In re NMDC Limited (GST AAAR Chhattisgarh)
In the instant case, Structures/towers meant for Lighting for Plant Road, Boundary Wall and Watch tower can in no way be related to the outward supply of goods. As per Section 2(83) of CGST Act, 2017 “outward supply” in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business. Not acceding, but if assuming for the sake of discussion that these are apparatus/ equipment as contended by the Appellant then too it is implausible and far-fetched to imagine that these items which eventually Boundary wall and watchtower, are used for supply the term “used for” in the definition for plant and machinery, there should he a nexus between the impugned items on which ITC is being claimed and `outward supply”. In the present case the project of lighting of plant Road, Boundary wall and watchtower will render such nexus tenuous.
We affirm with the findings by the AAR that “the provisions facilitating availment of Input Tax credit does not extend any blanket or unconditional permission for availment of credit on all items irrespective of its use, place of use and its role in making outward supply of goods or services or both, as appears to have been misconstrued by the applicant. These towers, boundary and watch tower by their very nature appears to be nothing but independent civil structures, having no relationship whatsoever with outward supply”.
Citing reference of the case of Vodafone Mobile Services Limited Vs Commissioner Of Service Tax (Delhi High Court) dated 31.10.2018, the Appellant’s contention was that Credit of taxes paid on telecom towers have been allowed. In this context, it is seen that the case of M/s Vodafone Mobile Services Ltd. and other such providers of Telecommunication service providers are distinct and distinguishable from the facts and circumstances of the case in hand, in as much as in the cited case such towers are being used for providing the “output service”, viz. Telecommunication service, whereas in the instant case there is no nexus between the impugned items required for the said project of lighting of plant Road, Boundary wall and watchtower on which ITC is being claimed and the “outward supply” of the Appellant. In the cited Vodafone case, ‘Capital goods’ are the items under specified Tariff headings or parts, components, spares or accessories thereof and these are ‘Base Transmission System’ (BTS), which enables the telecom company to transmit mobile signals and thereby render telecom services. Appellant have also given reference to other case laws as well all of which in view of the above stated reasons are distinct and and distinguishable from the issue in hand. As already discussed it is of utmost importance for availing credit, that the nexus test gets established. Thus, the cited case laws are not applicable to the instant case.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, CHHATTISGARH
The appellant M/s P.K. Mahapatra, Assistant General Manager (Finance) NMDC Limited, ADMN Building Hilltop Road, Near CSD, P Floor, Bacheli Complex, Dantewada (South Bastar) Chhattisgarh GSTIN 22AAACN7325A1Z5 has filed this appeal u/s 100 of the Chhattisgarh Goods & Services Tax Act, 2017 requesting advance ruling in respect of the following questions:-
1. Whether input tax credit can be availed on design and engineering of lighting for plant road, boundary wall and watchtower?
2. Whether input tax credit can be availed on supply of plant and equipment for lighting of plant road, boundary wall and watchtower?
3. Whether input tax credit can be availed on Erection of plant and equipment for lighting of plant road, boundary wall and watchtower?
2. Facts of the case:-
I. The Appellant NMDC Limited holding GSTIN 22AAACN7325A3Z3 is a state-controlled mineral producer of the Government of India. It is owned by the Government of India and is under administrative control of the Ministry of Steel. It is India’s largest iron ore producer and exporter producing about 30 millions of tons of iron ore from 3 fully mechanized mines in Chhattisgarh.
NMDC, as part of its diversification, value addition and forward integration programme is setting up a 3 MTPA capacity Greenfield Integrated Steel Plant based on HiSmelt technology in Nagarnar, located 16 km from Jagdalpur in the State of Chhattisgarh with an estimated outlay of Rs. 20,000 Crore. NMDC has entered into a contract agreement with M/s Bajaj Electricals Limited for lighting of plant road, boundary and watchtower. It includes various inputs and input services like design and engineering supply of plant and equipment and erection of such plant and equipment including steel, lighting tubular poles, fittings, aviation lamps, switchbox, pipes, for laying the cables.
To serve the said plant and enable NMDC for round the clock manufacturing operations, lighting is indispensible and in this regard NMDC has awarded the project of lighting of plant road, boundary, and watchtower (Package 33) to M/s Balaji Electricals Limited.
II. M/s NMDC had applied for advance ruling before the AAR, Chhattisgarh on the following issues:
Eligibility to take credit of taxes paid on the following:
(i) Design and engineering of lighting for plant, road,, boundary wall and watchtower.
(ii) Supply of plant and equipment for lighting of plant road, boundary wall and watchtower.
(iii) Erection of plant and equipment for lighting of plant road, boundary wall and watchtower.
On all of the above questions, the AAR has ruled that “the applicant is not entitled for input tax credit on the inward supplies for the said activities of design & engineering, supply of plant and equipment and erection of plant and equipment for lighting of plant road, boundary and watchtower in view of exclusions stipulated under section 17(5) of the CGST Act, 2017.”
III. The Appellant preferred an appeal on all of the above question as mentioned in para(11) before the Appellate Authority for Advance Ruling in Chhattisgarh, Atal Nagar, Raipur(C.G).
3. Contention of the Appellant:
a) The Appellant prays that the following questions have to be addressed by the Hon’ble Appellate Authority for Advance Ruling (hereinafter ‘AAAR’):-
1. Whether the impugned order is right in holding that the items in question merit treatment as a civil structure/immovable property and not as “plant and machinery”?
2. Whether the impugned order fails to appreciate the expression “plant and machinery” in the explanation in section 17 of the CGST Act, 2017 without considering the meaning of ‘equipment’, ‘apparatus’ and ‘machinery’ mentioned therein?
3. Whether Flood Light Fittings, Transformers and other electrical appliances shall be regarded as ‘plant & machinery’ as they meet the test of apparatus, equipment or machinery?
4. If so, the tubular poles, lamp post and the foundation required to host the above will be regarded as ‘foundation or structural support of plant and machinery’ and falls in the inclusive part of the definition and eligible for input credit?
5. Whether the AAR erred in relying on the Bombay High Court’s decision in Bharti Airtel case and refused to follow the decision of the Delhi High Court in the Vodafone case cited by the Appellant when the correctness of the former decision was doubted by the Delhi High Court in the latter case?
6. Whether the impugned order fails to appreciate the scope of section 16 of the CGST Act, 2017, which allows credit of taxes on supply of goods or services or both used or intended in the course or furtherance of one’s business?
b) That, the impugned order concludes that the items in question are nothing but immovable property and cannot be considered as goods in any way for the simple reason that these are attached to earth. The impugned order also places on the definitions of the term “immovable property” under General Clauses Act, 1897 and section 3 of the Transfer of Property Act, 1882 to explain the term “immovable property”. Certain case laws also were relied upon by the Authority in support of its conclusion.
c) That, on bare perusal of section 17(5)(c) and (d) of the CGST Act, 2017, it is understandable that the test of movability/immovability is immaterial to determine the eligibility of credit once the items in question qualify as “plant and machinery”. Once the items in question qualify as “plant and machinery”, they stand excluded from the meaning of “immovable property”. As a matter of fact, under the CGST Act, 2017, even if the items in question are attached to earth, they will qualify as “plant and machinery”. The relevant extracts of the section 17(5)(c) and section 17(5)(d) are extracted herewith for ease of reference:-
17. (1) …………….
(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:-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 capitalization, 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.
d) From the above, it is pertinent to test whether the impugned works are regarded as ‘plant & machinery’ or foundation or structural support of plant and machinery and does not fall in any of the 3 exclusions given in the Explanation.
e) That, it can be observed from the AAR, the order has not examined the meaning of ‘plant and machinery’ as provided in the Explanation but confined to examining if it is movable or immovable property. It is submitted that even any immoveable property, once qualifies as ‘plant & machinery’, they stand excluded from the restriction and the credit is eligible not only for plant and machinery but includes their foundation and supporting structures.
f) That, it is evident from para 5.14 of the impugned order, the scope of work under the agreement dated 10.03.2017 with M/s. Bajaj Electricals Ltd. is completely misunderstood and mis-appreciated by the AAR. The Appellant submits the observations of the AAR in the impugned order are incorrect for the following reasons:-
It is settled law that clauses in the agreement should be read as a whole and not in isolation to understand the tenor and intention of the contracting parties.
The civil work in the contract is to provide to foundation and structural support to the structures and equipment in question and nothing more. The foundation and structural support is given to the lighting equipment in order to ensure their stability and wobble-free operation. In fact, the explanation in section 17 of the CGST Act, 2017 defines ‘plant and machinery’ to include structural support and foundation thereof.
– On a perusal of the contract in its entirety, it is evident that only an insignificant portion of the contract price is paid towards erection of plant and equipment. Therefore, the fact that there is erection work, (which is insignificant to ensure the operation of the structures in question) should be no reason to deny the benefit of the input tax credit to the Appellant.
– The price adjustment clause (Appendix 4 to the Contract) is also misunderstood by the Authority. Reference to building steel structurers and sheeting would not necessarily imply supply of building steel structurers as part of the Appellant’s contract. As is evident from the billing schedule, there is no supply of building steel structures by the contractor.
– Also, there is no construction of boundary walls/watch tower by the contractor, as understood by the Authority. The contractor’s role is limited to supply of lighting system to the plant road, watchtower and the boundary walls.
g) That, under section 17 of the CGST Act, 2017, the expression “plant and machinery” is defined as apparatus, equipment and machinery fixed to earth by foundation or structural support used for making outward supply of goods or services or both and includes such foundation and structural support.
h) That, the lighting system works are used for illuminating the plant area, lighting arterial roads, boundary wall and watch tower which are essential to carry the manufacturing operations as the steel plant it is a continuous process plant which will run round the clock.
i) The Appellant submits that they are entitled to input credit for the following asons:
a. Flood Light Fittings, Transformers and other electrical appliances shall be regarded as ‘plant & machinery’ as they meet the test of apparatus, equipment or machinery.
b. The expression ‘plant and machinery’ also includes mechanical items. The flood light fittings, transformers and other electrical appliances can be regarded as ‘apparatus’ or ‘equipment” machinery. As they do not fall in the exclusion clause, credit shall be eligible.
c. It is submitted that the restriction is limited only to buildings and civil structures.
d. The tubular poles, lamp post and foundation required to host the above mentioned can be regarded as supporting structures and foundation of plant and machinery.
j) That, the term “plant”, the Supreme Court in Scientific Engineering House Private Limited v. Commissioner of Income Tax, AP, 2002-TIOL-665-SC-IT, observed as below:-
“In other words, plant would include any article or object fixed or movable, live or dead, used by a 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. [1960] 39 ITR 357 (HL), knives and lasts having an average life of three years used in manufacturing shoes were held to be plant. IN CIT v. TajMahal Hotel [1971] 82 ITR 44 (SC) = 2002-TIOL-642-SC-IT, 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 pipeline fittings installed fell within the definition of plant given in section 10(5) of the 1922 Act which was similar to the definition given in section 43(3) of the 1961 Act and this court after approving the definition of plant given by Lindley L.J. in Yarmouth v. France [1887] 19 QBD 647, as expounded in Jarrold v. John Good and Sons Ltd. [1962] 40 TC 681 (CA), held that sanitary and pipeline fittings fell within the definition of plant.”
k) That, relying on the above definition of the Apex Court, the Gujarat High Court in Pipavav Defense and Offshore Engineering Company ltd [2017-TIOL-1018-HC HM-VAT] observed as below:-
”26. The word “plant’, though an ordinary English word, is not altogether an easy word to construe. It may have a more or less extensive meaning according to its context. It has come up for interpretation before various courts on numerous occasions in the context of different statutes and the catena of judicial decisions shows that it is a word of wide and varied import susceptible of diverse meanings depending upon its setting in the scheme of the statute. Almost all cases bearing upon the interpretation of the word “plant” decided in England and in this country were cited before us and the following enumeration would show as to what an amazing variety of articles, objects or things have been held to be plant or not plant.
PLANT
(i) Horse, Yarmouth v. France; (ii) knives and lasts used in manufacture of shoes, Hinton v. Maden & lreland Ltd.; (iii) aircraft engine which was being dismantled, Watts v. Enfield Rolling Mills (Aluminium) Ltd.; (iv) moveable office partitions, Jarrold v. John Good & Sons Ltd.; (v) concrete dry dock, Inland Revenue Commissioner v. Barclay, Curie& Co. Ltd.; (vi) electircal fans and other office appliances, Sundaram Motors Pvt. v. Commissioner of Income tax; (vii) poles, cables conductors and switch boards for distribution of electricity, Commissioner of Income tax v. Indian Turpentine and Rosin Co. Ltd.; (viii) light fittings, ceiling and pedestal fans and water pipe fittings in a hotel, Commissioner of Income tax v. Jagadees chandran & Co.; (ix) sanitary and pipeline fittings in a hotel, Commissioner of Income tax v. Taj Mahal Hotel.”
l) That, the common definition of the term “equipment” is “a set of equipment or tools or a machine that is used for a particular purpose”. The Appellant would also like to cite meaning of the above term from different dictionaries as under:
“Apparatus – It is a collection or set of materials, instruments, appliances or machinery designed for a particular use (May. Web.Dic). A compound instrument designed to carry out a specific function. (McGraw Hill Dic. of Sc. & Tech. Terms).”
m) The Appellant further wishes to quote further on the meaning of apparatus from the Webster’s Encyclopedic Unabridged Dictionary of the English Language which reads as under :-
“a group or aggregate of instruments, machinery, tools, materials etc., having a particular function or intended for a specific use. 2. any complex instrument or machine for a particular purpose. 3. any system or systematic organization of activities, functions, processes, etc., directed toward a specific goal; the apparatus-of government; espionage apparatus. 4. Physiol, a group of structurally different organs working together in the performance of a particular function: the digestive apparatus.”
n) The Appellant also wishes to rely on the definition cited in various case laws. As per the P RamanathaAiyar’s Legal Lexicon:
“The word apparatus would certainly mean the compound instrument or chain of series if instruments designed to carry out specific function or for a particular use (Commer. Of Customs v. C-NET Communication (1) (P) Ltd., (2007) 12 SCC 72, 82-83, para 36).
Apparatus is a compound instrument designed to carry out a specific function or for a particular use. LC.l3. (P) Ltd. v. CCE, 1997 (95) ELT 239 (T).
o) The Appellant encloses herewith the interpretation of the expression ‘apparatus’, ‘equipment’ , ‘machinery’ given as a compendium in various dictionaries. In terms of the above definition, it is dear that the railway siding in question having a particular function or intended for a specific use of transport of materials can get rightly covered under the definition of “plant and machinery”.
p) That, lighting of plant road comprises of equipment like street poles, fittings, aviation lamps, switch box, pipes for laying the cables. Therefore, lighting of plant road, boundary & watchtower will qualify as an apparatus or an equipment.
q) That, In terms of the above definition, it is clear that lighting of plant road & watch tower is a group of instruments, tools, materials etc., having a particular function or intended for a specific use for lighting at the Plant. Therefore, the same rightly gets covered under the definition of plant and machinery.
r) That, the items in question definitely do not qualify as land/building. The exclusion is for land, building or any other civil structure. Applying the principle of ejusdem generis, it needs to be understood that the phrase “any other civil structures” has to be read in conjunction with land and building. Any civil structure in the nature of land and building will ordinarily be a place from where the business is being carried on and not a structure used in the process of manufacture or forming part of factory premise for making inward and outward supply of goods/services. Therefore, it can be safely inferred that facilities in question used will not be a civil structure and falls within the definition of plant and machinery.
s) That, the Appellant also relied on the following case laws:-
Steel Authority of India Ltd vs. CCE & ST Raipur, (2016 (343) E.L.T. 805 (Tri. el.)] (paras 3 and 6): The Hon’ble CESTAT Delhi allowed credit of taxes paid on ght fittings/structurers, lamps, high mast light, tubes/glasses and allied fixtures as they necessary for illumination and enable round the clock operation of the assessee’s factory. According to the Tribunal, since the light structures are classifiable under chapters 84, 85 and 9405 of the Central Excise Tariff, the fact that these fixtures become part of the civil structure/immovable property %vas no basis to deny credit of taxes paid.
– CCE v. India Cement, (2017) (3) G.S.T.L 144 (Tri-Hyderabad) (paras 2 and 4): The CESTAT allowed credit of taxes paid on lighting works as they are related to the business of manufacture.
– In Commissioner of Central Excise v. Jawahar Mills Limited, 2001 (132) EL.T 3, the Supreme Court, having regard to the normal conditions prevailing in the industry, held capacitors, control panels, cables distribution boards, switches and starters and air compressors would qualify as capital goods under rule 57Q of the erstwhile Central Excise Rules, 1944. The Apex Court held the ‘capital goods’ can be machines, machinery, plant, equipment, apparatus, tools or appliances and any of these used in the factory for manufacture shall be eligible for credit.
– In Commissioner of Central Excise, Tiruchirapalli v. Maris Spinners Limited, 2008 (223) E.L.T 163 (Mad.), following the decision of the Apex Court in Jawahar Mills (cited supra) the Madras High Court allowed credit of taxes paid on light fittings and parts thereof.
– GST Advance Ruling in the case of Nipro Corporation Private Limited by the Maharashtra Advance Ruling Authority where credit of taxes paid on ‘electrical works’ was allowed to the assessee.
t) That, the Appellant also stated that as per Section 17 of Factories Act, 1948, In every part of a factory where workers are working or passing there shall be provided and maintained sufficient and suitable lighting, natural or artificial, or both. Therefore, it is mandatory for the Appellant to have proper lighting in terms of Factories Act for round the clock working specially for night shift.
u) That, without any reference to the decision of the Delhi High Court in Vodafone Mobile Services Limited v. Commissioner of Service Tax, Delhi, CEAC 12/2016 dated 31.10.2018, the reliance on the decision of the Bombay High Court in the artiAirtel (case), is completely erroneous and misplaced:-
v) In the Vodafone Mobile Services Limited Case, the Hon’ble Delhi High Court had expressly recorded its dissent with the decision of the Bombay High Court in the BhartiAirtel case and held the credit of taxes paid of telecom towers is eligible. According to the Delhi High Court, the Bombay High Court’s decision in the BhartiAirtel case goes against the law laid down by the Apex Court in Commissioner of Central Excise v. Solid and Correct Engineering Ruling, 2010 (5) SCC 122. The relevant extracts of the decision are as under:-
“This court is of the opinion, with due respect to the Bombay High Court that those two judgments are contrary to settled judicial precedents, including the later view of the Supreme Court in Solid and Correct Engineering (supra).”
w) That, the Hon’ble AAR ignored the reliance placed by the Appellant on the case of M/s Vodafone Mobile Services Ltd during the course of the hearing and placed reliance on the case of M/s BhartiAirtel Limited in support of its conclusion. The Appellant submits that the principle debated in both the above matters was the same but the AAR has rejected the contention on the Appellant on one hand while relying on a similar issue to support their stand.
x) That, the Delhi High Court had allowed credit of taxes paid on telecom towers holding the same to be essential for provision of telecommunication service. Likewise, when illumination is required and essential for the round the clock operation of the plant, credit of taxes paid thereon should be allowed by this Authority.
y) That, the AAR also relied on the decision of the Supreme Court in Triveni Engineering Ltd. v. Commissioner of Central Excise, 2000 (120) ELT 273 (SC) to support its conclusion that if anything is attached to earth, both the factum as well as the intention of fastening has to be ascertained from the facts and circumstances of the each case.
z) That, it is submitted that any reliance on the decision in Triveni Engineering is incorrect for several reasons. The decision in Triveni Engineering was rendered in the context of central excise law, where the movability or otherwise of the items in question was integral to determine the accessibility of goods. In Triveni Engineering, items in question (steam turbine and alternate Or) were erected on a platform specifically constructed for the purpose which made the machine immovable. Under GST law, the test of movability/immovability is irrelevant and the explanation in section 17 of the CGST Act, 2017 clearly permits and does not bar -plant and machinery” to be attached to earth by foundation or structural support.
aa) That, reference is also made by the impugned order to CBIC Circular No. 58/1/2002-CX dated 15.01.2002 to state that if items assembled or erected at site -and attached by foundation to earth cannot be dismantled without substantial damage to its components, then the items cannot be considered as moveable and will, therefore, not be goods.
ab)Thc Appellant reiterated that the test of immovability/movability is irrelevant under the GST law and that under the GST law, the explanation in section 17 of the CGST Act, 2017 clearly allows items to be assembled to earth by foundation/structural support
ac) That, the AAR observed that lighting of plant road/towers cannot he treated as plant and machinery by any stretch of imagination in as much as plant and machinery used for making outward supplies and rather merit treatment as civil structure having no relationship with outward supply. It is also observed that provisions facilitating availment of input tax credit do not extend any blanket or unconditional permission for availment of credit and all items irrespective of its use, place of use and its role in making the outward supply.
ad) That, the conclusions of the AAR is also flawed for the reason section 16 of the CGS’Is Act, 2017 for the following reasons:-
– Section 16 of the CGST Act, 2017 allows credit inputs/inputs services used or intended to be used in the course of furtherance of one’s business, unless restricted by section 17 of the CGST Act, 2017.
– Since the inputs/services in question are necessary for illumination of the plant and enable round the clock manufacturing operations, the goods and services in question should be construed to be used in the course or furtherance of business and used for making outward supply.
– It is to be kept in mind that the words used in the explanation are “used for making outward supply” and not “directly used in making outward supply”. Any input/input service, even if remotely essential, should be considered as eligible for credit.
Also, unlike under the pre-GST law, inputs/input services were to be used in or n relation to the manufacture” or “in the factory by the manufacturer”, section 16 of the CGST Act, 2017 allows credit of taxes paid on inputs/input services used or intended to be used in the course of furtherance of business.’ The said expression is of the widest possible import and is in keeping with the spirit of the GST law to allow seamless flow of credit.
ae) The Appellant relied upon the following case laws. although under the erstwhile indirect tax regime to support their submissions:-
