Input Tax credit on VRF Outdoor units
This query is : Resolved
19 April 2020
We have procured VRF AC outdoor units directly from the OEM for installing at our commercial building which is meant for leasing of business permises, There is no work contract involved with the OEM for the erection and commissioning of the Outdoor units. These outdoor units are installed on terrace of the said building. Can we avail input tax credit on these procurement . which gst clause is applicable in this case.
19 April 2020
You can avail input tax credit, since it cannot be said to be part of Building. Further, we assumed you are treating this as Plant & machinery.
19 April 2020
Will our case have any relationship with AAR-Karnataka verdict towards Tarun Realtors case
01 August 2024
In the context of GST, the eligibility to claim Input Tax Credit (ITC) on VRF (Variable Refrigerant Flow) outdoor units used for commercial purposes can be assessed based on several criteria. Here’s a detailed breakdown:
### **1. Eligibility for ITC on VRF Outdoor Units**
**Under GST:**
1. **Commercial Property:**
- Since the VRF outdoor units are procured for installation in a commercial building that is meant for leasing business premises, the ITC on these units is generally allowed. The purpose of the property (commercial leasing) is crucial in determining the eligibility for ITC.
2. **Capital Goods:**
- The VRF outdoor units qualify as capital goods. Under GST, ITC is available on capital goods used for business purposes. Since the units are part of the infrastructure for your commercial building, you should be eligible to claim ITC.
3. **Installation and Commissioning:**
- The absence of a work contract with the OEM for erection and commissioning does not impact your ability to claim ITC on the purchase of the units. As long as the units are used in the course or furtherance of your business, ITC can be claimed.
### **2. Relevant GST Clauses and Sections**
1. **Section 17(5) of the CGST Act, 2017:**
- This section outlines the restrictions on claiming ITC. However, since the VRF outdoor units are used for commercial property leasing, which is a taxable activity, and not for personal use or exempt supplies, they should fall under the category where ITC is permitted.
2. **Input Tax Credit on Capital Goods:**
- As per GST rules, ITC on capital goods is allowed if they are used for making taxable supplies. Since the VRF units are used to enhance a commercial property (which will be leased), you are entitled to claim ITC on these units.
### **3. Relationship with AAR-Karnataka Verdict**
**Tarun Realtors Case:**
1. **Summary of the Case:**
- In the Tarun Realtors case, the AAR (Authority for Advance Ruling) Karnataka ruled on the eligibility of ITC for inputs related to construction of commercial property. The ruling addressed issues related to whether ITC could be claimed on various services and goods used for constructing commercial premises intended for leasing.
2. **Relevance to Your Case:**
- The verdict is relevant in the context of ITC on inputs related to commercial property. While the specifics of the Tarun Realtors case pertained to construction services and related inputs, your case involves procurement of capital goods for an already constructed commercial property. However, the principle that ITC can be claimed on capital goods used for commercial purposes can be applied.
### **4. Conclusion**
- **ITC Claim:** You should be eligible to claim ITC on the procurement of VRF outdoor units since they are used in a commercial building meant for leasing, which is a taxable supply.
- **Applicable GST Clauses:** Sections 17(5) of the CGST Act and provisions related to capital goods ITC are applicable.
- **AAR Verdict:** While the Tarun Realtors case focused on construction, the principle of ITC eligibility for commercial property can be applied to your case.
For precise guidance, consider consulting a GST expert or tax consultant to ensure compliance with current regulations and to handle specific nuances related to your situation.
### **1. Eligibility for ITC on VRF Outdoor Units**
**Under GST:**
1. **Commercial Property:**
- Since the VRF outdoor units are procured for installation in a commercial building that is meant for leasing business premises, the ITC on these units is generally allowed. The purpose of the property (commercial leasing) is crucial in determining the eligibility for ITC.
2. **Capital Goods:**
- The VRF outdoor units qualify as capital goods. Under GST, ITC is available on capital goods used for business purposes. Since the units are part of the infrastructure for your commercial building, you should be eligible to claim ITC.
3. **Installation and Commissioning:**
- The absence of a work contract with the OEM for erection and commissioning does not impact your ability to claim ITC on the purchase of the units. As long as the units are used in the course or furtherance of your business, ITC can be claimed.
### **2. Relevant GST Clauses and Sections**
1. **Section 17(5) of the CGST Act, 2017:**
- This section outlines the restrictions on claiming ITC. However, since the VRF outdoor units are used for commercial property leasing, which is a taxable activity, and not for personal use or exempt supplies, they should fall under the category where ITC is permitted.
2. **Input Tax Credit on Capital Goods:**
- As per GST rules, ITC on capital goods is allowed if they are used for making taxable supplies. Since the VRF units are used to enhance a commercial property (which will be leased), you are entitled to claim ITC on these units.
### **3. Relationship with AAR-Karnataka Verdict**
**Tarun Realtors Case:**
1. **Summary of the Case:**
- In the Tarun Realtors case, the AAR (Authority for Advance Ruling) Karnataka ruled on the eligibility of ITC for inputs related to construction of commercial property. The ruling addressed issues related to whether ITC could be claimed on various services and goods used for constructing commercial premises intended for leasing.
2. **Relevance to Your Case:**
- The verdict is relevant in the context of ITC on inputs related to commercial property. While the specifics of the Tarun Realtors case pertained to construction services and related inputs, your case involves procurement of capital goods for an already constructed commercial property. However, the principle that ITC can be claimed on capital goods used for commercial purposes can be applied.
### **4. Conclusion**
- **ITC Claim:** You should be eligible to claim ITC on the procurement of VRF outdoor units since they are used in a commercial building meant for leasing, which is a taxable supply.
- **Applicable GST Clauses:** Sections 17(5) of the CGST Act and provisions related to capital goods ITC are applicable.
- **AAR Verdict:** While the Tarun Realtors case focused on construction, the principle of ITC eligibility for commercial property can be applied to your case.
For precise guidance, consider consulting a GST expert or tax consultant to ensure compliance with current regulations and to handle specific nuances related to your situation.
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