This article helps to understand the applicability of GST on Cold Storage services, the Definition of Agri Produce as well as ITC claims on Buildings and Plant and Machinery.
Introduction
A cold storage unit that is incorporated into a refrigeration system helps maintain the room environment as desired. Thus, it facilitates the stored commodities. The agriculture cold storage system works on two principles, VAS and VCS, a Vapor Absorption System and a Vapor Compression System.
In simple terms, it is a building or establishment where some products can be kept in a good condition with proper treatment and it helps to keep those products to be safe. So that we all can use it as per our needs in future time. This warehouse looks like any other warehouse but it can be different from the inner side or their environment can be different from others.
A cold storage warehouse works for your products and gives them the right services. It will keep your products at a set temperature as per your choice. And for this, your product keeps fresh and makes it last a long time. A cold storage warehouse design reflects the work. If you keep your product at the right temperature with the proper treatment then it will reduce the chances of damage and extend their lives. And if you store the same products in a warm place then they will perish more faster. So cold storage work efficiency is the best.
Cold storage stores perishable items for a long time. The cold storage saves from running to the market each time. Storing food such as sea foods can spoil, but if it is in the coldest part, it will remain fresh even after a long time. However, it is essential to cover the cooked foods. It is a way of keeping the food fresh, and it retains its taste. There is no other smell transferring nor does this food smell transfer to other food.
ITC of GST on Warehouse Construction Blocked
“Immovable property” is not defined under the GST Act. The term ‘goods’ is defined under Section 2(52) of the GST Act as all kinds of moveable properties other than money and securities but includes actionable claims, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
Property other than goods, money, and securities should, therefore, be considered as ‘immovable property under the GST Act. However, in the absence of a definitive
explanation under the GST Act, recourse is being taken to other allied Acts dealing with “property” to determine the definition of “Immovable property”.
It is seen that Section 3(26) of the General Clauses Act, 1897 defines “Immovable Property” as including land, benefits to arise out of the land, and things attached to the earth, or permanently fastened to anything attached to the earth; Section 3 of the Transfer of Property Act, 1882 simply provides that unless there is something repugnant in the subject or context ‘immovable property does not include standing timber, growing crops or grass. The Section, however, defines the term “attached to the earth” to mean (a) rooted in the earth, as in the case of trees and shrubs, (b) embedded in the earth, as in the case of walls or buildings, and (c) attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached.
The essential character of ‘immovable property, as emerges from the above discussion and is relevant to the present context is that it is attached to the earth, or permanently fastened to anything attached to the earth, or forming part of the land and not agreed to be severed before supply or under a contract of supply.
The warehouse being constructed is immovable property. The Input Tax credit is, therefore, not admissible on the inward supplied for construction of the said warehouse, as the credit of such tax is blocked under section 17(5)(d) of the GST Act.
In this connection, reference may be made to clause 4(v) of Circular No. 58/1/2002-CX dated 15/01/2002, where it is concluded that ‘if items assembled or erected at site and attached by the foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods.” The warehouse cannot be relocated by unfixing the pre-fabricated structures alone. The dismantling of the floor, which is the most important component of the warehouse, is not possible without substantial damage to the foundation.
ITC of GST on Cold Storage Machinery
Applicability of Clauses(c) and (d) of Section 17(5) on Plant and Machinery: The term ‘plant and machinery have been defined in Explanation to Section 17(5) in an exhaustive manner and states that:
The term ‘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
1. Land, building, or any other civil structures;
2. Telecommunication towers, and
3. Pipelines were laid outside the factory premises.
GST law defines ‘plant & machinery’ which means
- Apparatus, equipment, and machinery.
- Fixed to earth by foundation or structural support.
- They are used for making outward supply of goods or services or both and
- Includes such foundation and structural supports.
Section 17(5)(c)/(d) attracted only in case of Immovable Property: On a combined reading of Section 17(5)(c)(d), it can be inferred that clause(c) and (d) of Section 17(5) shall be applicable only in case of the immovable property i.e. if something is movable then blockage of an input tax credit is not attracted under the said clauses and that in case of movable property, the entitlement to input tax credit shall be governed by Section 16(1) of the CGST Act.
As per Section 16 (1), every registered person shall 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. Thus, in the case of movable property, the full input tax credit shall be eligible as per Section 16(1) of the CGST Act.
Section 17(5)(c)(d) not attracted in case of movable plant and machinery: Based on the above discussions, it can be inferred that the blockage of input tax credit under section 17(5)(c)/(d) is not attracted in case of movable plant and machinery.
Section 17(5)(c)(d) not attracted in case of immovable plant and machinery: Further, since clauses (c) and (d) of Section 17(5) specifically exclude immovable plant and machinery from its ambit, the blockage of the input tax credit as envisaged under Section 17(5)(c) and (d) shall not apply in case of immovable plant and machinery. Thus, even if the plant and machinery are immovable, the full input tax credit shall be eligible as per Section 16(1) of the CGST Act.
Definitions of Movable and Immovable Property:
Movable property has not been defined under the GST Act. However, Section 3 (36) of the General Clauses Act, 1837, defines it as: ‘movable property’ shall mean property of every description, except immovable property.’
Similarly, the term ‘immovable property has not been defined under the GST Act. Section 3(26) of General Clauses Act, 1837, defines it as: ‘immovable property’ shall include land, benefits to arise out of the land, and things attached to the earth, or permanently fastened to anything attached to the earth;
Things attached to earth’ is defined under Section 3 of the Transfer of Property Act, 1882: It means-
(a) Rooted in the earth, as in the case of trees and shrubs;
(b) Imbedded in the earth, as in the case of walls or buildings; or
(c) Attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached.
Agricultural Produce
‘Agricultural Produce’ should have three essential elements:
- It must be a product out of cultivation of plant and rearing of all life forms of animals.
- On which no further processing is done or such processing is done as usually done by a cultivator or producer which does not alter its essential characteristics i.e. produce must broadly retain its physical and chemical form/ constitution.
- Most importantly the processing done should be such as is usually done by a cultivator or producer which should only help it to attain marketability at the primary market. The definition limits the scope of processing and allows only those activities which help the product to attain the condition of its first Marketability in the market. After it attains the condition of first marketability the definition restricts all other further processes on the produce for further sale to be termed as “Agricultural Produce’.
Once the products attain their first marketability for the primary market all other subsequent processes on produce leading to value addition and subsequent sale belong to the realm of the secondary market thereon refraining the produce to fall under the category of ‘Agricultural Produce’ as defined.
GST on Cold Storage Leased or Rented for Storage
Under the GST regime using leased premises for cold storage purposes of agricultural produce on leasing charges will be Taxable @ 18%.
GST regime on cold storage leased on rent for storage with or without preservation and maintenance to Private Enterprises will be Taxable @ 18%
GST regime on seeds/agricultural produce for storage or warehousing on behalf of farmers and traders Exempted if the supply of service is for storage or warehousing of agricultural produce as defined in clause 2(d) of Not no 12/2017-CT ® dated 28.06.2017 as amended.
As per Sl. No. 54(e) of the aforesaid notification provides for exemption from GST in respect of the supply of services rendered for storage concerning agricultural produce. It is noticed that the term ‘agricultural produce’ has been defined under clause 2(d) of the Notification ibid. Thus, the supply of service for storage or warehouse of goods is exempted if the same is provided in connection with storage or warehousing of ‘agriculture produce’ as defined in clause 2(d) of Not. No. 12/2017-CT (R) dated 28.06.2017 as amended. We further find that the notification is concerning service supplied and is not person specific. As such, entry No. 54(e) is equally applicable for storage services in respect of agricultural produce of both the farmers and the traders.
Conclusion
In concluding the above Facts, Definition, and notifications it is clear that Cold storage services for Agriculture produced to Farmers or Traders, which are not processed for making it marketable before keeping it in Cold storage are exempted but in this case, No ITC will be available on GST paid on Plant and Machinery.
In the same condition, Cold storage services for Processed Agri products or Non-Agri products will be taxable @ 18% in the hand of the service provider, and in this case, ITC can be claimed on GST paid on Plant and Machinery.
If cold storage is given on Lease or rent then it will be taxable @ 18% in the hand of the service provider and in the same condition ITC will be available on GST paid on plant and machinery.
The above conclusion is the view of the author, which may be very case to case.
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Disclaimer: These are author’s personal views and cannot be construed to be the views of the ICAI. It shall not be used for any legal advice/opinion and shall not be used to render any professional opinion/advice. The information contained in the article is for the purpose of spreading information / knowledge/ awareness and shall not be treated as solicitation in any manner or for any other purpose.
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