To claim ITC section 16(1) of CGST Act, 2017 need to apply. if it is eligible under this section than we will see what is prohibited any where else .
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.
2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
(b) he has received the goods or services or both.
Explanation.—For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
In above case all requirement have been fulfilled.
Section 17(5)(d) is whether an activity of fixing the detachable wooden Floors and sliding and stackable glass partitions qualifies as ‘construction of an immovable property’ or not. The normal understanding of the term ‘construction’ is to ‘make or build’ something. For the purpose of Section 17(5)(d), the term ‘construction’ has been defined to include ‘re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.’ In the Appellant’s case, as per the above said explanation, the addition of glass partitions qualifies as ‘construction’. This construction is done by the Appellant on his own account. What remains to be determined is whether the fixing of glass partitions amounts to construction of ‘immovable property’?
This was decided in case M/s WEWORK INDIA MANAGEMENT PRIVATE LIMITED Appeal filed Appellate Authority of Karnataka against the advance ruling .
Fact of the Case ;
1. The Appellant 1s a private limited company engaged in providing shared workspace/Office Space to the freelancers, start-ups, small businesses and l The Appellant provides a “space-as-a-service” membership model wherein it offers individuals and organizations the flexibility to scale work space up and down a sneeded, with the ability to consume space by the minute, by the month or by the year. The Appellant business model offers their members, 24/7 access to their locations, beautifully designed workspaces, flexible workspace configurations as needed, a common set of amenities, on-site community teams, a growing number of value- added products and services and a member experience powered by technology.
2. The Appellant procures goods and services from various contractors for fitting-out of the workspaces and provides the said workspace on rent, to various companies and individuals as sharing work-spaces. The Appellant has paid applicable GST on such Section 16(1) of the 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. 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. The two major components which are in the nature of furniture and fixtures, that are used in the Appellant’s buildings are-
3. The Appellant sought an advance ruling in respect of the following question:
a) Whether input GST credit can be availed by the applicant on the detachable J4mm Engineered Wood with Oak top Wooden Flooring which is movable in nature and capitalized as “furniture and fixture”, and is not capitalized as “immovable property“?
b) Whether input GST credit can be availed by the applicant on the detachable sliding and stacking glass partition which is movable in nature and capitalized as “furniture and fixture “, and is not capitalizes as an immovable property?
4. The Karnataka Authority for Advance Ruling vide ruling No KAR ADRG NO 106/2019 dated 30-09-2019 held as follows:
1. The input tax credit of GST can be availed by the applicant on the detachable 14 mm Engineered wood with Oak top wooden flooring which is movable in nature and capitalized as ‘‘furniture ” and
2. The input tax credit of GST is not available on the detachable sliding and stacking glass partitions.
5. The issue which is in appeal is limited to the point of eligibility of input tax credit on detachable sliding and stackable glass partition . The Appellant procures these items for the purpose of creating work spaces which are given out on rent to various companies and individuals as sharing work The detachable glass partitions are fixed to the ground with the help of nuts and bolt and the same can be dismantled and re-used. They had sought a ruling on the admissibility of credit on the afore said items. The lower Authority denied the input tax credit in terms of Section 17(5)(d) of the CGST Act by holding that the detachable sliding and stackable glass partitions are fixed to the building to create office space and amounts to construction of immovable property; that since the expression ‘construction’ has been defined in the said Section 17(5) to include addition and alternation to the immovable property which have been capitalised in the books of accounts they are not eligible for the input tax credit on the above said items.
6. Section 16(1) of the CGST Act, 2017 provides as follows:
“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”.
7. Section 17(5)(d) reads as follows:
(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (I) of section 18, input tax credit shall not be available in respect of the following , namely:
(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 reconstruction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property
8. When we read the text of Section 17(5)(d) together with its explanation, we find that for triggering the restriction under this clause, certain criteria have to be satisfied viz:
a. The goods or services should be used for construction of immovable property.
b. The construction can be in the form of re-construction, renovation, additions or alterations or repairs to the immovable property.
c. The construction should be on his own
d. The goods or services received are capitalised in the books of
Only when all the above criteria are satisfied can it be said that the credit is restricted and the goods and services are ineligible for input tax credit.
9. The term ‘immovable property’ has not been defined in the GST law but rather it is defined in Section 3(26) of the General Clause Act, 1897 as including land, benefits arising out of land, and things attached to the earth, or permanently fastened to anything attached to the ” “Attached to earth” is defined in section 3 of the Transfer of Property Act as meaning (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 imbedded for the permanent beneficial enjoyment of that to which it is attached. In case of fixtures like the glass partitions, the rule is permanent attachment , that is, such attachment, whereby, removing the item in question will require demolition. To ascertain whether the item is permanently attached to earth, many courts have consistently used two-fold tests – (i) the extent of annexation and (ii) the object of annexation. The extent of annexation means annexing the fixture or object by which it ceases to be detachable. It would need to be demolished if one were to remove it. The object of annexation test lays down that where a movable property gets annexed with an immovable property, if the intent of annexation is of permanent beneficial enjoyment of the immovable property, then the fixture becomes an immovable property. If the intent of annexation is the beneficial enjoyment of the movable property, then the property still remains movable. Applying the above tests to this case, we find that the glass partitions are not permanent and are not embedded to the earth. They can be dismantled and moved according to the requirements of the clients of the Appellant. Although they are fixed to the earth with nuts and bolts, they can be dismantled without demolishing the civil structure. Therefore, the detachable sliding and stackable glass partitions do not qualify as immovable property.
10. Further, we find that the detachable sliding and stackable glass partitions are accounted in the Appellant’s books of account as fixed assets under the head “furniture and fixtures”. They are not capitalised as immovable property but rather as movable The lower Authority has observed that declaring the fixtures under the head “Furniture and Fixtures” does not make the items movable and they continue to be immovable property. However, as opined by us, we have held that the glass partitions are movable property by applying the tests of extent and object of annexation. Therefore, we do not agree with the lower Authority ‘s finding on this aspect. The lower Authority has also observed that since there is a certain degree of permanence in the office space provided, it is to be considered as immovable property. We disagree on this aspect also. The intent of fixing the glass partitions is only to provide the clients a certain sense of privacy and for the purpose of demarcation of work space area. There is no permanency in affixing such partitions as the same can be dismantled and re-fixed to signify a change in the dimensions of the work space. The fixing of the partitions to the ground using nuts and bolts only serves to give a false sense of permanency while in reality it is not so. The detachable sliding and stackable glass partitions are movable property and addition /fixing of glass partitions does not amount to construction of immovable property. Therefore, the procurement of detachable sliding and stackable glass partitions will be eligible for input tax credit and will not be hit by the provisions of Section 17(5)(d) of the CGST Act.
“Input tax credit can be availed by the Appellant on the detachable sliding and stackable glass partitions which is movable in nature.“
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