GST UPDATE ON- NO CREDIT AVAILABLE ON LIFTS PROCURED AND INSTALLED IN HOTELS 103/2020-21

This update is to apprise about the recent ruling in case of Jabalpur Hotels Pvt Ltd (GST AAR Madhya Pradesh) where the applicant has stated that he is constructing a hotel as a multistoried building and the provision of lift is essential for running the business. It has been mentioned that the room tariff of some of the rooms is proposed to be more than Rs.7500/- and therefore the restaurant would be paying GST @18% and availing input tax credit on goods and services used in course or for furtherance of business.
The applicant has sought ruling on availability of input tax credit of tax paid on Lift purchased and installed in the hotel building, particularly with reference to blocked credit as defined under the provisions of Section 17(5) of the GST Act. The application, inter-alia, mentions that the said Lift is being capitalized in the books of the company and depreciation as per the provisions of income Tax Act, 1961 is charged on the cost of lift less eligible credit of GST. Hence depreciation is being applied on the GST portion credit of which is eligible in accordance with the provisions of section 16 of CGST Act 201 7 without controverting the provisions of section 16(3) of CGST Act 201 7. It is therefore pleaded that the lift in question be termed as “Plant & machinery’ and hence out of purview of blocked credit in terms of Section 17(5)(d) in as much as ‘Plant & Machinery’ has been excluded from the definition of immovable property.
However, AAR ruled that the lift 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 be separate from a Building. Also, it has to be borne in mind that a lift is not an item that is purchased and sold. It is a customized mechanism for transportation, designed to suit a specific building. Upon piece by piece installation, it becomes an integral part of the building.
They added that accordingly, in the explanation relating to Plant and Machinery, beneath sub-section (6) of Section 17, while providing the meaning of the term plant and machinery, it has been clearly stated that Buildings and Civil Structures shall not be covered under the term Plant. However, while so clarifying, it has been accepted and understood that plant and machinery many a times requires support structure and / or foundation for installation and cannot work otherwise. Thus, civil structures and foundation as supporting structure for fastening of plant and machinery to earth has been included as part of plant and machinery.
To set to rest the disputes regarding the definition of the Plant, in light of the fact that input tax credit of works contract services, goods and services received as input for construction of immovable property on own account has been specifically put under the blocked credit list with the rider that it shall not apply to plant and machinery, it was incumbent that there should be clarity regarding classification of buildings and civil structures that were hitherto been classified as ‘Plant’
AAR said that the judicial citations relied upon by the applicant pertain to pre-GST era and since Section 17(5) of the CGST Act 2017 has put to rest all such issues in unambiguous terms, the legal citations adduced by applicant do not come to his rescue. On the contrary, we find that the identical issue has been decided by the learned Authority for Advance Ruling, Karnataka in the matter of M/s. Tarun Realtors Pvt. Ltd., Bangaluru vide order dtd. 30.09.2019. Even though an Advance Ruling does not have any precedential value, there is a lot persuasive value of the ratio decidendi in the matter of this AAR. Therefore, it has been ruled that the applicant in the instant case shall not be entitled to avail input tax credit of tax paid on procuring the lift to be installed in the hotel building which in turn is intended to be used for providing taxable service, in terms of Section 17(5)(d) of the CGST Act 2017.
AAR has neglected the case references put forward by the applicant in the application on the fact that those belong to pre-GST era. If the facts and findings are similar to any case already decided, then it is the legal responsibility of the AAR to consider those decisions. It is clearly evident that the term “foundation and structural support” has been litigatory affair since the day of implementation of GST. Significant portions of input tax credit in GST have been denied by the department under the shed of confusion for foundation and structural supports. It has been consistently held that the parts, components, accessories come into existence before the installation of the machinery and credit of taxes paid on the same cannot be denied even if they become part of the immovable property after installation of the plant and machinery. -
i) Commissioner of Central Excise & Service Tax vs. India Cements Ltd. 2014(3 10) E.L.T. 636 (Mad).
ii) Commissioner of Central Excise Jaipur vs. Rajasthan Spinning & Weaving Mils Ltd.2010(255) ELT 481 (S.C.)
iii) Saraswati Sugar Mill Vs. Commissioner of Central Excise Delhi Ill 201 1 (270) E.L.T. 465(S.c.)
Lift in a hotel is used in the course or furtherance of business, as it approximately impossible to run a multi storied hotel without a lift in the present scenario.
However, we form an opinion that if the installed machinery which is affixed to Earth gets the character of permanence and after its installation, it is not possible to relocate the said machinery to another place except by dismantling it as waste and scrap, then it can be considered that the said machinery is immovable property. However, on the contrary, if the machinery is affixed to Earth only for wobble free and stable operation and can be shifted to another location, the said machinery is movable and is not to be considered as immovable property.
The disputed term clearly requires a wide clarification from the government so that the assessee has a clear picture while availing the credit relating to such structural supports.

This is solely for educational purpose.
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GST UPDATE ON- NO CREDIT AVAILABLE ON LIFTS PROCURED AND INSTALLED IN HOTELS 103/2020-21

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