Ventilation Systems installed in a factory are treated as
"immovable property" under GST law – Gujarat AAR Ruling
Name of the
Party: M/s Wago Private Limited
Name of
Ruling Authority: Gujarat Appellate Authority for Advance
Ruling (GAAAR)
Ruling No.: GUJ/GAAAR/APPEAL/2024/02
Date of
Ruling: 21.01.2024
Original
Ruling No.: Guj/GAAR/R/33/2021, dated 30.07.2021
Summary of
Ruling: The Gujarat Appellate
Authority for Advance Ruling (GAAAR) upheld the ruling of the Gujarat Authority
for Advance Ruling (GAAR), which denied Input Tax Credit (ITC) on the Air
Conditioning and Cooling System and Ventilation System installed in a factory.
The ruling was based on
the reasoning that these installations are immovable property under Section
17(5)(c) of the CGST Act, 2017, and thus ITC is blocked for such assets. The
HVAC system, once installed, becomes an integral part of the building and
cannot be considered as "plant and machinery" for ITC eligibility.
Facts of
the Advance Ruling:
- M/s Wago Private Limited was establishing
a new factory in Vadodara, Gujarat.
- The company procured an Air
Conditioning and Cooling System and a Ventilation System for the factory
premises.
- The company sought an advance ruling
on whether ITC was admissible for these assets under Sections 16 and 17 of
the CGST Act, 2017.
- GAAR ruled that ITC was not
admissible as these systems became part of the building and constituted immovable
property.
- The appellant challenged this ruling
before GAAAR, arguing that the HVAC system should qualify as plant and
machinery.
Question
Raised:
"Whether ITC of GST
paid on the procurement of plant and machinery, including the services of
installation and commissioning of the same, is admissible under Sections 16 and
17 of the CGST Act, 2017?"
Submission
Made by Applicant:
- The Air Conditioning and Cooling
System and Ventilation System should be considered "plant and
machinery" and not immovable property.
- The system description distinguishes different
parts of the factory, administration, and canteen, indicating it is not a
single immovable system.
- The vendor supplied various machines,
and invoices did not describe them as an integrated system.
- The HVAC system is an interrelated
machine, performing specific cooling functions and can be dismantled and
reinstalled elsewhere, making it movable rather than immovable property.
- ITC should be allowed under the GST
provisions.
Relevant
Sections:
1. Section
16(1) of the CGST Act, 2017:
o Provides
entitlement to ITC on goods/services used in business.
2. Section
17(5)(c) of the CGST Act, 2017:
o Blocks
ITC on works contract services supplied for the construction of immovable
property (except for further supply of works contract service).
3. Explanation
to Section 17(5):
o Defines
"Plant and Machinery" but excludes land, buildings, and civil
structures.
Discussion
and Findings of Ruling Authority:
- The HVAC system is a combination of
different components, including compressors, ducts, pipes, and cooling
towers, forming a centralized air conditioning system.
- The system, once installed, loses its
individual identity and becomes an integral part of the building.
- The work order awarded was for supply,
installation, commissioning, and maintenance, making it a works contract
service under GST law.
- CBIC Circular No. 58/1/2002-CX
(15.01.2002) states that Refrigeration/Air Conditioning Plants are systems,
not machines, and are not excisable goods.
- The Supreme Court ruling in Globus
Stores P. Ltd. (2011) held that air conditioning plants are immovable
property.
- Since the HVAC system was installed
as a works contract service, ITC is not eligible under Section 17(5)(c) of
CGST Act, 2017.
Final
Ruling and Conclusion:
- Appeal Rejected: The GAAAR upheld the
ruling of GAAR, confirming that ITC is not available on the Air
Conditioning and Cooling System and Ventilation System.
- The installation ceases to be plant
and machinery once it is fixed to the building, making it an immovable
property under Section 17(5)(c) of the CGST Act, 2017.
- The appeal was dismissed, and ITC was
denied.
Key
Takeaways:
·
HVAC & Ventilation Systems installed
in a factory are treated as "immovable property" under GST law.
·
ITC is blocked under Section 17(5)(c) of
CGST Act, 2017, as it is a works contract service.
·
CBIC Circular & Supreme Court rulings
confirm that centralized air conditioning systems do not qualify as "plant
and machinery."
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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