2019 (11) TMI 399 - AAAR - GST

Input tax credit - credit of GST paid on goods and services used for construction of Tie-in pipelines, from the FSRU to the National grid - scope of the term 'factory' and 'premise' - exclusion clause to cover FSRU which is a vessel, within the meaning of a factory - exclusion clause of explanation to Section 17(5) of CGST Act - challenge to AAR decision. Whether FSRU, where the re-gasification of the LNG is carried out for delivery to the National grid, will be construed as factory or otherwise? In case the same is held as factory, whether the tie-in pipeline which is to be laid can be construed to be the pipeline laid out side the factory premises or otherwise? HELD THAT - It is a matter of fact that the factory has not been defined anywhere in the CGST Act. Therefore, we proceed to explore the meaning of factory as understood in the ordinary parlance. Accordingly, we will resort to the meaning provided to the term factory in the various dictionaries. In this way, we concur with the contention put forth by the Appellant in so much as they have advocated for the adoption of the meaning of the factory as understood in the common parlance, for which they have relied upon the meaning of the term factory provided in the various dictionaries. - As regards the AAR interpretation of the term factory, wherein they have adopted the definition provided under the Factories Act, 1948 in absence of the definition of the impugned term factory , it is opined that Hon ble Supreme Court, vide its judgment in the case of MSCO PVT. LTD. VERSUS UNION OF INDIA AND OTHERS 1984 (10) TMI 44 - SUPREME COURT , which has been cited and relied upon by the Appellant in their defense, has abundantly clarified against the adoption of the definition or meaning of any term, which has not been defined under a particular statute with which the impugned matter is concerned, from another statute containing the definition or meaning of that very term. The AAR interpretation of the term factory , on the basis of the definition provided under the Factories Act, 1948 is contrary to the afore said Supreme Court ruling, and hence not tenable. On perusal of the dictionary meaning of the term Building , it is abundantly clear that any structure with the walls and roofs would be considered as Building. Further, in the definition, there is no such constraint that such structure should be situated on the land only. Thus, by looking at the photographs of Floating Storage Re-gasification Unit ( FSRU ), submitted by the Appellant, where this re-gasification of the LNS is carried out by the Appellant, may very well be considered as the building as there are enough structures with walls and roofs, which have been built on this processing unit, which c l early indicates that the FSRU encompasses many buildings, where the regasification of the LNG is carried out for delivery of the same to the National grid with the aid of the tie-in pipelines under question - Thus, on perusal of the dictionary meaning of the term establishment , it is crystal clear that the establishment is a place from where any organization operates. Here also, there is no such restriction that such place should be located on the land only. It may be any where including the water bodies, such as sea, oceans etc. Thus, it is clearly established that the FSRU, the place in question, can be considered as building, or establishment. Further, there is no dispute, by the Appellant, over the activities, carried out at the FSRU, where the re-gasification of the LNG is taking place, being in the nature of the manufacturing activity. Therefore, we would not go into the details of the activities carried out at the FSRU, as the same is accepted as manufacturing activities. The FSRU, where the re-gasification of LNG is carried out for delivery to the National Grid through the tie-in pipeline proposed to be connecting the FSRU to the National Grid, can be rightly considered as factory - Once it has been established that the premises of the FSRU can be justly considered as factory premises, then there is no doubt that the tie-in pipeline, to be laid by the Appellant, which will join the FSRU to the National Grid, will be considered as pipeline laid outside the factory premises, and accordingly attract the applicability of the subject exclusion clause i.e. exclusion clause (iii) of the explanation to section 17(5)(c) and section 17(5)(d) of the CGST Act, 2017. The ruling pronounced by the Advance Ruling Authority is modified in so far the observation of the facts and legal provisions are concerned and pass the order by holding that the Appellant is not entitled to avail the ITC of GST paid on goods and services used for construction of Tie-in pipelines, from the FSRU to the National grid as per the provision laid out in section 17(5)(c) and 17(5)(d) of the CGST Act, 2017.

Summary

Issues Involved:
1. Whether the Floating Storage Re-gasification Unit (FSRU) qualifies as a "factory."
2. Whether the tie-in pipeline laid from the FSRU to the National Grid qualifies as "plant and machinery."
3. Whether the Appellant is entitled to Input Tax Credit (ITC) for goods and services used in constructing the tie-in pipeline.

Detailed Analysis:

1. Whether the Floating Storage Re-gasification Unit (FSRU) qualifies as a "factory."
The Appellate Authority examined whether the FSRU can be considered a "factory" under the CGST Act, as the term is not defined within the Act. The Appellant argued that the term should be understood in its ordinary sense, citing various dictionary definitions that describe a factory as a building or set of buildings where manufacturing occurs. The Authority agreed with this approach, noting that the Supreme Court has ruled against adopting definitions from other statutes when the term is not defined in the relevant statute. They cited the Supreme Court case of M/s. Msco. Pvt. Ltd vs Union of India, which emphasized that words should be interpreted in their ordinary sense unless defined otherwise.

The Authority found that the FSRU, which has structures with walls and roofs where regasification occurs, meets the dictionary definition of a factory. Thus, the FSRU qualifies as a factory.

2. Whether the tie-in pipeline laid from the FSRU to the National Grid qualifies as "plant and machinery."
The Authority examined whether the tie-in pipeline qualifies as "plant and machinery" under the CGST Act. The Appellant argued that the pipeline, equipped with various sophisticated devices and machinery, should be considered "plant and machinery." They cited the explanation to Section 17(5) of the CGST Act, which defines "plant and machinery" but excludes pipelines laid outside the factory premises.

The Authority found that since the FSRU qualifies as a factory, the tie-in pipeline laid from the FSRU to the National Grid is considered a pipeline laid outside the factory premises. Therefore, it does not qualify as "plant and machinery" under the CGST Act.

3. Whether the Appellant is entitled to Input Tax Credit (ITC) for goods and services used in constructing the tie-in pipeline.
The Appellant contended that they should be entitled to ITC for the goods and services used in constructing the tie-in pipeline, as it is essential for their business operations. They argued that the restriction under Section 17(5)(c) and 17(5)(d) should not apply since the pipeline is integral to their regasification process.

The Authority disagreed, noting that the exclusion clause in the explanation to Section 17(5) explicitly excludes pipelines laid outside the factory premises from being considered "plant and machinery." Since the tie-in pipeline is laid outside the factory premises (FSRU), the Appellant is not entitled to ITC for the goods and services used in its construction.

Conclusion:
The Appellate Authority upheld the ruling of the Advance Ruling Authority, denying the Appellant's claim for ITC on goods and services used for constructing the tie-in pipeline from the FSRU to the National Grid. The FSRU qualifies as a factory, and the tie-in pipeline laid outside the factory premises does not qualify as "plant and machinery" under the CGST Act, thus making the Appellant ineligible for ITC under Section 17(5)(c) and 17(5)(d).