Synopsis: The Hon’ble AAR, Karnataka in the matter of M/s Tarun Realtors Private Limited has held that the taxes paid on procurement of goods and/or services for installation of (a) Chillers, (b) Air Handling Unit (AHU), (c) Lift, Escalators and Travellator, (d) Water Treatment Plant (WTP) (e) Sewage treatment Plant (STP), (f) High Speed Diesel Yard (HSD), (g) Mechanical Car Park (MLCP), (h) Indoor/Outdoor Surveillance System (CCTV), (I) D.G. Sets, (j) Transformers, (k) Electrical wiring and fixtures, (l) Public Health Engineering (PHE), Fir-fighting and water management pump system are regarded as blocked credits under Section 17(5) of the CGST Act.
M/s Tarun Realtors Private Limited (“the Applicant”) is developing a shopping Mall- ‘Mantri Arena Mall’ (Schedule Property) which will include a hypermarket, multiplex cinema theatre complex, departmental stores, retail shops and food courts.
The Applicant is entering into various lease agreements with their customers/ tenants (“Service recipients”) and will be leasing all unit(s) at the Mall together with the right to use the staircases, common areas and other common facilities.
To undertake development of the said property, the Applicant was and is required to procure numerous goods and avail numerous services including works contract service from many suppliers. Accordingly, the Applicant placed purchase order on various suppliers for goods and work order on various suppliers for services and the suppliers have accordingly raised invoices on the Applicant.
Amongst other goods and services, the Applicant has procured goods/ services for the installation of Chillers, Air Handling Unit (AHU), Lift, Escalator, Travellator, Water Treatment Plant (WTP), Sewage Treatment Plant (STP), High-speed Diesel yard (HSD) Mechanical Car Park and Indoor/Outdoor Surveillance System (CCTV), DG sets, Transformers, Electrical wiring and fixture, Public Health Engineering (PHE), Fire-fighting and water-management pump system.
Supply of all the aforesaid goods and services are exigible to tax under the GST Act and, accordingly, tax has been charged by such suppliers and paid by the Applicant to such suppliers.
Whether taxes paid on procurement of goods and/or services for installation of above-mentioned goods/ services (“Installations”), are regarded as blocked credits under Section 17(5) of the CGST Act, 2017 (“CGST Act”)?
- All the Installations would qualify as ‘Plant or Machinery’ under the CGST Act and accordingly, taxes paid on procurement of goods or services for construction of such ‘Plant or Machinery’ would not be regarded as blocked credits under Section 17(5)(d) of the CGST Act.
- Taxes paid on goods or services received for construction of plant or machinery on one’s own account is available as input tax credit and is not blocked under Section 17(5) of the CGST Act.
The Hon’ble AAR, Karnataka in Advance Ruling No. KAR ADRG 103/ 2019 decided on September 30, 2019 held as under:
- The court verified the Applicant’s claim that the immovable property is a plant and hence the covered under the exception in Section 17(5)(d) of the CGST Act and said that it boils to the issue whether the listed items are covered under the definition of “plant” as under Explanation to Section 17 of CGST Act.
- The court observed that the definition is in the context of “plant and machinery” and includes “apparatus, equipment and machinery” and contextually, the word “plant could include apparatus and equipments fixed to the earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports, whereas machinery would be covered separately. The exclusion clause relating to “land, building and any other civil structure” would be applicable to this “plant” and hence ITC is not available as it is a civil structure.
- The provision of facilities like transformers, sewage treatment plant, Electrical Wiring and Fixtures, Surveillance systems, D.G. Sets, Lifts, Air Handling Units etc. are sine-qua-non for a commercial mall and hence cannot be considered separate from the building or civil structure. The provision of these are either statutory for a building or defines the nature of the building as a commercial mall. Hence ITC on the inward supplies of goods or services involved in the construction of immovable property which is a civil structure or building is not available to the Applicant and hence blocked.
It may be noted here that the Hon’ble High Court of Orissa in the case of M/s Safari Retreats Pvt. Ltd. [W.P. (C) No. 20463 of 2018 decided on April 17, 2019] has read down Section 17(5)(d) of the CGST Act by confining the provision only to cases where the building is constructed for the purpose of sale post issuance of completion certificate. Thus, it was held that where the building was constructed for the purpose of letting out and tax chain is not broken, the restriction under Section 17(5)(d) is not applicable. However, it should be noted that Section 17(5)(d) of the CGST Act has not been struck down, but its interpretation has been restricted to conclude that that letting out of property does not fall under the expression ‘own account’. Moreover, it needs to be seen, whether the Hon’ble Supreme Court would agree with the above view or not.
Explanation to Section 17(5)(d) of CGST Act:
“Explanation.–– For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.”