2019 (6) TMI 1580 - AAR - GST

Input Tax Credit - pre-engineered structures which is movable in nature and accounted as Plant and machinery and not capitalized as an immovable property - Section 16 of CGST Act - HELD THAT - Section 16 (a) of the Act provides for eligibility of Input Tax Credit. It reads as in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed - Section 17 of the GST Act deals with Apportionment of credit and blocked credits. Section 17 (5) (d) reads as goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business . As per the definition of goods some movable property is excluded from the category of goods whereas at the same time, some immovable properties are treated as goods. But the terms movable and immovable property have not been defined under the GST Act. In laymen terms, any goods that can moved is a movable property and which cannot be moved is immovable property - As per the definition of immovable property contained in the General Clauses Act and the Transfer of Property Act, it is clear that things attached to the earth or permanently fastened to anything attached to the earth is immovable property. Anything imbedded in the earth or attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached, qualifies to be attached to the earth. Further, when any object is said to be embedded in earth, it does not mean that a part of it is to be inserted/ put deep beneath the earth by digging the earth for several meters. For laying any foundation especially in case of area of considerable dimension as in case of a warehouse, the top soil has to be removed, surface has to be leveled and some part of foundation stone always rests with in the earth. So this contention of the applicant that the support base of the warehouse made of PES neither attached to nor imbedded in the earth is rejected. Non-permanent nature of the PES structure - HELD THAT - It has already been discussed that the degree and nature of annexation is vital to the decision whether a property is a movable property or an immovable property. In the case of applicant, the warehouses are rented out to industrial consumers and manufacturers. These warehouses cover considerably large area and caters to the need of business which in terms requires permanence and stability. So, it cannot be said that the warehouses constructed/ erected by way of fixing pre-engineered structures is non-permanent in nature.

Summary

Issues Involved:

1. Eligibility of Input Tax Credit (ITC) on pre-engineered structures (PES) under Section 16 of the CGST Act.
2. Applicability of restriction under Section 17(5) of the CGST Act on PES.
3. Classification of PES as movable or immovable property.

Detailed Analysis:

1. Eligibility of Input Tax Credit (ITC) on pre-engineered structures (PES) under Section 16 of the CGST Act:

The applicant, a private limited company engaged in building and managing industrial warehousing spaces, sought a ruling on whether input GST credit could be availed on PES, which are movable in nature and accounted as "Plant and machinery" and not capitalized as immovable property. Section 16(1) of the CGST Act entitles a registered person to take credit of input tax charged on any supply of goods or services used in the course or furtherance of business. The applicant argued that PES helps in carrying out their business operations efficiently and thus meets the criteria for ITC under Section 16.

2. Applicability of restriction under Section 17(5) of the CGST Act on PES:

Section 17(5)(d) of the CGST Act restricts ITC on goods or services received for the construction of an immovable property, except for plant and machinery. The applicant contended that PES are not capitalized as immovable property but recorded as plant and machinery, which can be detached and reused, thus not falling under the definition of 'construction' as per Section 17(5). The applicant further argued that PES are movable fit-outs and therefore should qualify for ITC.

3. Classification of PES as movable or immovable property:

The applicant claimed that PES, being pre-fabricated structures erected at the site using bolts and resting on concrete foundations, are not embedded in the earth and can be moved, thus classifying them as movable property. The General Clauses Act and the Transfer of Property Act were referenced to define immovable property and movable property. The applicant emphasized that PES are not intended to be permanent and can be relocated, thus should not be considered immovable.

Authority's Discussion and Ruling:

The Authority for Advance Ruling examined the relevant provisions of the CGST/HGST Act, including the definitions of goods, movable property, and immovable property. It was noted that Section 17(5)(d) bars ITC on goods or services used for the construction of an immovable property. The Authority referred to judicial precedents and the degree and nature of annexation to the earth to determine the classification of PES.

The Authority concluded that the warehouses constructed using PES are immovable properties as they are attached to the earth by gravitational pull and require permanence and stability for business purposes. The contention that PES are not embedded in the earth was rejected, as the foundation stone always rests within the earth. Consequently, the applicant was deemed ineligible for ITC on PES under Section 17(5)(d) of the CGST Act.

Ruling:

The warehouses constructed/erected by the applicant using PES are classified as immovable property for GST purposes. Therefore, the applicant is not eligible for ITC on PES in light of Section 17(5)(d) of the CGST Act.