OCTOBER 09, 2020

By S Sivakumar, B.Sc., LL.B., FCA, FCS, ACSI, Advocate

ONE of the major issues in the GST law concerns the availability of input tax credit in respect of lifts. There have been plethora of advance rulings holding that, ITC of the GST paid on lifts cannot be allowed on lifts as these lifts have no independent existence and become part and parcel of the immovable property after being installed and consequently, get covered clauses (c) and (d) of the sub-section 5 of Section 17 of the CGST Act. One advance ruling [[ 2020-TIOL-30-AAR-GST] [2020-TIOL-53-AAAR-GST]] even ruled that ITC is not available even when the existing lift was replaced with a new one. Of course, we have the judgment of the Orissa High Court in Safari Retreats - 2019-TIOL-1088-HC-ORISSA-GST which has held that ITC is available on the construction of the commercial building that is let out and which is before the Apex Court now.

Be that as it may…..

Let's take a look at how Sections 17(5)(c) and (d) read…

(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

…………….

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation.--For the purposes of clauses (c) and (d), the expression "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

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.

I would urge TIOL Netizens to note the usage of the words "other than" in the above referred section. A reading of the section makes it amply clear that, the restrictions related to availment of ITC are NOT applicable when the inward supplies of goods or services or both are used for plant and machinery.

The Apex Court, in the context of interpreting the words "other than" under the erstwhile Section 80HHC of the Income tax Act, 1961, at it stood prior to 1991, has held that usage of the words "other than" indicates the carving out of a specific class from the generic class …… [Gem Granites v CIT, 2004-TIOL-94-SC-IT-LB (Para 13).

Applying this judicial principle laid down by the Apex Court, it would seem that by using the words "other than", the Parliament has clearly indicated that the provisions contained in clauses (c) and (d) of the sub-section 5 of Section 17 of the CGST Act are not at all applicable, in cases involving purchase of and/or installation of plant and/or machinery, as these items constitute a separate class by themselves.

Taking this discussion forward…will lift qualify as a plant or machinery item?

As per the Explanation reproduced above, 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…..

Lifts are classified under GST tariff number 8428, which covers items under the head ‘Industrial Machinery'. When the GST tariff itself classifies lifts as industrial machinery, how can it be denied that lifts are to be considered as plant and machinery, within the meaning of the Explanation given above.

In fact, fire extinguishers, air-conditioning equipment, electrical equipment, sign board, DG sets, electronic board, electronic cameras etc. have all to be considered as ‘plant and machinery'.

It is rather unfortunate that all of the advance rulings that have been delivered till now have denied ITC of the GST paid on lifts solely on the basis that, the lifts after installation, become a part and parcel of immovable property and consequently, attract the provisions of Sections 17(5)(c) and (d). With due regard to the enlightened officers who deliver these advance rulings, I would respectfully submit that, while interpreting Sections 17(5)(c) and (d), all that needs to be seen is whether, the particular item would meet the definition of ‘plant and machinery' as laid down in the Explanation? If it does, ITC cannot be denied irrespective of the fact that such items get embedded into the immovable property. In other words, once an item is treated as plant and machinery, ITC is eligible not withstanding the fact that such item forms part of the immovable property and notwithstanding the fact that the cost of such item is capitalized in the books of account of the registered person.

Before concluding…

In my strong view, ITC of the GST paid on supply and installation of lifts, elevators, equipment that is used to move goods, air-conditioners, etc. is available, even for a registered person who is constructing his corporate office by employing an outside contractor or to a registered person who is himself constructing the corporate office. In fact, ITC is also available on sanitary equipment and fittings as these are very much considered as plant and machinery. These items have been held to be plant and machinery under the central excise law, as well.

On a similar analogy…. ITC is available to commercial realty players on these plant and machinery items, despite that the commercial complex that is being built by them may be rented out.

To deny ITC of the GST paid on lifts, etc. without considering the clear wordings used in Sections 17(5)(c) and (d), would be a huge travesty of justice, to say the least.

[The views expressed are strictly personal.]