In re Embassy Industrial Parks Private Limited (GST AAR Haryana)
Q. Whether input GST credit can be availed by the Applicant on pre-engineered structures which is movable in nature and accounted as ‘Plant and machinery’ and not capitalized as an immovable property?
Ans. As per the definition of immovable property contained in the General Clauses Act and the Transfer of Property Act, it is clear that things attached to the earth or permanently fastened to anything attached to the earth is immovable property. Anything imbedded in the earth or attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached, qualifies to be attached to the earth.
10.9 As far as the contention of the applicant regarding procurement of PES and subsequent fitting to be in the course of business is concerned, it is admitted that the same is in course of business but the question is whether the applicant is eligible to ITC in light of the provisions contained in section 17(5)(d) of the CGST/ HGST Act. The applicant shall be eligible to ITC only if it is so established that the property i.e. warehouse constructed/ erected by way of PES qualifies to be movable property.
Further, when any object is said to be imbedded in earth, it does not mean that a part of it is to be inserted/ put deep beneath the earth by digging the earth for several meters. For laying any foundation especially in case of area of considerable dimension as in case of a warehouse, the top soil has to be removed, surface has to be leveled and some part of foundation stone always rests with in the earth. So this contention of the applicant that the support base of the warehouse made of PES neither attached to nor imbedded in the earth is rejected.
As regards the issue of the non-permanent nature of the PES structure is concerned, it has already been discussed that the degree and nature of annexation is vital to the decision whether a property is a movable property or an immovable property. In the case of applicant, the warehouses are rented out to industrial consumers and manufacturers. These warehouses cover considerably large area and caters to the need of business which in terms requires permanence and stability. So, it cannot be said that the warehouses constructed/ erected by way of fixing pre-engineered structures is non-permanent in nature.
In light of the above discussion it is concluded that the warehouses constructed/ erected by the applicant are an immovable property for the purposes of GST Law and the applicant is not eligible to ITC in view of the provisions contained in section 17(5)(d).
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, HARYANA
1. Statement:
1.1 Embassy Industrial Park Private Limited (hereinafter referred to as ‘Applicant’) is a private limited company incorporated in India and registered under Companies Act, 2013.
1.2 The Applicant has obtained GST registration for its office situatea at Pathredi, Tehsil Gurugram Gurgaon Haryana 122413.
1.3 The Applicant is inter alio engaged in building and managing industrial warehousing spaces for consumers and industrial centers. The Applicant is strategically located in the proximity of key commercial, industrial and freight corridors across Maharashtra, Haryana, Tamil Nadu and West Bengal.
1.4 The Applicant is proposing to develop a new Industrial warehouse at Pathredi, Tehsil Gurugram, Gurgaon, Haryana 122413.
1.5 The Applicant procures various goods and services from various contractors for fitting-out of the warehousing spaces and provides the subject space having with all facilities and infrastructure facility on rent to various industrial consumers and manufacturers. The Applicant discharges applicable GST on such procurements.
1.6 Section 16(1) of Central Goods and Services Tax Act, 2017 (“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.
1.7 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.
1.8 One of the types of procurements made is that of the pre-engineered structure (“PES”).
1.9 As can be seen in the above images, a PES is a enclosure system that always includes a structural system and often includes roof and wall cladding.
1.10 The pre-engineered metal system is advantageous because it economically allows for the creation of large column-free enclosures.
1.11 The following are generally the primary components of a PES:
a. Primary framing consisting of rigid frames, end wall frames, bracing and brackets;
b. Secondary framing consisting of elements which support the roof and wall sheeting;
c. Roof sheeting; and
d. Wall cladding.
It is with respect to ITC eligibility for these items that the Applicant seeks to obtain this ruling. The details of the question of law in Appendix 2 is ‘accordingly submitted before this Hon’ble Authority for Advance Ruling.
2. Questions:
2.1 Given the factual matrix as enunciated in Appendix 1, we wish to seek a ruling on the following question:
2.2 Whether input GST credit can be availed by the Applicant on pre-engineered structures which is movable in nature and accounted as “Plant and machinery” and not capitalized as an immovable property?
3. Grounds for application/ interpretation of law in respect of which the Advance Ruling is sought:
I. Input credit of taxes paid in respect of pre-engineered structure eligible credit under Section 16 of the CGST Act:
3.1 Section 16 details the criteria of availment of ITC on tax paid on goods and services.
Relevant extracts of the same have been reproduced as follows:
“(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………………”
3.2 Thus, from a bare reading of the Section, it can be seen that Section 16 of the CGST Act entitles every registered person to take input tax credit of tax charged on supply of goods or services or both which are used or intended to be used in course or furtherance of business.
3.3 The above criteria for availment of credit is broad both in manner as well as intent.
Meaning of “in the course of” or “furtherance of business”
3.4 While business has been defined under the CGST Act, the terms “in the course” “or furtherance of business” are not defined anywhere under the CGST Act or the CGST Rules made thereunder.
3.5 In the course of generally means something “in the progress of process of”.
3.6 The meaning of “Furtherance” as per Black’s law dictionary: 6th edition 11th reprint 1997, is “act of furthering, helping forward, promotion, advancement or progress”.
3.7 Furtherance of business will, thus mean, act of furthering business, helping forward business, promotion of business, advancement of business or progress of business.
3.8 As mentioned above, the Applicant is into the business of building and managing industrial warehousing spaces for consumers and industrial centres and PESs helps in giving value add to its Industrial customers and managing the Industrial spaces in more efficient and effective way. In other words, the subject civil works helps the Applicant in carrying out their business in their day to day operations.
3.9 Therefore, basis the above submissions, given that the Applicant procures PES works which are erected in warehousing spaces rented out by the Applicant, the condition as provided under Section 16 for availment of ITC stands satisfied.
II. Restriction provided under Section 17(5) (c) & (d) does not apply to procurement of items for PESs:
Credit restriction is only in so far as inputs/ input services “for construction of an immovable property”
3.10 Section 17(5)(d) uses the word “for” construction.
3.11 The term “for” is more specific than “in relation to”. The word “for” generally means “for the purpose of”.
3.12 The word ‘for’ is defined in the Concise Oxford English Dictionary, 8th Ed. as under:
a) “in the interest or to the benefit of; intended to go to;
b) in defence, support or favour of;
c) suitable or appropriate to;
d) in respect of or with reference to;
e) representing or in place of….
f) conducive or conductively to; in order to achieve…”
3.13 The Hon’ble Supreme Court in the case of Mansukhlal Dhanraj Jain & Ors. Etc. v. Eknath Vithal Ogale etc. compared the words “for” and “relating to” and concluded that the latter has wider connotations than the former. The relevant extract is reproduced for your reference:
“There is a good deal of difference between the words “relating to the recovery of possession” on the one hand and the terminology 7or recovery of possession of any immovable property”. The words “relating to” are of wide import and can take in their sweep any suit in which the grievance is made that the defendant is threatening to illegally recover possession from licensee.”
3.14 It can be seen from the above decisions that the word ‘for’ has been defined to mean in the interest of, to the benefit of, in defence of, in support or favour of, etc. Based on the above rationale, it can therefore be concluded that in order to be covered by the restrictions provided under Section 17(5)(d), the goods or services must be used directly for construction of immovable property.
3.15 In other words, with reference to section 17(5)(d) of CGST Act, read with the explanations provided therein, credit eligibility of goods or services or both is restricted only when the same is “for construction of an immovable property”.
3.16 Further, the Applicant wishes to submit that for the purposes of clause (d) of section 17(5) of CGST Act, the expression ‘construction’ has been defined to include re-construction, renovation, additions or alterations or repairs, to the extent of capitalization of the said immovable property.
3.17 The Applicant in this regard submits that, so far the business activity of the applicant is concerned, PESs are not capitalised as immovable property but are in fact recorded as ‘plant and machinery’.
3.18 They can be detached and re-used and are not considered to be the permanent civil assets. It is for this very reason that these items are not capitalized as immovable property.
3.19 Thus, PESs are not covered under the definition of ‘construction’ and consequently is not restricted under Section 17(5).
4. PESs qualify as eligible credit under Section 16 of the CGST Act, Restriction provided under Section 17(5)(d) does not apply:
4.1 Basis the above submissions regarding the admissibility of the credit for works relating to PESs, the Applicant wishes to reiterate the analysis above as they same shall be applicable in the case of PESs as well.
4.2 The Applicant submits that as per Section 16 of the CGST Act, he is eligible to avail credit on such PESs as the same are used in the course or furtherance of Applicant’s business.
4.3 It is pertinent to note that the restriction prescribed in Section 17(5) pertains to as inputs/ input services “for construction of an immovable property”.
5. Goods in question are movable:
5.1 The Applicant submits that anything embedded to the earth and which cannot be dismantled and moved, strictly are covered under the ambit of “immovable property”, thus restricting the same from availment of ITC as per Section 17 (5)(c) & (d) of the CGST Act.
5.2 The term immovable property has not been defined under GST Act, therefore reference needs to be taken from General Clauses Act, 1897.
5.3 Section 3(26) of the General Clauses Act, 1897, does not provide an exhaustive definition of the said expression. It reads :
“immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.”
5.4 Similarly, Section 3 of the Transfer of Property Act, 1882 does not spell out an exhaustive definition of the expression “immovable property”. It simply provides that unless there is something repugnant in the subject or context ‘immovable property’ under the Transfer of Property Act, 1882
5.5 Though the terms “attached to the earth” are not defined in the GST law, reference can be drawn Section 3 of the Transfer of Property Act, 1882 wherein it is defined that anything:
a) Rooted to the earth, as in case of trees and shrubs;
b) Imbedded in the earth, as in the case of walls and buildings;
c) Attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.
5.6 PESs are basically steel structures consisting of columns, roof truss, purlins etc. that are pre-fabricated in a factory in accordance with design specifications and later erected in site using bolts.
5.7 These are tailor made based on client’s requirements and actual design calculations.
5.8 Designing and fabrication is done in factory. Building components are brought to site and then joined at the site. All connections are bolted.
6. Erection:
6.1 The steel structures are lifted into place by crane and then bolted together Below is an image of PES under installation.
7. Foundation:
7.1 Foundation for PESs are made with conventional concrete systems, usually open foundations. These structures are very light (they can weigh as little as 50 kg per square meter, excluding the foundations and floor slab), the foundations are designed to firmly anchor the structure to ground preventing them from being blown away by the wind. The slab provides a strong and stable base for the foundation and avoids direct contact of the foundation with soil. As seen above, PES foundation slab merely rests on the ground and are not imbedded in the earth. Therefore they cannot be classified as “immovable property” as described above.
7.2 Pre-engineered structures are different from that of conventional concrete buildings. They are often preferred as they are more efficient and effective as compared to concrete structures. Analysis of same has been brought out below:-
