Saturday, June 15, 2024

ITC Denial on Air Conditioning, Cooling, and Ventilation Systems: AAAR Upholds AAR Ruling

Key Takeaway

Input Tax Credit (ITC) on air conditioning, cooling, and ventilation systems is not allowed under the CGST Act, 2017.


The Appellate Authority for Advance Ruling (AAAR) in Ahmedabad recently upheld a ruling by the Advance Ruling Authority (AAR) that denied ITC for air conditioning, cooling, and ventilation systems. The decision is based on the classification of these systems as immovable property once installed.


Assessee’s Argument: The assessee argued that these systems should be considered plant and machinery, which would make ITC allowable.

Ruling Details

Authority's Decision: The authorities ruled that after installation, these systems become immovable property, disqualifying them from being considered as plant and machinery.

Legal Basis

Section 17(5)(c) of CGST Act, 2017: This section blocks ITC for works contract services related to the construction of immovable property, which includes the installed systems.

Key Points at a Glance

DecisionAAAR upheld AAR ruling denying ITC
Systems InvolvedAir conditioning, cooling, and ventilation systems
Assessee's ArgumentSystems should be considered as plant and machinery
Authority's ArgumentSystems become immovable property after installation
Legal ReferenceSection 17(5)(c) of CGST Act, 2017
OutcomeITC denied under works contract services for construction of immovable property


The AAAR's decision confirms that ITC is not permissible for air conditioning, cooling, and ventilation systems once they are installed and classified as immovable property under Section 17(5)(c) of the CGST Act, 2017. Businesses should seek professional tax advice to understand the implications of such rulings on their ITC claims.