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TMI Blog2021 (7) TMI 1344X X X X Extracts X X X X X X X X Extracts X X X X ..... ructure is a plant and that is acceptable in the general sense, but for the specific purpose of Chapters V and VI of the GST Act, they would be kept out of the category of plant . Whether the pit is a civil structure or not. It is very clear that the applicant has used materials like steel, cement, bricks and claims that they are not used for the land filling pit? - HELD THAT:- The applicant is purchasing the construction materials for other than the construction of land filling pits. If they are used for construction of other structures, they would have been done on his own account and the input tax credit would not be available on those input tax credit related to those materials as per section 17 (5) (d) as they would still be civil structures (other than pits). Since those civil structures are not being used directly in relation to the main business activity, they would not be covered under the definition of plant even generally (other than for the purpose of GST). Furthermore, civil structures are excluded even if they are generally covered under plants, for the purpose of GST. - KAR ADRG 46.1/2020 - - - Dated:- 30-7-2021 - DR. RAVI PRASAD M.P. AND SRI. MASHHOOD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer in the Commissioner s Office and the said Principal Commissioner had given an opinion on the subject and in his report he had stated that the structure constructed was a concrete structure and based on the report submitted by the Principal Commissioner of Central Tax, an order has been passed by the Advance Ruling Authority. Further, he had argued that the report of the Principal Commissioner of Central Tax was not given to the petitioner at any point of time and the order based on the aforesaid report is violative of the principles of natural justice. The Hon ble Court had come to the conclusion that the principles of natural justice and fair play have been violated as the report of the Principal Commissioner of Central Tax was not given to the petitioner at any point of time and now that the petitioner has obtained the detailed report submitted by the Principal Commissioner of Central Tax from the Right to Information Act and he is having that report. The Hon ble Court has set aside the advance ruling dated 11.09.2020 and remitted back the case to the Advance Ruling Authority. It has also ruled that the petitioner shall be free to argue the matter afresh taking into account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule 54. As per point (b) the assessee has Valid Invoices as per section 31(3)(f) As per sec 16 (2) An entity is eligible to claim ITC if all of the following conditions are satisfied. (a) Entity is in possession of a tax invoice or debit note issued by a supplier registered under GST Act or such other taxpaying document as may be prescribed. (b) Entity has received the goods or services or both. (c) subject to section 41 of CGST Act, the tax charged in respect of such supply has been actually paid to the credit of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply [section 41 of CGST Act allows taking input tax credit in electronic credit ledger on self-assessment basis]. (d) Entity has furnished the return under section 39 [every taxable person is required to file electronic return every month as per section 39 of CGST Act]. Entity is in the possession of tax Invoice. It has made payment for the services availed within 180 days and the counter party has also uploaded the invoice in Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the language of the said sub-section in both the Acts is identical. The said Section 17 (5) (d) of both the aforesaid Acts inter alia provides that notwithstanding anything contained in sub-section (1) of Section 16 of both the aforesaid Acts and sub section (1) of Section 18 of both the aforesaid Acts, input tax credit shall not be available in respect of the goods and 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. 6.7 On a plain reading of Section 17(5)(d), it is clear that what it contemplates and provides for is a situation where inputs are consumed in the construction of an immovable property which is meant and intended to be sold. The sale of immovable property post issuance of completion certificate does not attract any levy of GST. Consequently, in such a situation, there is a break in the tax chain and, therefore, there is full justification for denial of input tax credit as, on the completion of the transaction, no GST would at all be payable and, therefore, no set-off of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion should be adopted which avoids or obviates double taxation. This principle is also directly applicable to the present case. It would also violate the client s fundamental right to carry on business under Article 19 (1) (g) of the Constitution as it would impose a wholly unwarranted and unreasonable and arbitrary restriction. 6.10 It is therefore, submitted that, in accordance with well-settled principles of interpretation of statutes, Section 17 (5) (d) requires to be read down in order to save it from the vice of unconstitutionality, by confining the provision to cases where the Plant and Machinery in question is constructed for the purpose of sale services, thereby terminating the tax chain, and by not applying Section 17 (5) (d) to cases where the Plant and machinery in question is constructed for the purpose of sale of services and where the tax chain is not broken. It is further submitted that if this interpretation of Section 17(5)(d) is not accepted, then there would be no alternative except to declare that provision as unconstitutional and illegal and null and void. 6.11 The interpretation of Section 17 (5) (d) of both CGST Act and SGST Act which leads to the conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at when a builder sells units in a building before issuance of a completion certificate, he is required to pay CGST and SGST on the amount of sale price received and at the same time he is also allowed credit and set off of the CGST and SGST paid on the inputs consumed to construct the building and thus the GST authorities themselves recognise and have accepted the position that where, in respect of a building under construction, the tax chain is not broken, Section 17 (5) (d) is not applicable and input tax credit cannot be denied. Consequently, not to adopt the same interpretation of Section 17 (5) (d) in the present case where also there is no break in the tax chain, is highly arbitrary and discriminatory. In the case of the client, even the business is a continuous one without a break in the tax chain, yet it has been placed under Section 17 (5) (d) of the CGST Act and SGST Act and the benefit of taking input tax credit has been denied and therefore on that ground alone and by itself Section 17 (5) (d) of CGST Act and SGST Act requires to be struck down as it violates Article 14 of the Constitution if the said clause (d) of sub-section (5) of Section 17 is not read down as subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmovable property is intended for offering services. 6.15 If the benefit of taking credit of input tax under Section 16 of the CGST Act and SGST Act is denied to the client by invoking Section 17(5)(d) of the CGST Act and SGST Act, in that event, the very object of enacting CGST Act and SGST Act for reducing the cascading effect of various indirect taxes and reduction of multiplicity of indirect taxes, will be frustrated even when the business of the client is a continuous one and there is no break at any point of time. It is a well settled law that the interpretation which defeats the very intention of the legislature should be avoided and that interpretation which advances the legislative intent will have to be accepted. 6.16 To conclude, the client is into the business of Treatment, Storage and Disposal of Common Hazardous Waste and for the purpose of same has to construct a land fill Pit (Plant and Machinery). It shall use such land fill pit for offering services to its customers and thereby shall be liable to discharge GST on the service charges collected. The client is of the opinion that since plant and machinery is not covered u/s 17 (5) (d) it is eligible to claim in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the permanent beneficial enjoyment of that to which it is attached. Accordingly, it can be said that landfill pit is an immovable property, an embedded civil structure in the earth (like any-other immovable civil structure viz. building, road, dam, bridge etc.) which is constructed by taxpayer on his own account during the course of supplying service of disposal of hazardous waste. Landfill Pit also doesn t fit into definition of plant and machinery viz. apparatus. Plant and machinery in common parlance mean a place where industrial activity takes place or a factory where certain material is produced or big machinery used to carry out certain processes of production. The term plant and machinery therefore should be interpreted to mean a place where certain manufacturing activities/ processes of production are carried out with the help of inputs. 7.4 However, in this case, once landfill pit is filled with waste, this pit will be covered and closed permanently (and it will become part of land itself which is clearly excluded for availing ITC). Further once waste is buried inside the pit, there is no control over the actual activity undergoing inside pit which is a natural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the exclusion clause as contained in clause (i) to Second Explanation under Section 17 of the GST Act. The said explanation reads as follows: Explanation .-For the purposes of this Chapter and Chapter VI, the expression plant and machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises. (emphasis supplied) 2. It is submitted that the above interpretation of law is erroneous. This is because the exclusion as contained in the Second Explanation is not applicable to the case of the Applicant as it is in respect of expression plant and machinery and not plant or machinery . The Applicant s application is in respect of Section 17 (5) (d) and not Section 17 (5) (c). This difference is well illustrated through a comparison of the following provisions: Section 17(5)(c): works contract services when supplied for construction of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Without prejudice to the above, even assuming not accepting that the use of cement is a relevant fact, it is submitted that it is an established principle of law that merely because steel, cement or bricks are used for construction of a structure, it does not cease to be a plant or machinery. In support of this submission, the Applicant places reliance on the decisions of the Hon ble High Courts in J.K. Cement Works Vs. The State of Karnataka (2017[7] G.S.T.L. 408) and State of Kerala Vs. Ambuja Cements Ltd (2020 (1) KHC 884). The Hon ble High Court of Karnataka in the case of J.K. Cement Works Vs. The State of Karnataka (2017[7] G.S.T.L. 408) held as follows: 21 We do not find any good reason to hold that cement used for civil works and laying foundation and erection of plant and machinery by the assessee during the relevant period should not constitute a part and parcel of plant and thus, Capital Goods used for manufacturing of cement by the petitioner assessee later on and, in our opinion, the petitioner would thus be entitled to claim input tax credit in respect of the tax paid by it in respect of such cement purchased and used by it during the relevant peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 17(5)(d) is contrary to the applicable law and facts. 8. Assuming not accepting that the Explanation to S.17 is applicable in the present case, the land filling pit qualifies as plant and machinery for the following reasons: i. Land filling pit is an apparatus without which the Applicant cannot carry out his business and thus qualifies as plant or machinery under Section 17(5)(d) 9. It is relevant to note that once the Applicant receives waste from industries, it is tested to decide the type of treatment required for it. Depending on the type of waste, the various processing action would be determined to avoid any emission from the hazardous waste. The Applicant in the course of processing of the hazardous waste gathered, has to use lime or fly ash or other neutralising agents to the waste for stabilizing it as per the protocols of the Central Pollution Control Board. After the waste is deposited in the land filling pit the further process of disposal takes place in the land filling pit continuously to avoid any explosion within the pit. These facts have been completely overlooked by the PCCT as well as in the formation of the earlier opinion now being set a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of plant in the Act: but, in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business-not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business. In other words, plant would include any article or object fixed or movable, live or dead, used by businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. In order to qualify as plant the article must have some degree of durability, as for instance, in Hinton v. Maden Ireland Ltd., 39 I.T.R. 357, knives and lasts having an average life of three years used in manufacturing shoes were held to be plant- In C.I.T. Andhra Pradesh v. Taj Mahal Hotel, MANU/ SC/0239/1971 : [1971 182 ITR 44 (SC), the respondent, which ran a hotel, installed sanitary and pipeline fittings in one of its branches in respect whereof it claimed development rebate and the question was whether the sanitary and pipe- line fittings installed fell within the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and machinery itself Such overall immoveable asset in the form of plant and machinery purchased, installed and erected by the petitioner assessee, would only be fit for use for manufacturing of cement itself later on. But, the term Plant is not defined in the K V.A.T. Act and therefore, one can take a broad view and interpret the meaning of the word Plant with the help of precedents or case laws, which we would shortly refer. 17. Now, we may refer to some cases under the Income Tax laws dealing with the definition of Plant which have a bearing on the present controversy before us as well. 19. The Hon ble Supreme Court in the case of Scientific Engineering House Pvt. Ltd. (Supra) relied upon certain following foreign decisions while dealing with the explanation Plant and gave it a wide meaning under the provisions of Income Tax law in the following manner: .. 20. In the following case, disposed of by the learned Single Judge of this Court in Santosh Enterprises v. CIT, MANU/ KA/ 0052/ 1988 : (1993) 200 ITR 353 (Kar), observed that the Indian Courts as well as English Courts, depending upon the context of income tax law, have treated even the assets l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e process carried out in a plant must be a controlled/ mechanized process/ activity is contrary to the position laid down by the Supreme Court in Scientific Engineering House (p) Ltd. Vs. Commissioner of Income Tax, Andhra Pradesh (AIR 1986 SC 338). The Hon ble Supreme Court thus made it clear that the term plant need not be used for mechanical operations as was erroneously understood in the previous clarification. Thus, applying the principles of law laid down by the Hon ble Supreme Court which was not brought to the notice of this Authority on the earlier occasion, it is submitted that the land filling pit qualifies as a plant. iv. Land Filling Pit is a plant and satisfies the functionality test 16. In Santosh Enterprises vs. Commissioner of Income Tax (MANU/KA/0052/ 1988) the High Court of Karnataka noted the functionality test explained by Lord Guest in IRC vs. Barclay, Curle and Co. Ltd. ([1970] 76 ITR 62). The Hon ble Court held as follows: 15. In other words, the test would be : Does the article fulfil the function of a plant in the assessee s trading activity ? Is it a tool of his trade with which he carries on his business ? If the answer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, volatile organic compounds and oxygen demanding wastes. The liquid waste is known as leachate. If not managed and treated properly, the leachate can cause serious damage to the environment. For disposal of hazardous waste and to manage the leachate, the Applicant has constructed a land filling pit. The two most important aspects of land filling pit design include Liner Installation and Leachate Management. a. Liner Installation: The base of each land filling pit 1 is composed of many layers of liner material. The liners are constructed of high density polyethylene (HDPE) plastic. The first layer is composed of an over-lapping geo-synthetic clay layer (GCL). The GCL provides defence against leakage of leachate into groundwater. If liquid comes into contact with the GCL it immediately softens and expands to close off any holes, therefore halting any leaks. The middle layer consists of the primary and secondary liners. These impermeable HDPE liners are the main defense against leachate leakage. These impermeable HDPE liners are the main defense against leachate leakage. The final layer is comprised of another geo-textile composite drainage layer. This layer is located o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality test held as follows: 18. On the application of the principles laid down in the above decisions, the Tribunal, in our opinion, has rightly come to the conclusion that the screening wall and the ceiling of the auditorium having been constructed with requisite installations so as to have a proper control of the sound effect and for the efficient screening of the films may be treated as part of plant but no other part of the building can be included in the said term. The furniture, fittings and fixtures consisting of wooden walls including false ceiling and wooden panelling of the walls and the walls including false ceiling and wooden panelling of the walls and the chairs would come within the purview of plant for development rebate. However, as held by the Tribunal, the case of the chairs outside the auditorium would be different and they cannot come within the definition of plant . 20. Similarly, in CIT v. Kanodia Cold Storage ([1975] 100 ITR 155(All)) the question was whether the building with insulated walls used as a freezing chamber though it is not machinery or part thereof, is part of the air-conditioning plant of the cold storage of the assessee entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed representative of the applicant appeared for personal hearing proceedings held on 30.06.2021, reiterated the facts narrated in their application and furnished written submissions in support of their argument. DISCUSSION FINDINGS 10. At the outset, we would like to state that the provisions of both the CGST Act, 2017 and the KGST Act, 2017 are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the corresponding similar provisions under the KGST Act. 11. We have considered the submissions made by the Applicant in their application for advance ruling as well as the issues involved and relevant facts having a bearing on the questions in respect of which advance ruling is sought by the applicant. 12. The applicant is into the business of Treatment, Storage and Disposal Facility (TSDF) of hazardous waste and has constructed a Land filling Pit for processing and Treatment, Storage and Disposal of Hazardous Waste. The applicant has capitalized the land filling Pit as Plant and Machinery and consider itself to be eligible to claim ITC on the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, two aspects are noteworthy. One is that such goods and services should be used for the construction of an immovable property and the other is that the activity is carried on his own account. Applicant does not deny that the land filling pit is an immovable property. However, the applicant contends that the activity is not carried on his own account but is intended for offering services. We do not agree with the applicant s view because applicant has not constructed the landfill pit on behalf of someone else. He is not under any contractual obligation with any entity to construct the land filling pit. In fact he has obtained land from Government on long term lease basis and has done the construction on his own account to provide the output service. Now, we proceed to discuss the exclusion mentioned in Section 17(5)(d) of CGST Act, 2017, i.e. plant or machinery. 16. The explanation given at the end of Section 17 (5) of CGST Act, 2017 defines plant and machinery as apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... water table is within 2.0 m to 6.0 m, the guidelines suggest to adopt double composite liner. The specifications of the single composite liner, double composite liner system and cover system are given below in Figures: 18. We observe that civil structure involves engineering work at both levels i.e above and below the ground. We find that the applicant has performed civil work to create the landfill pits below the ground and therefore it is a civil structure. 19. The learned Advocate and duly authorised representative in his argument has stated that the exclusion of civil structures as contained in Second Explanation is not applicable to his case as the expression plant and machinery and not for plant or machinery . This cannot be accepted in the sense that machinery was never an immovable property unless it is fixed permanently to the ground and all the three exclusions are related to plant and not machinery. Hence, the exclusions as specified in the explanation is only related to plant and hence civil structures are considered to be excluded from the input tax credit. 20. Further, there is no doubt that the structure constructed by the applicant is a civi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t concrete, bricks, cement, steel etc. Hence, the applicant is purchasing the construction materials for other than the construction of land filling pits. If they are used for construction of other structures, they would have been done on his own account and the input tax credit would not be available on those input tax credit related to those materials as per section 17 (5) (d) as they would still be civil structures (other than pits). Since those civil structures are not being used directly in relation to the main business activity, they would not be covered under the definition of plant even generally (other than for the purpose of GST). Furthermore, civil structures are excluded even if they are generally covered under plants, for the purpose of GST. 24. The applicant has further placed reliance on the judgment rendered by the Hon ble High Court of Orissa in the case of M/ s. Safari Retreats Pvt. Ltd., and Another v. Chief Commissioner of Central Goods Service Tax Others . It is seen that in the said case, the prayers are (a) eligibility to credit of input tax paid on goods/services used for construction which is rented for commercial purposes (b) to hold Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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