows:

Air-conditioning and cooling system:

Ventilation System-Plant & Admin:

2. The applicant seeks Ruling on admissibility of input tax credit of GST paid on the procurement of the above including the service of installation and commissioning of the same, in terms of the provisions of Section 16 and 17 of the CGST Act, 2017.

3. The applicant submitted as follows:

(1) General provisions of ITC under GST: Section 16(1) of the CGST Act, 2017 provides for the eligibility of input tax credit on supply of goods or services used or intended to be used in the course or furtherance of business. However, as per Section 16(2), this eligibility of input tax credit is subject to certain restrictions and conditions like payment of tax by supplier, filing of returns etc. Relevant extract of Sections 16(1) and 16(2) of the CGST Act read as under:

“16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both 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.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,—

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(b) he has received the goods or services or both.

Explanation.- For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:”

Further, Section 17(5) of the CGST Act, 2017 has overriding effect to Section 16(1) of the CGST Act, 2017.

(ii) Legal provisions related to Blocked Credit under GST: 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:

Clause(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;

Clause(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.

Thus, it may be inferred that tax paid on goods or services used in the course or furtherance of business is eligible for ITC except if they are procured for construction of immovable property. However, the above exception is not applicable in case of plant or machinery. The term ‘construction’ has been defined in Explanation to clause(d) to Section 17(5) in an inclusive manner and states that “for the purposes of clauses(c) and (d), the expression ‘construction’ includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalisation to the said immovable property. “

(iii) Applicability of Clauses(c) and (d) of Section 17(5) on Plant and Machinery: The term ‘plant and machinery’ has been defined in Explanation to Section 17(5) in an exhaustive manner and states that:

The term ‘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-

i. Land, building or any other civil structures;

ii. Telecommunication towers, and

iii. Pipelines laid outside the factory premises.

GST law defines ‘plant & machinery’ which means,-