GST Update No 268 on eligibility of ITC on lifts

The concept of seamless flow of input tax credit and elimination of cascading effect was the baseline because of which GST Law came into existence. However, with the passage of time, it seems that the issues pertaining to input tax credit are no longer free from litigations and disputes. Further, the concept of blocking of input tax credit under Section 17(5) adds fuel to fire thereby increasing the miseries of taxpayers. The tussle as to availability of input tax credit on plant and machinery affixed to Earth continues since erstwhile indirect tax regime. Recently, issue regarding admissibility of ITC on lifts was raised before Madhya Pradesh AAAR in the case of M/S JABALPUR HOTELS PRIVATE LIMITED. The decision imparted in this case is the subject matter of discussion of our present update. The appellant company was established with a project of construction of multistoried hotel in Jabalpur having approximately 100 rooms. Therefore, to provide facility to guest, lift would be required in the hotel premises. The appellant filed an application before AAR and sought advance ruling as to whether input tax credit be available on purchase of lifts. Aggrieved from the negative order of AAR, the appeal was further preferred to AAAR. The appellant argued that conditions as prescribed under Section 16 of CGST Act, 2017 are complied with and therefore, input tax credit stands available since the lifts are used in the course or furtherance of business. Further, it was contended that the AAR erred in its view of not considering lift as plant and machinery. The AAR has defeated the basic purpose of seamless flow of input tax credit in GST. It was submitted that the lift is a machine having HSN 8428 and hence, the input tax credit is not blocked in accordance with provisions of Section 17(5) of CGST Act, 2017. Furthermore, the lift is Hydraulic lift and can be installed or uninstalled without damaging any part of building. It was submitted that the officer has mis-interpreted the provisions of Section 17(5)(d) of CGST Act, 2017 stating that any plant and machinery attached to land, building orcivil-structure, telecommunication tower and pipelines outside the factory shall not be considered as plant and machinery. The officer agreed that the lift is a plant and machinery however, since it is installed in factory, it becomes integral part of building and hence, no input tax credit can be claimed. Reference was drawn by appellant to CBIC Circular No.58/1/2002-CX dated 15.01.2002 wherein meaning of movable and excisable goods was provided. It was further submitted that to consider the items to be permanently attached, two-fold test of (i) extent of annexation and (ii) object of annexation is to be considered. The extent of annexation means annexing the object ceases to be detachable. It would stand demolished once it is removed and the commercial character of the asset remains intact. The object of annexation means whether the intent of annexing movable property with immovable property was of permanent beneficial enjoyment or not. Since, the lift was purchased in the course or furtherance of business, it cannot be deemed to be part of civil structure just because it was fastened with nuts and bolts. Reliance was placed on various Judicial Pronouncements stating that the machine is not immovable property such as : 1. Sirpur Paper Mills Ltd V/s Collector of Central Excise 2. Commissioner of Central Excise V/s Solid & Correct Engg. Works & Ors. 3. Municipal Corporation of Greater Bombay & Ors. V/s Indian Oil Corporation Ltd. 4. T.T.G. Industries Ltd. V/s C.C.E, Raipur 5. Essar Telecom Infrastructure Pvt. Ltd. on Mobile Towers by Karnataka High Court which differed with the view of Bombay High Court in Hutchison Max Telecom P Ltd. It was further submitted that the lift installed in hotels in not customised life but a pre-designed lift. It can be easily installed with the help of nuts and bolts and does not require any specific modifications. It can be dismantled easily without causing any damage to the building and can be resold in the market. In this respect, certificate was also obtained from Engineer who designed the hotel building. Further, reference was also made to definition of immovable property under Excise regime. Reliance was also drawn CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??5 to various rulings in erstwhile GST regime such as : 1. M/s Rattha Holding Co. Pvt. Ltd. V/s Commissioner of Central Services Tax, Chennai 2. Commissioner of Central Excise, Vishakhapatnam-II V/s M/s Sai Samhmita Storages (P) Ltd. 3. Commissioner of Central Excise & Service Tax V/s India Cements Ltd. 4. Commissioner of Central Excise Jaipur V/s Rajasthan Spinning & Weaving Mils Ltd. 5. Saraswati Sugar Mill V/s Commissioner of Central Excise Delhi III Reference was also drawn towards contrary Judgement delivered by Madhya Pradesh AAR in the case of M/s Atriwal Amusement Park. The AAAR analysed the provisions of Section 17(5)(d) of CGST Act, 2017, Section 3(26) of General Clauses Act. The AAAR also concluded that the officer mis-interpreted the provisions and therefore, the lift purchased in the course or furtherance of business cannot be deemed to be part of civil structure. Further, the lift installed in hotel is predesigned lift wherein no modifications are required and can be resold easily in the market without causing any structural damage. Further, it was held that the citations quoted by the appellant cannot come to the rescue of the appellant since they existed in erstwhile GST regime. The purchased cannot be qualified as goods but it is a works contract resulting into immovable property. Furthermore, no statements were made by the appellant regarding capitalization of lift expenses. Therefore, it was held that no input tax credit can be claimed by the appellant. The above decision is a setback for trade and industry wherein the decision goes against the spirit and purpose of GST Law i.e. seamless flow of input tax credit. Although, it is worth mentioning over here that decision of Orissa High Court in the case of M/s Safari Retreats Pvt. Ltd. allowing input tax credit availment on construction of mall sis challenged before Supreme Court, yet, adverse rulings like these defeat the basic intent of introduction of GST Law. Lift that can be detached is plant and machinery for which credit should be allowed. It is hoped that the decision of AAAR will be revisited.

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GST Update No 268 on eligibility of ITC on lifts

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