The availing of input tax credit (ITC) on lift has been a debate issue under GST law in cases where such lift is installed in a building which is not sold by the builder but used for business purposes like self use or used for letting it out or use a hotel etc in view of operation of Section 17(5) (c) / (d) of the CGST Act,2017.
It may be noted here where a builder constructs a building for sale of its units , ITC on lift installed in such building can be availed without any issue except that pro rata reversal may be required in case all the units are not sold before issuance of completion certificate or first occupation whichever is earlier.
Ruling of Madhya Pradesh AAR on ITC on lift:
The Madhya Pradesh Authority for Advance Ruling (AAR) in the case of Jabalpur Hotels Pvt Ltd has adjudged that Input Tax Credit (ITC) of GST paid on purchase / installation of lift in hotel building shall not be available as the same is is an integral part of a ‘building’ which is specifically excluded from the definition of ‘plant & machinery and thus blocked in terms of Sec 17(5)(d) of the CGST Act,2017.
Facts of the case:
- The applicant is a Private Limited Company which has started construction of a Hotel in Jabalpur. It has been mentioned that the proposed hotel would have more than 100 rooms along with other facilities like gym, spa, swimming pool, banquet, restaurant etc.
- The applicant has mentioned that the hotel is a multi-storeyed building and. thus, 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.
Question on which ruling was sought:
Whether input tax credit can be availed of tax paid on Lift purchased and installed by the applicant in the hotel building, particularly with reference to blocked credit as defined under the provisions of Section 17(5)(d) of the GST Act.
It was pleaded by the applicant 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.
Order of Madhya Pradesh AAR: Deliberation and Ruling on admissibility of ITC on lifts
- 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.
- 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 Building 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 run 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.
- In the instant case the lift has become integral part of the building and thus falls under the exclusion from plant and machinery and accordingly, we do not find any reason to interfere with the clear provisions of statute.
- Identical issue has been decided by Karnataka AAR in the matter of Tarun Realtors Pvt Ltd , Bengaluru vide order dated 30.09.2019 wherein it has been ruled that lift, along with, several other such items, shall not be entitled to input tax credit when used in construction of immoveable property since they take the character of building itself.
In view of above the Authority decided 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 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.
Concluding remarks:
The 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.
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.
As regards ‘lift’ is concerned, it has been debated since long whether it is an immovable property or a plant and machinery . However in various Advance Ruling including the currently discussed, it has been adjudged that lift is immovable property. The basic reasoning for same is that lift becomes integral part of the building and is not a separate thing per se. The lift, when installed in the building, makes the building fit for occupation and becomes a permanent fixture of the building itself. Hence the same will be considered as an ‘immovable property’.
Once lift is regarded as immovable property Section 17(5)(d) of the CGST Act,2017 becomes operative and therefore ITC paid on purchase / installation of such lift cannot be availed.
It is pertinent to mention here that Maharashtra AAR also in the case of Las Palmas Co-operative Housing Society Ltd. has held that Input Tax Credit (‘ITC’) of GST paid on replacement of existing lift/ elevator at its premises is restricted in terms of Section 17(5) of the CGST Act as lift is an immovable property.
In the above case the AAR had relied upon following judicial precedents which provide that lift may fall within the meaning of ‘immovable property’:
- The Supreme Court, in the case of Triveni Engineering Industries Ltd. [2000 (8) TMI 86], had clearly laid down that after assembling, on completion of the process of erection, the item becomes a part of the building or immovable property.
- Further, the Supreme Court, in the case of Quality Steel Tubes (P) Ltd. [1994 (12) TMI 75], has held that erection and maintenance of the lifts form part of the immovable property.
It is to be noted that the Supreme Court, in the case of Kone Elevator India Pvt. Ltd. [2014 (34) STR 641], has held that the activity of supply and installation of lift is a works contract and it cannot be regarded as sale of goods under the erstwhile VAT or sales tax law, however, whether the erection and installation of lift results in an immovable or movable property was not evaluated in this case.
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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.
