As per Section 16 of the CGST Act, 2017 , every registered person is 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.
However this is inter-alia subject to provisions of Section 17(5) of the CGST Act,2017, wherein certain input tax credit have been blocked. Clause (d) of said section mandates that ITC is not available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services are both are used in the course or furtherance of business.
In backdrop of above, certain issues regarding admissibility of Input Tax Credit in respect of various components and services used in construction of water park have been deliberated and adjudged recently by Madhya Pradesh AAR in the case of M/s Atriwal Amusement Park.
Facts of the case:
- M/s Atriwal Amusement Park is engaged in construction of water park.
- For construction of water park various components & services will be used. All such components and services are taxable under GST.
Questions on which ruling was sought:
1.Whether ITC can be availed on GST paid on purchase of strong PVC water slides.
2. Whether ITC can be availed on input goods and services used in construction of the support steel and civil structure on which water slides are installed.
3. Whether ITC can be availed on goods and services used for area development and preparation of land on which water slides are erected.
4. Whether applicant will be eligible to take credit of input goods and services used for construction of swimming pool / wave pool as water slides directly run into pools.
Arguments of the Applicant:
- The Water slides are clearly covered under the definition of plant and machinery and same is used for making outward supply of services and therefore credit is allowable.
- For the installation of water slides, support structure (Tower) made up of steel, iron and other civil work is required. Without this structure water slides cannot be installed.Definition of plant & machinery specifically includes foundation or structural support, hence its credit should be allowed.
- Also for installation of machines generating waves in water pool applicant is required to construct machine foundation and room for protection of this machine as without protection of this machine it cannot operate effectively and hence would be part of plant.
- Civil structures and/ or foundation as supporting structure for fastening of plant and machinery to earth has been included as part of plant and machinery as per explanation relating to plant and machinery , beneath Section 17(6) of the CGST Act,2017.
Ruling of Madhya Pradesh AAR:
ITC is admissible on water slides
- Regarding the eligibility of ITC in case of Input Tax paid on Purchase of Water Slides, we have to state that Water Slides shall fall within the meaning of the term apparatus, equipment and machinery and therefore shall be eligible for claim of ITC.
ITC can be availed towards Steel and Civil Structure on which the Water Slides are installed
- Regarding the Steel and Civil Structure on which the Water Slides are installed we have to state that foundation and support structures which are used to fasten plant and /on machinery to the Earth is classifiable as ‘Plant and /or Machinery’.In the instant case, slides are fastened to the Steel and Civil Structure are affixed to the Earth through these Steel and Civil Structures. Therefore. these Steel and Civil Structures shall form part of the Plant and Machinery. Accordingly. the credit of Tax paid on Input goods and services used in construction of this support structure shall be available.
ITC is admissible on foundation of wave pool machines
- The foundation for Wave Pool Machines are eligible to be part of the Machines and the ITC shall be treated in a manner similar to that of the Machines.
ITC not admissible on construction of machine room
- Machine Room, which is a civil structure, erected for protecting machine is neither foundation nor civil structure for machine therefore, tax relatable to the construction of the room for Housing the machine shall not be eligible for ITC.
ITC on area development and preparation of land on which water slides are placed
- Area development and expenditure on preparation of land like site formation services are part of the cost of the land and thus are interminably bound with land. These expenses are liable to be capitalized under the head Land. Therefore. on account of the specific exclusion of Land from the meaning of plant and machinery. ITC related to Land Development, subject to is capitalization as per accounting principles shall not be available.
ITC related to the construction of the Swimming Pools and Wave Pools shall not be available.
- Swimming Pools/Wave Pools are not support structure or foundation for a plant but are independent items per se. Since they are not foundation or support structure on which sides are fasted for affixing them to earth and also on account they being Civil Structures they are therefore excluded from the meaning of “plant and machinery. Thus, the ITC related to the construction of the Swimming Pools and Wave Pools subject to its capitalization shall not be available.
Concluding remarks:
While determining whether input tax credit of goods or services used for construction would be admissible or not hinges upon whether construction is being made of plant and machinery or for other immovable property. In case of plant and machinery is being constructed, ITC would be admissible.However in case of other immovable property like building etc ITC would be blocked under Section 17(5)(d) of the CGST Act,2017.
In our view blocking of credit on immovable property even if it is used for business purposes goes against the spirit and purpose of GST law viz free flow of credits.
Considering the spirit of GST Law, Orissa High Court in case of Safari Retreats Pvt Ltd had adjudged that the provision of section 17(5)(d) is to be read down and the narrow restriction as imposed, reading of the provision by the Department, is not required to be accepted, the very purpose of the credit is to give benefit to the assessee. It was held in this case that if the assessee is required to pay GST on the rental income arising out of the shopping mall constructed on which he has paid GST, it is required to have tax credit paid on input goods and services.
The benefit of above judgement should also operate in the case of water park also wherein also the assessee will be required to pay GST on the ticket / entry fee of such water park.
However the Deptt. Appeal against above order is pending before Supreme Court, and same has not attained finality. Further the High Court in this case held that they are not inclined to hold Sec 17(5)(d) to be ultra vires. Due to this, in various rulings of AAR, the above judgment of Orissa High Court has not been relied upon. Lets wait for finality on the issue by the Supreme Court.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
