The Gujarat Authority of Advance Ruling in case of M/s WAGO PRIVATE LIMITED vide Advance Ruling /SGST&CGST/2020/AR/54, dated 30th July 2021 on an application filed by applicant passed his ruling after considering the issues involved, on which advance rulings are sought by the applicant, relevant facts and interpretation of the law.
The applicant M/s. Wago Private Limited is in the process of establishing their new factory at Vadodara, Gujarat, and are procuring various assets to install and commission them in their factory and therefore, the applicant sought Ruling on the admissibility of the input tax credit on the same in terms of the provisions of Section 16 and 17 of the CGST Act, 2017.
The applicant seeks Ruling on the admissibility of the input tax credit of GST paid on the procurement of the Air-conditioning and cooling system and Ventilation System-Plant & Admin including the service of installation and commissioning of the same, in terms of the provisions of Section 16 and 17 of the CGST Act, 2017.
Interpretation of Law:
The Authority (“We”) has carefully considered all the submissions made by the applicant. We observe that the issue boils down to whether: i. AC & Cooling system and ii. The ventilation system of the applicant is admissible for ITC.
(i) Air-conditioning and cooling system: The applicant has entered into a work order for supply, installation, testing, and commissioning (SITC), maintenance, and warranty of HVAC works in the Building comprising the Factory building, assembly building, the Admin Building, and Canteen Building. We understand that the HVAC acronym stands for Heating, Ventilation, and Air Conditioning system.
We note that the applicant has divided the Air conditioning and cooling system into 4 subcategories. On examination, we find that they are invariably part and parcel of the air conditioning and cooling system as such and the single work order has been awarded for the installation and commissioning of the HVAC system. We find that all the parts of the Air conditioning and cooling system get assembled at the site and fitted on the wall and roof and floor of the building.
All the different parts of 'Air conditioning and cooling system' after being fitted in the building lose their identity as machines or parts of machines and become a system, namely Air conditioning and cooling system. This AC System is in nature of a system and not a machine as a whole. It come into existence only by assembly and connection of various components and parts.
We find it apt to refer to CBEC Order No. 58/1/2002-Cx dated 15-1-2002 the relevant extract is reproduced as follows and we hold that its rationale and concept is relevant under GST scheme of law also:
"Refrigeration/ Air Conditioning Plant: These are basically systems comprising of compressors, ducting, pipings, insulators and sometimes cooling towers etc. They are in the nature of systems and are not machines as a whole. They come into existence only by assembly and connection of various components and parts. Though each component is dutiable, the refrigeration/air conditioning system as a whole cannot be considered to be excisable goods. Air conditioning units, however, would continue to remain dutiable as per the Central Excise Tariff"
Now we have the issue before us whether the air conditioning plant is a movable or immovable property. We find it apt to refer to case law: H'ble Supreme Court in case of GLOBUS STORES (P) LTD has termed Air conditional Plant as immovable property, we find no reason to dwell on this issue further. We refer to Article 141 of our Constitution, "141. Law declared by Supreme Court to be binding on all courts: The law declared by the Supreme Court shall be binding on all courts within the territory of India".
We rest on the foundation laid down by the Supreme Court with respect to the test of permanency and with respect to terming the air conditioning system an immovable property. We are bound by the law of the land, as per Article 141 of our Constitution. We note that is the supply of works contract. We find a supply of centralized air conditioning plant-covered at Section 17(5)(c) CGST Act. We note that section 17(5) CGST Act is a Nonobstante subsection, overriding the provisions of section 16(1) and Section 18(1) CGST Act.
(ii) Ventilation system: We find that the work order was awarded to Skai Air Control Pvt. ltd. is for HVAC works and this covers the 'Ventilation system' too. However, since the applicant has raised the 'Ventilation system' separately, the same is taken up for discussion. The ventilation system comprises of various parts. All the different parts of the 'Ventilation system' after being fitted in the building lose their identity as individual goods and become "Ventilation system". We find that the 'Ventilation system' fitted in the building cannot be taken as such to the market for sale and cannot be shifted from one place to another as such to erect at another site. It can be shifted only after dismantling the said system which cannot be called 'Ventilation system' after it is.
The 'Ventilation system' once installed and commissioned in the building is transferred to the building owner and this involves the element of transfer of property, thereby 'Ventilation system' supply merits to be classified as work contract supply as the system per se is an immovable property. Thus, the 'Ventilation system' is a combination of various components and parts that resulted in an immovable property.
The input tax credit is not admissible on Air-conditioning and Cooling systems and Ventilation systems, as this is blocked credit falling under Section 17(5)(c) CGST Act.
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