2022 (1) TMI 749 - AAAR - GST

Input tax Credit - entitlement to avail and utilize ITC of GST Charged by IPL - supply or not - Air Separation Unit (ASU) - transfer of the leasehold rights for the remainder period of 72 years in respect of part of the property along with superstructures, for setting up of State of the art medical and industrial gases plant - restriction under Section 17(5)(d) of the GST Act 2017 - HELD THAT - The explanation of 'Contraction' for the purposes of 'Construction' mentioned in Section 17(5)(c) and (d), is an inclusive definition and includes re-construction, renovation, additions or alterations or repairs to the extent of capitalisation to the immovable property. This inclusive explanation states specific activities covered under the term 'construction' apart from the 'Original' activity of 'Construction', the cost of which is capitalised to the said immovable property. The appellant has Erected, Installed and commissioned the various components of the Air Separation Unit interconnected with Pipes and other necessary components, put up administration units, other utilities required for manufacturing of the Industrial and Medical gases with the required foundations and structural supports, i.e., have undertaken 'original' activities of 'construction' - even if only Installation of various components were' made in setting up the manufacturing plant, such installation, commissioning are original works of construction. From the various photographs furnished by the appellant, it is evident that the appellant has set up the manufacturing plant with all the required utilities and therefore, there is no doubt that the appellant has taken lease of the land and have undertaken 'Construction' of the manufacturing Plant. Whether the services received by the appellant from IPL i.e., withdrawing the leasehold rights of the land held in favour of the appellant, thereby facilitating the appellant to enter into lease with SICOT for the remaining period of lease can be construed as services received 'for construction'? - HELD THAT - The appellants' interpretation is that for construction' is to be read as 'for the purpose of construction' and only those services which have a direct nexus to 'construction' such as works contract, services of engineer/contractor, services of architect or interior decorators etc., are covered under this phrase. In this connection, the appellant has relied on the decisions of the Apex Court. When the statute expresses clearly, the same is to be interpreted as per the words of the statute - it is evident that the services received enables the appellant to procure the lease of land for the remaining lease period and set up the manufacturing facility. Without IPL agreeing to withdraw its leasehold rights in appellants' favour, the appellant cannot get the leasehold on the land and cannot construct the manufacturing plant. Further, the amount paid to IPL for service of agreeing to withdraw the leasehold right to use the land is an integral part of the cost of the ASP. It has been stated by the appellant that the amount paid to IPL for grant of leasehold right in their favour stands capitalised along with the ASP in their books. Therefore it is clear that the service received from IPL is a service received 'for construction'. Whether the manufacturing facility, the ASP is an immovable property or a movable 'plant and machinery', for the construction of which the impugned services are used? - HELD THAT - The appellant has taken on lease the land from SIPCOT for a period of 72 years with the intention to put up the manufacturing facility in the said place for generation of various Industrial grade gas and it is not a temporary facility. Hence the 'ASP' set up by the appellant is not a 'movable property' as claimed by the appellant but is an immovable property'. Whether the entire manufacturing plant is to be construed as a 'Plant and machinery'? - HELD THAT - In the case at hand the impugned services are received by the appellant 'for construction' of the manufacturing plant which is an immovable property and even if the said plant is considerable as 'Plant and Machinery', the restriction on the services received towards the leasehold of the 'Land' is restricted by Section 17(5)(d) of the Act read with the Explanation for 'Construction' and 'Plant and Machinery'. ASP is installed and commissioned with foundation and structural support, embedded on the land, the leasehold rights of which is obtained by the appellant by receiving the service of agreeing to withdraw the lease hold rights held by IPL in their favour. Without the appellant having the leasehold rights. they cannot undertake 'construction' of the manufacturing Plant, ASP. Also, ASP is an immovable property and not mere 'Plant' or 'machinery' but can be termed as 'Plant and Machinery', the Explanation of which specifically excludes land. Thus, it is clear that intention of law maker is to restrict ITC on services related to land, received for construction - the services received from IPL, the cost of which is capitalised along with ASP, is a service received 'for construction' of an immovable property, and therefore the taxes paid is restricted as per Section 17(5)(d) of the CGST/TNGST Act 2017.

Summary

Issues Involved:
1. Entitlement to Input Tax Credit (ITC) under Section 17(5)(d) of the CGST/TNGST Act, 2017.
2. Definition and applicability of terms "for construction" and "immovable property."
3. Classification of Air Separation Unit (ASP) as "plant and machinery" or "immovable property."

Detailed Analysis:

1. Entitlement to Input Tax Credit (ITC) under Section 17(5)(d) of the CGST/TNGST Act, 2017:
The appellant sought clarification on whether they could avail and utilize ITC of GST charged by IPL for transferring leasehold rights if such a transaction is considered a supply. The Original Authority ruled that ITC is not available under Section 17(5)(d) if the transaction is considered a supply. The appellant contended that the conditions for restricting ITC under Section 17(5)(d) (i.e., goods/services received 'for construction' of immovable property and the immovable property not qualifying as 'plant and machinery') were not met. They argued that the services received were not for construction but for acquiring leasehold rights, and the ASP qualifies as 'plant and machinery.'

2. Definition and applicability of terms "for construction" and "immovable property":
The appellant argued that the service provided by IPL was not used for any construction activity per se, and there was no direct nexus between the service and construction. They relied on Supreme Court rulings to emphasize that a taxing statute should be strictly interpreted. The appellant further contended that the ASP is movable and not permanently embedded, thus not qualifying as immovable property. However, the Appellate Authority held that the services received for acquiring leasehold rights are integral to the construction of the manufacturing plant, which is an immovable property. The Authority also noted that the term 'for construction' has a broader scope and includes services facilitating the construction.

3. Classification of Air Separation Unit (ASP) as "plant and machinery" or "immovable property":
The appellant claimed that the ASP is a movable property and qualifies as 'plant and machinery,' which should exclude it from the restriction under Section 17(5)(d). They argued that the ASP is not permanently embedded and can be shifted to another site, thus not falling under the definition of immovable property. The Authority, however, determined that the ASP, along with other utilities, is permanently embedded and forms an integral part of the manufacturing facility, making it immovable property. The Authority cited the Supreme Court's decision in Duncans Industries Ltd. v. State of U.P. & Ors., which held that machinery embedded in the earth for permanent use constitutes immovable property.

Conclusion:
The Appellate Authority upheld the ruling of the Lower Authority, concluding that the services received from IPL for transferring leasehold rights are for the construction of an immovable property. Consequently, the taxes paid on such services are restricted under Section 17(5)(d) of the CGST/TNGST Act, 2017. The ASP, being an integral and permanently embedded part of the manufacturing facility, qualifies as immovable property and not merely 'plant and machinery.' Therefore, the appellant is not entitled to avail and utilize ITC for the GST charged by IPL.