Case Details:

Jabalpur Hotels Pvt. Ltd.

Advance Ruling No.:

Order No. 10/2020

Ruling pronounced by:

GST AAR Madhya Pradesh

Date of Ruling:

08-06-2020

The applicant company is incorporated with the object of carrying on the business of hotel, restaurant, and cafes, resort, etc. The company is constructing a 100-room hotel which will be a multi-storied hotel with various amenities including Restaurant, swimming pool, spa, marriage lawn, etc. The company is procuring and installing a lift in the hotel which will be used in the course or furtherance of business, as it is approximately impossible to run a multi-storied hotel without a lift.

The lift so purchased is being capitalized in the books of the company and depreciation as per the provisions of Income Tax Act, 1961 is charged on the cost of lift less eligible credit of GST. Hence, no depreciation is being applied on the GST portion credit which is eligible in accordance with the provisions of section 16 of the CGST Act, 2017.

The applicant submits that section 17(5)(d) of CGST Act, 2017 blocks credit of only construction of immovable property other than plant & machinery. Hence, it is clear intent of the lawmakers that they do not wish to block credits of plant or machinery. In the opinion of the applicant, although the lift installations are fixed to the building/ earth, they qualify as ‘Plant’ or ‘Machinery’ under the CGST Act, 2017, and accordingly, the taxes paid on procurement of Lift should not be regarded as blocked credit under section 17(5)(d) of the CGST Act, 2017.

A lift comprises of components or parts like lift cars, motors, ropes, rails, etc. and each of them has its own identity prior to installation and they are assembled/ installed to create the working mechanism called lift. Lifts are assembled and manufactured to suit the requirement of a particular building and are not something sold out of the shelf. Parts of the lift are assembled at the site in accordance with the design and requirement of the building which may include the floor levels. It has to synchronize with the building and each door has to open on the level of each floor.

The lift, therefore, becomes part of the building and is not a separate thing per se. A lift does not have an identity when removed from the building. Therefore, the lift cannot be said to be separate from a building. Also, it has to be borne in mind that a lift is not an item that is purchased and sold. It is a customized mechanism for transportation, designed to suit a specific building. Upon piece-by-piece installation, it becomes an integral part of the building.

In the instant case, the lift has become part of the building and thus falls under the exclusion from plant and machinery, and accordingly, we do not find any reason to interfere with the clear provisions of the statute. An identical issue has been dealt with by AAR, Karnataka in the case of M/s Tarun Realtors Pvt. Ltd. Bengaluru vide order dated 30-09-2019. The learned AAR, Karnataka has ruled that lift, along with, several other such items shall not be entitled for input tax credit when used in the construction of immovable property since they take the character of building itself.

Question

Ruling

Whether input credit on the purchase of lift would be available to the hotel as it has been used in the course or for the furtherance of business?

The Authority held that input tax credit of tax paid on lifts procured and installed in hotel building shall not be available to the applicant as the same is blocked in terms of Section 17(5)(d) of the CGST Act, 2017, become an integral part of the building.