In re Wework India Management Private Limited (GST AAAR Karnataka)
In the instant case, the foremost test to be applied for triggering the restriction under Section 17(5)(d) is whether an activity of fixing the detachable 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’?
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 earth. ” “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.
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 assets. 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.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, KARNATAKA
1. At the outset we would like to make it clear that the provisions of CGST, Act 2017 and SGST, Act 2017 are in parimateria and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act.
2. The present appeal has been filed under section 100 of the Central Goods and Service Tax Act 2017 and Karnataka Goods and Service Tax Act 2017 (herein after referred to as CGST Act, 2017 and SGST Act, 2017) by M/s WEWORK INDIA MANAGEMENT PRIVATE LIMITED, 1st Floor, Embassy Point,Infantry Road, Bengaluru 560001 (herein after referred to as Appellant) against the advance Ruling No. KAR/ADRG 106/2019 dated 30th Sept 2019.
Brief Facts of the case:
3. The Appellant is a private limited company engaged in providing shared workspace/Office Space to the freelancers, start-ups, small businesses and large enterprises. 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 as needed, 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.
4. 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 procurements. 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-
