In re Western Concessions Private Limited (GST AAAR Maharashtra)
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. As a result of this, the tie-in pipeline under question will not be construed as plant and machinery, and hence the Appellant will not be 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.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, MAHARASHTRA
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST 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 MGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by Western Concessions Private Limited(herein after referred to as the “Appellant”) against the Advance Ruling No. GST-ARA-94/2018-19/B-22 dated 22.02.2019.
Brief Facts of the Case
A. M/s. Western Concessions Private Limited (hereinafter referred to as “the appellants”) having its corporate head office at 12th Floor, Knowledge Park, Hiranandani Business Park, Powai, Mumbai, is, inter-alia, engaged in regasification of Liquified Natural Gas and delivering the same to customers.
B. The appellants have obtained registration and holding valid registration certificate issued under Central Goods and Services Tax Act, 2017 (“CGST Act“).
C. The appellants are setting up a Liquified Natural Gas (LNG) re-gasification project at Jaigarh port in the state of Maharashtra (hereinafter referred to as “LNG Terminal”).
D. The LNG Terminal consists of a Floating Storage Re-gasification Unit (‘FSRU’) with 4 MMTPA re-gasification capacity moored to jetty and has associated facilities like gas unloading arm, gas pipeline for delivering natural gas from the FSRU to the National Grid.
E. The re-gasified LNG is required to be inducted into the cross-country pipeline/national Grid in order to be supplied to the ultimate customer.
F. Therefore, the appellants is constructing a gas pipeline for delivering the high pressure natural gas from the FSRU to the National Grid.
G. The Development of the project consists of two legs as mentioned below:-
i. Setting up of infrastructure facility, i.e., jetty, onshore receiving facility close to the jetty, etc. for enabling FSRU to re-gasify the LNG; and
ii. Connecting the Terminal with the cross-country gas pipeline to enable supply of re-gasified natural gas to customer (referred to as the “Tie in Pipeline”).
H. The re-gasified LNG is of no use unless the appellants are able to supply the gas to its customers. Given the nature of the commodity, i.e., high pressure natural gas, pipeline is the only technically viable and safe method of supply.
I. The Tie-in pipeline is, therefore, not constructed to provide gas transportation service to the customers, but it connects the gas terminal to cross-country pipeline to enable further distribution of gas to the customers.
J. The Tie-in pipeline would be laid under the ground and the length of the pipeline would be approximately 60 KMs. The sample photographs of FSRU and the pipeline to be constructed from FSRU to the grid are enclosed in the appeal paper-book. Further, the approval obtained by the appellants from various authorities such as Ministry of Environment and Forest, Maharashtra Pollution Control Board, Petroleum and Natural Gas Regulatory Board, etc. are collectively enclosed.
K. Section 16 of the CGST Act deals with the eligibility of taking input tax credit (‘ITC’) and the conditions to be fulfilled by the registered person. Section 16(1), inter olio, states that a registered person shall be entitled to take ITC on goods and services used or intended to be used in the course or furtherance of his business. Section 16(1) is reproduced hereunder for ready reference:
“16. (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.”
……….emphasis supplied
L. Further, Section 17(5) of the CGST Act provides that in certain cases, input tax credit will not be available even if the goods or services are used in the course or furtherance of business. The relevant portion of section 17(5) is extracted as under:
“(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-
………..
(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 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
M. Thus, the restriction on availment of ITC under Section 17(5)(c) and 17(5)(d) is not applicable in case where the goods or services are used for construction of Plant and Machinery. However, as per the explanation to Section 17, Plant and Machinery does not includes a pipeline laid outside the factory premises.
N. The appellants’ key activity is re-gasification of LNG, which inter alia includes delivery in a form and manner which is consumable, usable and saleable. Hence, the provision of the gas to the nearest practical delivery point i.e. national grid, is an integral and essential part of the economic activity being carried out by the appellants.
O. Therefore, the Tie-in pipeline connecting the LNG terminal to the National Grid, which is immovable in nature, forms Plant and Machinery for the querist. Further, the re-gasification activity would be undertaken by the appellants at the FSRU, which is not a factory per se.
Application for Advance Ruling
P. The appellants filed an application for Advance Ruling before the Learned Authority for Advance Ruling, Maharashtra (hereinafter referred to as “Ld. AAR”) for obtaining an Advance Ruling on the issue as to whether the appellants would be eligible 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.
Advance Ruling passed by Ld. AAR, Maharashtra
Q. The Ld. AAR, considered the application filed by the appellants and passed Advance Ruling No. GST-AAR-94/2018-19/B-22 dated 22.2.2019 denying the ITC of GST paid on goods and services used for construction of the tie-in pipeline and held as follows,-
i. Since the term ‘factory’ is not defined under the CGST Act, a definition given in another statute can always be relied upon. As per the Ld. AAR, the FSRU is covered under the definition of ‘factory’ under Section of 2(m) of the Factories Act, 1948.
ii. According to the Ld. AAR, the existence of land or building is not necessary for anything to qualify as ‘factory’, but it is the manufacturing or production of something that makes a ‘factory’.
iii. The Ld. AAR has relied on the decision of Porritts and Spencer (Asia) Ltd. Vs. State of Haryana [1979 AIR 300] to state that the meaning of ‘factory’ should not be restricted only to a building on land, but would also include the FSRU vessel where the activity of re-gasification of LNG takes place in the present case.
iv. The various equipment fitted to tie-in pipeline constructed by appellants would not make it an ‘apparatus’, ‘equipment’ or ‘machinery’, as every pipeline would be fitted with such equipment. Hence, it would not qualify as ‘plant and machinery’ under Explanation to Section 17(5) of the CGST Act and thus the ITC in respect of goods and services used for construction of pipeline would not be available to the appellants.
R. Aggrieved by the above ruling passed by the Ld. AAR, the appellants are filing the present appeal, inter alia, on the following grounds which are without prejudice to each other.
GROUNDS OF APPEAL
1. The tie-in pipeline constructed by the appellants would qualify as ‘plant and machinery”. Further, since the pipeline is not laid outside a ‘factory premises’, it would not be covered under the exclusion clause of explanation to section 17(5). Thus, the restriction provided under Section 17(5)(c) and 17(5)(d) would not be attracted.
1.1 Section 16 of the CGST Act deals with the eligibility of taking ITC and the conditions to be fulfilled by the registered person. Section 16(1) inter alia states that a registered person shall be entitled to take ITC on goods and services used or intended to be used in the course or furtherance of his business.
1.2 Section 17(5) of the CGST Act provides that in certain cases, input tax credit will not be available even if the goods or services are used in the course or furtherance of business.
1.3. Clause (c) of section 17(5) restricts availability of ITC in respect of works contract service used for construction of immovable property, except in case where it is an input service for further supply of works contract service. Clause (d) of Section 17(5) bars ITC in respect of goods or service used for construction of immovable property on assessee’s own account.
1.4. However, the above restriction on availment of input tax credit will not apply if the immovable property constructed is plant and machinery. The term “plant and machinery” is defined in the explanation to section 17 as apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply but, inter olio, excludes pipelines laid outside the factory premises. The relevant portion of section 17(5) is extracted as under:
“(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-
…………………
(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 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
1.5. Since, the pipeline in the present case is embedded in the earth, it would qualify as an immovable property and thus the construction of said pipeline amounts to a Works contract under Section 2(119) of the CGST Act. Further, for the reason mentioned in the foregoing paragraphs of this appeal, the tie-in pipeline qualifies to be a “plant and machinery” as per explanation to section 17 of the CGST Act.
1.6. Further, since the FSRU which is a vessel would not amount to a ‘factory premise’, the tie-in pipeline connecting the FSRU to the grid would not be covered under the exclusion clause of the aforesaid explanation.
1.7. Thus, the appellants submit that the restriction provided under Section 17(5)(c) and 17(5)(d) would not be attracted in respect of construction of the said pipeline. Hence the impugned ruling is liable to be set aside on this ground alone.
2. The wordings used in the Explanation Clause should be strictly interpreted. The exclusion clause of Explanation to Section 17(5) of the CGST Act presupposes that there should be a factory premises, and in order to be excluded from the definition of plant and machinery, the pipeline should be laid outside such factory premises. In absence of factory premise, the exclusion clause would not be applicable.
2.1 The appellants submit that while construing the aforesaid explanation to Section 17(5), Rule of Strict Interpretation should be applied. The appellants submit that the one of the principle objectives of implementation of the CGST Act was to allow seamless flow of Tax-credit to an assessee at each level of value addition and to avoid to blockage of the credit chain. Hence, the Rule of strict construction of statue would apply with great force to the GST legislation, especially to a provision which restricts the availability of ITC in the hands of the supplier.
2.2 The appellants submit that it is a settled law that a taxing statute has to be strictly construed and no additional meaning shall be given to the plain wordings used by the legislation. Reliance is placed on the decision of Supreme Court in case of Sales Tax Commissioner v. Modi Sugar Mills reported at AIR 1961 SC 1047 wherein the Supreme court observed as under-
“In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions’. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed it Cannot imply anything which is not expressed it cannot import provisions in the statutes so as to supply any assumed deficiency.”
2.3 Similar view was given in the decision of Supreme Court in case of A.V. Fernandez v. State of Kerala reported at AIR 1957 SC 657. The relevant portion of the said judgment is extracted as under –
“….It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter…”
2.4 Thus, the appellants submit that the exclusion clause ‘pipelines laid outside the factory premises’ has to be strictly interpreted. The aforesaid exclusion clause presupposes that there should be a ‘factory premises’, and in order to be excluded from the definition of plant and machinery, the pipeline should be laid outside such ‘factory premises’.
2.5 The contra positive of ‘pipelines laid outside factory premises’ is not that only pipelines laid inside a factory would be covered under ‘plant and machinery’ and eligible for availing ITC. The exclusion provided to ‘pipelines laid outside factory’ only means that if there is a factory premises, then the pipelines laid outside such factory premises would not be a ‘plant and machinery’. In case, where there is no factory premise, the exclusion clause (iii) of Explanation to Section 17(5) would not come into play, and in that case the pipeline would be covered under ‘plant and machinery’.
2.6 The words ‘factory’ or ‘premises’ is not defined under the CGST Act. Therefore, it is pertinent to refer to some dictionary meaning of the term ‘factory’ and ‘premises’ which are extracted as under –
Dictionary of the term “Factory”
(i) Oxford Encyclopedic Dictionary (The new Oxford Illustrated Dictionary)
Building or range of buildings with plant for manufacture of goods.
(ii) Collins internet-linked dictionary of Business – Third edition
A business premise used by a firm in the production of goods.
(iii) The New International Webster’s Comprehensive Dictionary of the English Language
pl. An establishment devoted to the manufacture of something, including the building or buildings and machinery necessary to such manufacture; a manufactory.
(iv) Cambridge International Dictionary of English
A building or set of building where large amounts of goods are made using machines.
Dictionary meaning of terms ‘premises’ –
(i) Illustrated Oxford Dictionary
2. (in pl.) a House, building, with grounds and appurtenances.
(ii) The New International Webster’s Comprehensive Dictionary of the English Language
4. pl. A distinct portion of real estate; land or lands; land with its appurtenances, as buildings:
(iii) The Chambers Dictionary
(in pl) the aforesaid (property; law); hence, a building and its adjuncts, esp. a public house or place of business;
(iv) Black’s Law Dictionary, V Edition
Premises.
In estate and property. Land and tenements; an estate, including land and buildings thereon; the subject-matter of the conveyance. F.F. Proctor Troy Properties Co. v. Dugan Store, 191 App.Div.685, 181 NYS 786. The area of land surrounding a house, and actually or by legal construction forming one enclosure with it. A distinct and definite locality and may mean a room, especially building or other definite area, or a distinct portion of real estate. Land and its appurtenances.
(V) Cambridge International Dictionary of English
(in pl) the land and building owned by someone, esp. by a company or organization.
(vi) The American Heritage Dictionary of English Language, III Edition
4. premises, a. Land and the building on it. b. A building or a part of building on it.
(vii) Wharton’s Law Lexicon, 1976 Reprint Ed
‘premises’ is often used as meaning ‘land or houses’.
(viii) Cochran’s Law Lexicon, IV Edition
‘Premises’ means ‘houses or lands’.
(ix) Earl Jowitt, Dictionary of English Law
‘Premises…from this use of the word, ‘premises’ has gradually acquired popular sense of land or buildings. Originally, it was only used in this sense by laymen, and it was never so used in well- drawn instruments, but it is now frequently found in instruments and in Acts of Parliament as meaning land or houses, e.g., the Public Health Act, 1875. Sec. 4, where ‘premises’ includes measures, buildings, lands, easements, tenements and hereditaments, of any tenure…
(x) Ballentine, J.A., Law Dictionary with Pronunciation, II Edition
‘Premises’ – as applied to land, Webster’s New International Dictionary defines the word as follows: The property conveyed in a deed; hence, in general, a piece of land or real estate; sometimes, especially in fire insurance papers, a building or buildings on land; the premises insured.
2.7 On perusal of the aforesaid dictionary meanings, a Factory would mean any building or other place where goods are manufactured with machines. Further, the perusal of the dictionary meaning of the term “premises” shows that premises means land, house or building and any land surrounding such house or building.
2.8 Therefore, a conjoint reading of the term “factory” and “premises” makes it abundantly clear that the phrase ‘factory premises’ used in clause (iii) of explanation to Section 17(5) can only mean a factory building located on land. The said phrase has to be strictly interpreted by giving it the general meaning and cannot be stretched to cover FSRU, which is a vessel capable of navigating in oceanic waters.
2.9 The Ld. AAR, in the impugned ruling, has held that the a ‘pipeline outside the factory’ means a pipeline used to transport some product from factory to end user and hence the tie-in pipeline which is outside the FSRU i.e. a ‘factory’, would be covered by the said exclusion clause.
2.10 The appellants submit that the aforesaid finding of the Ld. AAR is not correct as the Ld. AAR has stretched the meaning of the exclusion clause to cover FSRU which is a vessel, within the meaning of a factory. The appellants place reliance on the decision of Tribunal in case of Sri Chaitanya Educational Committee Vs. C.C., C. E. & S.T., Guntur reported at 2016 (41) S.T.R. 241 (Tri. – Bang.). In the said case, while interpreting the definition of Commercial Training or Coaching Centre” under Section 65(27) of Finance Act, 1994, the Tribunal held that the exclusion clause of a definition must be strictly interpreted and the exclusion clause cannot be stretched to give a wider meaning. The relevant portion of the said decision is extracted as under-
“80. The definition of “Commercial Training or Coaching Centre” have both inclusive and exclusive part, i.e., it may include certain things and exclude others. The word “any”, e.g., institute or establishment providing Commercial Training or Coaching in the main part of the definition, is a word having very wide meaning. It is noted that the definition also categorically includes “coaching or tutorial classes”. The word “includes” in the definition makes it clear that the intention was to make it more extensive. In this perspective, the exclusion part of the definition suggests a very limited purpose to “pre-school coaching and training centre” and any institute or establishment, which issues any certificate or diploma recognized by law. The “coaching or tutorial classes” mentioned in the inclusive part of the definition and it cannot be covered in the exclusive portion of the definition. While interpreting the definition of “Commercial Training or Coaching Centre”, the exclusion part must be strictly construed, what is being included in the definition cannot be excluded, unless it is specifically mentioned.
In the present case, according to the appellant, they were offering coaching classes to the students of intermediate standard of their colleges and other colleges for appearing joint entrance examination of IIT, JEE, etc. In my considered view, when “coaching classes” have categorically included in the definition, then, it cannot be excluded by stretching the meaning of exclusion clause of the definition.”
………… emphasis supplied
2.11 In view of the above, the appellants submit that the wording used in exclusion clause of explanation to Section 17(5) must be strictly interpreted. Hence, in absence of a ‘factory premise’, the ITC on goods and services used for construction of the tie-in pipeline would be available to the appellants.
2.12 Thus, the impugned ruling given by the Ld. AAR is liable to be set aside.
3. The FSRU does not qualify as a ‘factory premises’. In absence of a specific definition of the term ‘factory’ under the CGST Act, the definition of factory as given under Factories Act 1948 cannot be relied upon.
3.1 The restriction on availment of input tax credit will not apply if the immovable property constructed amounts to ‘plant and machinery’ as defined under explanation to section 17(5). The following two conditions have to be fulfilled for the Tie-in pipeline to be regarded as plant and machinery in terms of explanation to Section 17 of CGST Act:-
