Ineligibility of ITC on Air-Conditioning & Cooling System and Ventilation System

As per the provisions of GST Law, every registered person is eligible to claim ITC on purchase of goods or services or both which is used or intended to be used in the course or furtherance of business.

However, as per the ambit of Section 17(5), ITC is blocked on certain transactions which include goods or services, or both used by a taxable person for construction of an immovable property (other than plant and machinery) on his account even when used in course or furtherance of business.

Thus, understanding what has considered an immovable property is very important

Immovable property is a property that cannot be moved without altering or destroying it. In other words, it includes premises, property rights (for example, inheritable building right), houses, land and associated goods, and things attached to the earth.

Now, the question arises whether ITC on Air-conditioning & Cooling system and Ventilation system is blocked or eligible?

Air-conditioning & Cooling system and Ventilation system is a system that controls the temperature, humidity, and air quality in indoor spaces and dilutes indoor air pollutants. generally, these systems are attached to walls or ceilings, but they can be removed and fitted elsewhere. Hence, it will not be considered immovable property.

In the common business parlance, such a system was out of the scope of section 17(5) and was not considered as immovable property. However, in the recent case of M/s. Wago Private Limited, the Gujarat Authority of Advance Ruling (AAR) has ruled that ITC is not permissible on Air-conditioning & Cooling systems and Ventilation systems, as it falls under the ambit of blocked credit as per section 17(5)(c) of CGST Act 2017.

Let’s move on to understating what were the brief facts regarding the ruling that was passed?

The applicant M/s. Wago Private Limited is in

process of establishing their new factory at Vadodara, Gujarat, and are installing and commissioning Air-conditioning and Cooling system and Ventilation system in their factory and they sought the ruling on the admissibility of the input tax credit on the same as per the terms of the provisions of Section 16 and 17 of CGST Act, 2017

Pondering and ruling by Gujarat AAR

Sub-Section(c) & (d) of section 17(5) deal with blocked credit relating to Works Contract Services and Goods & Services received for construction of immovable property respectively. For Understanding, the blocked credit for construction of immovable property in GST a conjoint reading of Section 17(5)(c) & 17(5)(d) is required.

On a combined reading of clause (c) and (d) of section 17(5), the various parts of ‘Air-conditioning and cooling system’ lose their identity as part of the machine after being fitted in the building and become a system, namely Air conditioning and cooling system. This AC system is in nature of a system and not a machine. Bounded to the law of land, provided as per Article 141 of our Constitution, supply of centralized air conditioning plant is covered under clause (c) of section 17(5) of CGST Act. Moving forward to ‘Test of permanency’ which is laid down in Municipal Corporation of Greater Bombay &ors. V. Indian Oil Corporation Ltd. [199 Suppl. SCC 18], it was founded that Ventilation System passed the test of permanency.

As per the view of the above deliberation, the Gujarat AAR held that Input Tax Credit is not admissible on Air-conditioning and Cooling System and Ventilation System, as this is blocked credit falling under section 17(5)(c) of CGST Act 2017.

Disclaimer:?This content is meant for information only and should not be considered as an advice or opinion, or otherwise.?AKGVG & Associates?does not intend to advertise its services through this.

Posted by:

CA Tarun Kapoor

AKGVG & Associates