Can you claim Input Tax Credit (ITC) of GST paid on replacement of existing lift or elevator?

Construction of Lifts/ elevators to be considered as construction of immovable property in GST

Introduction

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Section 17(5) pertains to blocked credit under CGST Act which states the situations where input tax credit shall not be available.

Certain situations when ITC cannot be claimed:-

1. A person cannot avail ITC wherein the given motor vehicle is used to transport people and has a seating capacity of less than or equal to 12 +1 (driver)
2. A person cannot claim ITC for the tax paid for the following:-
• Food and beverages
• Outdoor catering
• Beauty treatment
• Health services
• Cosmetic and plastic surgery
3. Services of general insurance, servicing, repair and maintenance
4. Sale of membership in a club, health, fitness centre
5. Rent-a-cab services, life insurance, health insurance
6. Travel, benefits extended to employees on vacation such as leave or home travel concession.
7. Works contract services for construction of immovable property
8. Construction of immovable property on own account
9. Composition scheme
10. Non residents
11. Supply for personal use
12. Free samples and goods destroyed
13. Restaurant services

Now, an important point mentioned above for which ITC will not be available is the Works contract services for construction of immovable property. To elaborate on this point further ITC is not available on 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. That means that ITC will be available on works contract service when supplied for construction of other than an immovable property or plant and machinery.

So will construction of a lift/elevator be considered as an immovable property (where ITC is not available) or movable property or Plant & machinery (where ITC is available)?

Let us refer to the advance ruling in the case of Las Palmas Co-operative Housing Society Ltd (Maharashtra AAR) where a similar issue was raised.

Facts of the Case

1. Applicant is a Co-operative Housing Society registered under the Maharashtra Co-operative Housing Society Act.
2. It provides various services to its members, for which they are charged Maintenance charges under various Heads like Service Charges, Electricity Charges, Lift Charges, Insurance, etc.
3. The applicant charges GST on such Maintenance Bills
4. Applicant had proposed to replace the existing lift along with its supporting structures.

Issue raised by the applicant

Applicant’s query is whether they shall be entitled to claim Input Tax Credit (ITC) of GST paid, on replacement of existing lift/ elevator, to the vendor registered under the GST Act for manufacture, supply, installation and commissioning of lift/ elevator?

Submission by the Applicant

The Applicant is of the view that –

1. Manufacture, Supply, Installation and Commissioning of Lifts/ Elevators is in the nature of Works Contract activity which is covered under the category of ‘services’ under the GST Act
2. the Lift is an “equipment” which shall be fixed to earth by foundation and structural support and used for making outward supply of services to its members;
3. “Equipment” is “plant and machinery” as per the Explanation mentioned in Section 17 of the Goods and Services Tax Act, 2017;
4. Plant and Machinery is not covered under the blocked list of ITC under Section 17
5. Therefore Applicant is entitled to claim ITC as per the provisions of the Goods and Services Tax Law.

Observations of AAR

1. The contracts entered into by the applicant with the contractor for installation of lift, in such a case will be considered as indivisible works contracts which will involve high technical skill, knowledge and experience of mechanical and electrical as well civil engineering including preparation of designs, drawings and compliance with engineering specifications and knowledge of lift codes, standards and safety requirements and other regulations prescribed by the Government and other authorities in this behalf.
2. The erection of lift can be done only inside the building structure as an integral part of the building in which the lift is to be installed.
3. The erection of a lift has, to be correlated with and tailored, to meet the needs and requirements of a particular building.
4. Once the lift is installed and commissioned in the building, it becomes integral part of the immovable property i.e. the building.
5. The lift when installed in the building makes the building fit for occupation and becomes a permanent fixture of the building itself.
6. Hence the same will be considered as an immovable property.

Reference to earlier case law

1. The Supreme Court in the case of Triveni Engg Industries Ltd v. CCE 2000 clearly laid down that after assembling, on completion of process of erection, the item becomes a part of the building or an immovable property.
2. In the case of Quality Steel Tubes (P) Ltd, v. CCE U.P, it was held by the Supreme Court that Erection and maintenance of the lifts forms part of the immovable property.

Applicability of Section 17 of CGST Act

1. The AAR had no doubt that the lift would become an immovable property after being erected and installed, as it is attached to the building itself.
2. Section 16 of the CGST Act, 2017 provides for Eligibility and conditions for taking Input Tax Credit.
3. Section 17 of the CGST Act, 2017 provides for Apportionment of credit and blocked credits.
4. According to Section 17 (5)(d), notwithstanding anything contained in Section 16(1) and Section 18(1), ITC shall not be available in respect of goods, services or both received by a taxable person for construction of an immovable property (except plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
5. The Explanation to Section 17 states that 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 –
• Land, building or any other civil structures;
• Telecommunication towers; and
• Pipelines laid outside the factory premises.”
6. ITC is available for “plant and machinery”. 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 Land, building or any other civil structures.
7. The lift, after erection and installation is an immovable property because it becomes a part of an immovable property i.e a building.
8. In other words it is to be considered as an integral part of the building itself. It is not a separate part of the building.
9. When any person speaks of such a building, he also includes the lifts as an integral part of the building, like storage water tanks, etc.
10. Therefore the Manufacture, Supply, Installation and Commissioning of Lifts/ Elevators is in the nature of Works Contract activity which results in creation of an immovable property.
11. The same will not be covered in the exception of plant and machinery for which ITC is available.

Hence in view of the above discussions and Explanation to Section 17 of the CGST Act, the AAR was of the opinion that the applicant was not entitled to ITC of GST paid on replacement of existing Lift/Elevator, in its premises as the same leads to construction of immovable property, for which ITC cannot be availed