2019(09)LCX0232(AAR)
AAR-KARNATAKA
M/s Embassy Industrial Park Private Limited
decided on 30/09/2019
THE AUTHORITY ON ADVANCE
RULINGS
IN KARNATAKA
GOODS AND SERVICE TAX
VANIJYA THERIGE KARYALAYA, KALIDASA ROAD
GANDHINAGAR, BENGALURU 560 009
Advance Ruling No. KAR ADRG 109/2019
Dated : 30-9-2019
Present:
1. Shri. Harish Dharnia, Joint Commissioner of Central Tax, Bangalore West
Commissionerate, Bengaluru. . . . . Member (Central Tax)
2. Dr. Ravi Prasad M.P. Joint Commissioner of Commercial Taxes (Vigilance)
Bengaluru . . . . Member (State Tax)
Name and address of the applicant |
M/S EMBASSY INDUSTRIAL PARK PRIVATE LIMITED Intermediate Ring road Pepple Beach Embassy Golf Links Business Park, Ejipura, Bengaluru 560034 2. |
GSTIN or User ID | 29AACCJ2346P123 |
Date of filing of Form GST ARA-01 | 13.02.2019 |
Represented by |
Sri Harish Bindumadhavan, Advocate |
Jurisdictional Authority Centre |
Pr Commissioner of Central Tax, Bangalore East |
Jurisdictional Authority State | LGSTO-045A, Bengaluru |
Whether the payment of fees discharged and if yes, the amount and CIN |
Yes, discharged fee of
|
ORDER UNDER SUB-SECTION (4) OF
SECTION 98 OF CENTRAL GOODS
AND SERVICE TAX ACT, 2017 AND UNDER SUB-SECTION (4) OF SECTION
98 OF KARNATAKA GOODS AND SERVICES TAX ACT, 2017
1. M/s. Embassy Industrial Park
Private Limited, (called as the Applicant hereinafter), having GSTIN number
29AACCJ2346P1Z3, has filed an application for Advance Ruling under Section 97 of
the CGST Act, 2017 and Section 97 of the KGST Act, 2017, in FORM GST ARA-0
discharging the fee of Rs.5,000-00 each under the CGST Act and the KGST Act.
2. The Applicant is a Private Limited company and is registered under the Goods
and Services Act, 2017. The applicant has sought advance ruling in respect of
the following question:
Whether input GST credit can be availed by the applicant on the inputs i.e.
Electrical Works, Pumps, Pumping systems and tanks, Lighting system, Physical
security system and Fire System
3. The applicant furnishes some facts relevant to the stated activity:
a. The applicant states that they are engaged in building and managing
industrial warehousing spaces for consumers and industrial centers. The
Applicant is proposing to construct a new Industrial warehouse at Baguru Village
in Karnataka.
b. The Applicant procures various goods and services from various Contractors
for fitting-out of the warehousing spaces and provides the subject space having
with all facilities and infrastructure facility on rent to various industrial
consumers and manufacturers. The Applicant discharges applicable GST on such
procurements.
c. Section 16(1) of Central Goods and Services Tax Act, 2017 (CGST Act)
entitles a registered person to take credit of input tax charged on any supply
of goods or services or both which are used or intended to be used in the course
or furtherance of business.
d. The -applicant States that however, as per Section 17(5) of the CGST Act, a
restriction is imposed with respect to input tax Credit (hereinafter referred to
as ITC) on procurement of goods and services or both received by the taxable
person for construction of an immovable property. However, the term
construction is limited to supplies to the extent capitalized to an immovable
property.
e. Of the procurements, there are certain items in the nature of plant and
machinery, listed below and the same are explained in detail in the subsequent
paras:
A) | Electrical Works |
B) | Pumps, pumping systems and tanks |
C) | Lighting System |
D) | Physical Security system |
E) | Fire System |
A. Electrical works:
This includes installation of equipment and devices
which controls or uses electrical power. These devices control hardware through
which power streams.
Business operations involve efficient ways of investment in infrastructure. This
also involves knowing how and Where to use electrical works to make better
engineering and investment decisions. For any organization electrical works are
mission critical. A power failure or a problem to any of the above mentioned
systems can mean an expensive disruption to operations. Therefore these Systems
are absolutely essential for functioning of business.
Ring main unit - This is used in a power distribution system as a switch
gear device in order to regulate voltage. It is totally Sealed and gas
insulated. It is an assembly of required switching devices, protection devices
as well as metering devices.
In a distribution system, RMU is widely used as it is a complete package and
only needs installation and cable connection. Everything else is within the
package. This greatly reduces the commissioning time;
Ring main units facilitate:
Network flexibility
Prompt supply restoration
Continuous power supply
Safe on load operations
Easy network handling
They provide cable status indication and also help in identifying faulty
sections.
They prevent fire hazards in a designated area and also help in performing
remote operations and status monitoring,
Receptacle system (plug socket) - These refer to electrical outlet that
allow an electrical equipment to be connected to the primary power supply in a
building. It is device in a wall where electric equipment can be plugged into
the electricity supply. A receptacle system requires grounding wire without
which it cannot function.
Advantages of installing a receptacle system in a business organization are as
follows:
They are important to detect ground faults; and
These are designed to provide protection from electric shock hazards and
injuries that can be caused from power surges, outages and storms and promote
safe working environment;
B. Pumps, pumping systems and Tanks: Pumps And pumping-systems are devices
that help move fluids by mechanical action. Tanks help store these liquids,
typically water.
Pumps - These are devices that expends energy in order to raise,
transport or compress fluids.
Pumps are required pumping liquids and gases used for various purposes for daily
functioning of warehouse. Water and other fluids are required in a business
organization for domestic purposes and also to maintain constant pressure. In
general, a pump is mounted on a strong base plate supported by a strong concrete
foundation. In addition, to the pumping machine itself, the scope of work
provided to the contractors also includes construction and fabrication of the
room that encases the pumping System.
Tanks - The primary function of a tank is to store liquid Substance
required for daily activities. Domestic Water storage is a necessity due to
natural occurrences such as droughts. They provide water for drinking,
firefighting, gardening, for other legal requirements, for upkeep and
maintenance, etc. They also provide emergency Storage for fire protection
C. Lighting systems
Street light poles and high mast - This is tall pole with lighting attached to
the top pointing towards the ground required for lighting over a large area. It
consists light sensitive sensors that activate the flow of electricity in the
poles when the light around is too low. Electricity is sent through
high-intensity discharge lamps. Street lights and masts are essential to provide
security and increasing the quality of life by artificially extending the hours
in which activity can take place and improving. They also ensure a standard of
lighting sufficient to reveal necessary amenity and visual information at night,
including the road line-marking, property lines, signage, road furniture, road
surface imperfections etc.
LED Internal light fittings - These include light fixtures that use LED
feature. LED technology has rapidly developed to be one-of the leading and
prominent lighting solutions today. These also serve a lot of purposes as stated
above for Street lights, but for internal usage.
External lighting works - These are outdoor lighting works features and
uses of Which -are Similar to LED and street lights as explained above.
D. Physical Security system: It is a collection of equipment that provides
security and safety in a constructed building. For an organization, it is
necessary to provide its people with a safe and hassle free environment so as to
gain their trust and improve efficiency adding value to the organization. It is
necessary to protect private as well as public property and steps taken towards
this are without doubt, in interest of the business
Gate and fencing - Gates are used at the entrance and other logical
locations, fences are used around the premises in order to prevent unauthorized
access. Fencing and gates emphasize alertness, endurance and protects personal
property by preventing trespassing and theft. Fences are also particularly
useful if animals are known to roam around the area. They can prevent wild
animals from gaining access to the property.
Following are other reasons gates and fences are required for an organization:
provides protection from theft that can cause to serious threat to business
properties;
Provides security during disruptions such as mob attacks, vandalism or other
invasions; and
Promotes peaceful working environment.
Gear operated rolling shutter -This is type of door or window shutter
consisting of many horizontal slats hinged together which is operated by gear.
They are an excellent way to protect the premises from unwanted entry. It is
difficult to remove /bypass roller shutters because they are very closely fitted
to the window and cannot be pulled away or broken through without a great deal
of effort and noise.
Roller shutters are required in areas that are exposed to inclement weather,
protect windows from hail damage and can be made to withstand high wind. [n case
of damaging Weather the Shutters Will easily deflect branches and other debris
that can break glass and cause damage to premises. Roller Shutters dont rattle
during high winds & offer a thick wall of insulation from the elements.
In addition to weather protection, security, privacy & light control, roller
shutters provide the additional benefit of reducing the noise coming from
outside.
Shutters also give you huge amount of control over the amount of light that
enters the room. We can choose to Completely darken the room by lowering the
shutters fully or Can have them open so that sunlight floods the room. They also
give you control over airflow. Let in the fresh air or keep an obnoxious smell
out thus providing clean and workable environment.
They also make for safe storage of the goods stored in a warehouse.
Portable security cabins - These are designed and built to be
transportable building rather than permanently located. Portable cabins can be
for temporary usage to be taken away later.
Reasons why portable security cabins are required:
As the name suggests, security cabins are of utmost importance to maintain
order, improve safety and provide security in a workplace. They are required to
provide safe surrounding for security personnel.
These cabins are adaptable, transferable, simple to build, destroy and again
built and truly convenient
Portable Security cabins are great degree lightweight and since they are
lightweight, they can be taken anyplace.
Metal doors and Rolling Shutters - Doors are used in a building for
access; security and various other reasons.
They limit access to authorized personnel and help in protecting private
property
They Separate interior spaces on a logical basis for privacy, safety and
security reasons
They are needed to secure passage into building from exterior for reasons of
climate control and safety.
Dock levelers - Dock levelers on the other hand are equipments that are
used to bridge the gap between truck and dock or warehouse floor. It ensures
quick loading and unloading while improving safety and security.
They make loading and unloading convenient, safe for Workers and efficient.
Dock levelers are used at Warehouse entrance, industrial building, loading or
unloading zone. They make it possible to receive deliveries from any vehicle
without having to Worry about a gap between the warehouse and the vehicle. By
removing this gap, we save time on unloading, and ensure that there is no damage
to goods due to an unsafe loading/ unloading environment. They can handle
capacities of thousands of pounds and also have Sides that prevent run off.
E. Fire system: This includes a number of equipment working together to
detect and warn people through visual and audio appliances when smoke, fire,
carbon monoxide or other emergencies are present and prevent disasters from
taking place within an organization. The organization is required to take all
possible steps to protect the safety of people in work place and this forms a
vital part of running business.
Pump room and accessories for fire System - A fire pump is a part of a
fire sprinkler, internal and external Hydrant systems water supply and can be
powered by electric, diesel pump. The pump intake is Connected to the
independent fire Sump. The pump provides Water flow at a higher pressure to the
sprinkler system during fire emergency. The system is important to protect human
life, property and safety. The system combines preventative monitoring with
active fire suppression mechanism, rapidly extinguish a fire before it Spreads.
Fire alarm system - These are used to alarm people around in case of
smoke, fire etc. by using audio and visual appliances. Fire alarm systems are
crucial to fire safety. The main advantage of installing fire alarms is the
early Warning benefit. The fire alarms can be installed just about anywhere in a
commercial building and best of all the fire safety measure is highly cost
effective for Smoke and fire protection. This early warning signal is extremely
important to life safety for the following reasons:
Providing occupants of building prompt Warning if a fire occurs;
Increases evacuation time for building occupants before a fire spreads out of
control;
Emergency medical help can be immediately sent out to those in need; and
Fire department personnel can help people exit the building safely.
Fire rated doors - These are doors with fire resistance rating used as a
part of passive fire protection system to reduce the spread of fire and smoke.
They are highly important to protect life and property in case of fire
emergencies. Fire doors are part of a buildings passive fire protection system,
an essential requirement for public buildings, offices and factories.
They separate compartments of a structure and enable safe evacuation so as to:
Keep any fire in the compartment in which it starts;
Protect the occupants (and contents) of other compartments; and
Provide a safe, protected route to allow the occupants to escape.
Fire protection Systems - These include a combination of various
fire-fighting Systems such as fire extinguishers, external and internal hydrant
systems, sprinkler systems etc. which help in minimizing the fire impact and
ensure safety and wellbeing of people in the premises, These include a complex
system that requires to be connected to the ground for cabling; piping etc. and
hence difficult to move.
4. The applicant claims that the works contract in the nature of electrical,
structural, lighting, physical security and fire-fighting works listed above
qualify as eligible credit under section 16 of the CGST Act, 2017. The reasons
adduced are as under:
4.1 Section 16 details the criteria of availment of ITC on tax paid on input and
input services.
Relevant extract is as under:
(1) Every registered person shall, subject to such conditions and restrictions
as may be prescribed and in the manner specified in section 49, be entitled to
take credit of input tax charged on any supply of goods or services or both to
him which are used or intended to be used in the course or furtherance of his
business and the Said amount shall be credited to the electronic credit ledger
of such person
4.2 Thus, from a bare reading of the Section, it can be seen that Section 16 of
the CGST Act entitles every registered person to take input tax credit of tax
charged on supply of goods or services or both which are used or intended to be
used in course or furtherance of business.
4.3 The above Criteria for availment of credit is broad both in manner as well
as intent.
Meaning of in the course of or furtherance of business
4.4 While business has been defined under the CGST Act, the terms in the
course or furtherance of business are not defined anywhere under the CGST Act
or the CGST Rules made thereunder.
4.5 In the course of generally means Something in the progress of process of.
4.6 The meaning of Furtherance as per Blacks law dictionary: 6th edition 11th
reprint 1997, is act of furthering, helping forward, promotion, advancement or
progress.
4.7 Furtherance of business will, thus mean, act of furthering business, helping
forward business, promotion of business, advancement of business of business of
progress of business.
4.8 As mentioned above, the Applicant is into the business of building and
managing industrial warehousing spaces for consumers and industrial centers and
all the subject electrical works, pumps, pumping systems and tanks, lighting
system, physical security system and fire system helps in giving value add to
its Industrial customers and managing the Industrial spaces in more efficient
and effective way. In other words, the subject plant and machinery items help
the Applicant in carrying out their business in their day to day operations.
4.9 Therefore; basis the above submissions; given that the Applicant procures
various inputs which are installed in warehousing spaces. rented out by the
Applicant, the condition as provided under Section 16 for availment of ITC
stands satisfied.
5. The applicant Claims that the restriction provided under Section 17(5) (c) &
(d) does not apply to procurement of items listed above for the following
reasons:
Credit restriction is only in so far as inputs/ input services for construction
of an immovable property
5.1 Section 17(5) (c) & (d) uses the word for construction.
5.2 The term for is more Specific than in relation to. The word for
generally means for the purpose of.
5.3 The word for is defined in the Concise Oxford English Dictionary, 8th Ed.
as under:
1. in the interest or to the benefit of; intended to go to;
2. in defense, support or favor of
3. suitable or appropriate to
4. in respect of or with reference to
5. representing or in place of....
6. conducive or conductively to; in Order to achieve....
5.4 The Honble Supreme Court in the case of Mansukhlal Dhanraj Jain & Ors. Etc,
v. Eknath Vithal Ogale etc. compared the words for and relating to and
concluded that the latter has wider connotations than the former. The relevant
extract is reproduced for reference:
There is a good deal of difference between the words relating to the recovery
of possession on the one hand and the terminology for recovery of possession
of any immovable property. The words relating to are of wide import and can
take in their sweep any suit in which the grievance is made that the defendant
is threatening to illegally recover possession from the licensee.
5.5 It can be Seen from the above decisions that the word for has been defined
to mean in the interest of, to the benefit of, in defense of, in support or
favour of, etc. Based on the above rationale, it can therefore be concluded that
in order to be covered by the restrictions provided under Section 17(5) (c) &
(d), the goods or services must be used directly for construction of immovable
property.
5.6 In other words, with reference to section 17(5) (e) (d) of CGST Act, read
with the explanations provided therein, credit eligibility of goods or services
or both is restricted only when the same is for construction of an immovable
property.
5.7 Also, immovable property covered in the above Section excludes Plant and
Machinery.
5.8 Plant and machinery is defined as any apparatus, equipment and machinery
fixed to earth by foundation or structural support (to be precise, immovable
plant and machinery) but does not include:-
i. Land, building or any other civil Structures;
ii, Telecommunication towers; and
iii. Pipelines laid outside factory premises
Credit restriction is with respect to construction only When capitalized as
immovable property
5.9 Further, the Applicant submits that for the purposes of clause (d) of
section 17(5) of CGST Act, the expression construction has been defined to
include re-construction, renovation, additions or alterations or repairs, to the
extent of capitalization of the said immovable property.
5.10 The Applicant in this regard submits that, so far the business activity of
the applicant is concerned, the items listed in Appendix I are not capitalised
as immovable property but are in fact recorded as plant and machinery.
5.11 They can be detached and re-used and are not considered to be the permanent
civil assets. It is for this very reason that these items are not capitalized as
immovable property,
6. The applicant submits that the items in respect of this advance ruling
qualify as eligible Credit under Section 16 of the CGST Act and the restriction
provided under Section 17(5)(d) does not apply for the following reasons:
6.1 Basis the above submissions regarding the admissibility of the credit for
Various electrical works, pumps; pumping system and tanks, lighting System,
physical security system and fire system, the Applicant wishes to reiterate the
analysis above as they same shall be applicable the specified items as well.
6.2 The Applicant submits that the as per Section 16 of the CGST Act, he is
eligible to avail credit in respect of the specific items as they are used in
the course or furtherance of Applicants business.
6.3 It is pertinent to note that the restriction prescribed in Section 17(5)
pertains to as inputs/ input services for construction of an immovable
property.
7. The applicant submits that the goods in question are movable for the
following reasons:
7.1 The Applicant submits that anything embedded to the earth and which cannot
be dismantled and moved, strictly are covered under the ambit of immovable
property, thus restricting the same from availment of ITC as per Section
17(5)(c) & (d) of the CGST Act.
7.2 The term immovable property has not been defined under GST Act, therefore
reference needs to be taken from General Clauses Act, 1897,
7.3 Section 3(26) of the General Clauses Act, 1897 does not provide an
exhaustive definition of the said expression. It reads :
immovable property shall include land, benefits to arise out of land, and
things attached to the earth, or permanently fastened to anything attached to
the earth.
7.4 Similarly, Section 3 of the Transfer of Property Act, 1882 does not spell
out an exhaustive definition of the expression immovable property. It simply
provides that unless there is something repugnant in the subject or context
immovable property under the Transfer of Property Act, 1882 does not include
standing timber, growing crops or grass.
7.5 Though the terms attached to the earth are not defined in the GST law,
reference can be drawn Section 3 of the Transfer of Property Act, 1882 wherein
it is defined that anything;
Rooted to the earth, as in case of trees and shrubs;
Imbedded in the earth, as in the case of walls and buildings;
Attached to what is so imbedded for the permanent beneficial enjoyment of that
to which it is attached.
8. applicant summarises the entire submissions as under:
Particulars |
Category |
Property type |
Whether movable or immovable |
Eligibility criteria |
Ring Main unit | Electrical works | Plant and Machinery | Movable |
Plant and Machinery - any apparatus, equipment and machinery fixed to earth by foundation or structural support. These items are immovable
in nature and classified as Plant and machinery. |
Receptacle system plug socket | Electrical works |
Plant and Machinery |
Movable | |
Pumps |
Electrical works |
Plant and Machinery |
Movable |
|
Street light poles, High mast |
Electrical works |
Plant and Machinery |
Movable |
|
Pump room and accessories | Fire system | Plant and Machinery | Movable | |
Fire Alarm system | Fire system | Plant and Machinery | Movable | |
Fire Protection Systems | Fire System | Plant and Machinery | Movable | |
LED Internal light fittings | Lighting System | Lights & Fixtures | Movable |
Section 17(5) covers
works Contract services and construction services used in the
construction of an immovable property |
External Lighting works | Lighting system | Lights & Fixtures | Movable | |
Gate and Fencing | Security system | Furniture and Fittings | Movable | |
Gear Operated Rolling Shutter | Security system | Furniture and Fittings | Movable | |
Portable security cabin | Security System | Furniture and Fittings | Movable | |
Rolling Shutters, Metal doors and dock levelers | Security system | Furniture and Fittings | Movable | |
Fire rated doors | Fire system | Furniture and Fittings | Movable |
9. The applicant places reliance
on the following judicial precedents in relation to credit admissibility.
9.1 In the Advance Ruling issued by the authority for Advance Ruling,
Uttarakhand, in the case of M/s. VINDHYA TELELINKS LTD, the question was whether
the applicant is eligible for input tax credit on goods & services used in
erection of infrastructure, which consists of steel tabular pole, galvanized
iron wire, nuts bolts, optical fibre cables, plastic pipes, clamps? , for
telecommunication service providers since the infrastructure provided by the
applicant is different from Telecommunication Tower.
It was held that the infrastructure provided by the applicant is different from
Telecommunication Tower and it is not an immovable property as it can be
easily be moved to another place for use without any damage to the entire
infrastructure.
The infrastructure being a movable property can be classified as goods in
terms of section 2(52) of CGST/SGST Act, 2017. The infrastructure provided being
different from Telecommunication Tower, the applicant can avail Input Tax Credit
on GST paid on the goods & services in terms section 16(1) of CGST/ SGST Act,
2017, consumed while providing the supply in question.
As mentioned in the facts of the cases the listed items are movable in nature
and thus applying the decision of the Advance Ruling Authority, the Applicant
would be rightly eligible for Input Tax credit.
In view of the above, von applying three test referred above, the wooden
floorings and glass partitions cannot be termed as immovable property for the
following reasons:
They are not immovable property;
They cannot be said to be attached to earth;
The setting up itself is not intended to be permanent at a given place. It can
be moved based on business requirements.
9.2 The Applicant further places reliance on the advance ruling issued by the
Authority of the advance ruling in the, case of M/s. BAHL Paper Mills Ltd.,
where the question was whether Credit will be available on office fixtures &
furniture, AC, plant & sanitary fittings on the newly constructed building on
its own account, for furtherance of business, and is capitalized in books of
accounts. It was held that as per the explanation to Section 17 of the CGST Act,
availment of credit was not admissible in respect of land, building or any civil
structure; therefore Sanitary fittings being the integral part of the land was
not an admissible credit. However, credit of GST is available on office fixtures
& furniture, A.C. plant. The said advance ruling has placed reliance on the CBIC
Board Circular No. 943/04/2011-CX dated 29th April 2011 wherein it was clarified
that the goods such as furniture and stationery used in an office Within the
factory are goods used in the factory and are used in relation to the
manufacturing business and hence the credit of the same is allowed.
9.3 Further Reliance can be placed on the judgement in the case of M/s.
Balkrishna Industries Ltd Vs CCE, Jaipur-I wherein it has held that the credit
on duty paid on air-conditioners installed in the office of factory is
admissible. Further, the goods such as furniture and stationery used in the
office within the factory are goods used in relation to the manufacturing
business and hence credit is to be allowed on the same.
9.4 The Applicant further places reliance on the Advance ruling issued by the
Authority of the advance ruling in the case of Nipro India Corporation Private
Limited where the question was whether the input tax credit of tax paid on cost
proposed to be incurred in relation to civil works, mechanical works and
electrical works can be admissible under the CGST Act, 2017,
It was held that the goods in question are used or intended to be used in course
of furtherance is business and as per section 16 of the GST Act Every
registered person subject to such conditions and restrictions as may be
prescribed would be entitled to take credit of input tax charged on supply of
goods or services or both to him which are used or intended to be used in course
or furtherance of business.
Further it is understood that credit with respect to various plant and machinery
is admissible as per Section 16 of the CGST Act,
9.5 From the above, it can be inferred that the credit of input tax charged on
the supply of various plant and machinery items are to be allowed as it is
admissible under CGST/ SGST Act 2017.
10. Thus, the Applicant Submits that With reference to the explanation provided
in section of CGST Act, the goods in question i.e. Electrical works, pumps,
pumping system and tanks, lighting system, physical security system and Fire
System which are in the nature of Plant and machinery Which would qualify as
eligible input tax credit.
11. FINDINGS & DISCUSSION:
We have considered the submissions made by the applicant in their application
for advance ruling as well as the additional submissions made by Sri. Harish
Bindumadhavan, Advocate, during the personal hearing. We also considered the
issues involved on which advance ruling is sought by the applicant and relevant
facts. At the outset, we would like to state that the provisions of both the
CGST Act and the KGST Act 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 same provisions under the
KGST Act.
11.1 It is evident that the applicant is engaged in the building and managing
industrial warehouse spaces for consumers and industrial centres. The applicant
is proposing to construct a new Industrial warehouse at Bagus Village in
Karnataka and the amenities provided include truck parking, canteens, rest
areas, dormitories, business centres etc. ensuring that the park becomes a
self-sustaining business environment and contribute towards national development
and sustainability, while embodying the various objectives of the Governments as
advantages.
11.2 The applicant has Stated that he procures various goods and services from
various contractors for fitting out of the warehouse spaces and provides the
subject space having all facilities and infrastructure facility on rent to
various industrial consumers and manufacturers.
11.3 Since the applicant is in the business of providing rental commercial
space, it is not disputed that the goods or services or both obtained by the
applicant are in the course or furtherance of business. Subject to the
conditions and restrictions as may be prescribed, they are entitled to take
input tax credit on the tax charged on any supply of goods or services or both
which are used or intended to be used in the course or furtherance of business
as per sub-section (1) of section 16 of the Central Goods and Services Tax Act,
2017.
11.4 The relevant provisions of Section of the CGST Act reads as under:
(5) Notwithstanding anything contained in sub-section (1) of section 16 and
sub-section (1) of section 18, input tax credit shall not be available in
respect of the following, namely:-
a)..
b)..
(c) works contract services when supplied for construction of an immovable
property (other than plant and machinery) except where it is an input service
for further supply of works contract service;
(d) 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.
Explanation.For the purposes of clauses (c) and (d), the expression
construction includes re-construction, renovation, additions or alterations or
repairs, to the extent of capitalisation, to the said immovable property;
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.
11.5 It is pertinent to note that Section 17(5) overrides section 16(1) and any
input tax credit shall not be available in respect of-
(i) works contract services when supplied for construction of an immovable
property (other than plant and machinery) except where it is an input service
for further supply of works contract service; and
(ii) 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.
The term construction includes re-construction, renovation, additions or
alternations or repairs to the extent of capitalization to the said immovable
property,
11.6 The term construction includes additions to the immovable property to the
extent of capitalization. Nowhere is it said that the capitalized amount needs
to be declared as in the books of accounts within the value of immovable
property i.e. buildings. The Accounting Standards which enumerate the classes of
Fixed Assets being land and buildings, furniture and fixtures, etc. does not
classify property as movable and immovable property and an asset classified as
fixture could still be immovable property within its meaning. In case of any
immovable property, if the asset qualifies to be an immovable property but shown
as a discrete element in the books of accounts, it still remains an immovable
property. Mere declaration of the same under a different class of Fixed Assets
does not change its nature being an immovable property.
11.7 The applicant has admitted that the works of electrical, structural,
lighting, physical security and fire-fighting works are in the nature of works
contract services and argued that they qualify as eligible credit under section
16 of the CGST Act. 2017. Section 17(5)(c) clearly states that no input tax
credit would be available on the tax paid on Works contract services when
supplied for construction of an immovable -property (other than plant and
machinery) except where it is an input service for further supply of works
contract services.
11.8 The argument of the applicant is that these works contract services are
procured are not for construction of an immovable property. The applicant on
one hand admits that these are works contract services received from the
suppliers and on the other hand claims that these are not for construction of
immovable property.
Clause (119) of section 2 of the CGST Act, 2017 defines the works contract as
under:
(119) works contract means contract for building, construction, fabrication,
completion, erection, installation, fitting out, improvement, modification,
repair, maintenance, renovation, alteration or commissioning of -any immovable
property wherein transfer of property in goods (whether as goods or in some
other form) is involved in the execution of such contract
It is clear from the above and also the nature of supplies made to the applicant
that what is received by the applicant is a Works contract Service as the
outcome of the contract is an immovable property,
11.9 In continuation, the argument of the applicant is not on the nature of
service received but on the point that the input tax Credit must not be
disallowed as it is not capitalized as immovable property in the books of
accounts of the applicant.
11.10 The Accounting Concepts prescribe for accounting of expenses and capital
expenses. If the expenses are in the nature of capital expenses and are related
to the fixed assets; then they are capitalized. The definition of construction
only States that it includes re-construction, renovation, additions, alterations
or repairs to the said immovable property and it is only an inclusive definition
and hence construction of an immovable property must be seen in that Context.
Further, merely accounting of an immovable property as a movable property in the
books of accounts of the applicant does not divest the exact nature of the item
and when what is procured is an immovable property, it remains a immovable
property, no matter how the same is accounted.
11.11 Further, the applicant argues what is procured are goods as they can be
moved. It is clear that the input is a Works contract service as admitted by the
applicant himself and is a composite supply involving both goods and services
With the outcome being an immovable property and hence this is not applicable.
11.12 The only argument that needs to be examined is whether these are covered
under plant and machinery as envisaged in Section 17(5) of the CGST Act.
11.13 The Explanation to Section 17 of the CGST Act States as under:
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.
11.14 It is clear that the items are fixed to the earth by foundation or
structural support and are intended to be used for making an outward supply of
provision of rental services and hence are covered under the definition subject
to the exclusions.
11.15 It is pertinent to note that the items do not have independent existence
and are part and parcel of the entire building, a building with infrastructure.
It is also seen from the intend of the applicant what is given on rental is the
Space with all infrastructure and once these immovable properties come into
existence, they get merged into the Common building space with modern
infrastructure and facilities and hence are excluded from the definition of
plant and machinery as applicable to section 17(5) of the CGST Act.
12. In view of the foregoing, we rule as follows
RULING
The question is answered in the negative and input GST credit cannot be availed by the applicant on the inputs i.e. Electrical Works, Pumps; Pumping systems and tanks, Lighting system, Physical security System and Fire System as it is blocked under section 17(5) of the CGST Act 2017 and section 17(5) of the Karnataka Goods and Services Tax Act, 2017, for the reasons explained.
(Dr. Harish Dharnia)
Member
(Dr. M.P. Ravi Prasad)
Member
Place: Bengaluru
Date: 30-09-2019
To,
The Applicant
Copy to:
1. The Principal Chief Commercial
of Central Tax Bengaluru Zone, Karnataka.
2. The Commissioner of Commercial Taxes, Karnataka, Bengalurur.
3. The Commissioner of Central Tax, Bengaluru East Commissionerate
Bengaluru.
4. The Asst. Commissioner, LGSTO-45-A, Bengaluru.
5. Office Folder.
Equivalent .