In re Western Concessions Private Limited (GST AAR Maharashtra)
It is clear that there are some ships which are categorized as factories in the commercial world and hence it is incorrect to argue that FRSU is not a factory by relying on selective dictionary meanings.
The second contention of the applicant is that the pipeline would be otherwise covered under ‘apparatus’, ‘equipment’, or ‘machinery’ since it is fitted with Valves, metering system, pressure regulating system, bends, fittings, flanges, gas leak detection system, gauges, transmitters etc. and hence qualify as ‘plant and machinery’ under explanation to Section 17(5). We are also not in favour of this contention because every pipeline is fitted with these equipments and the pipeline in question is no exception. To call it an ‘apparatus’, ‘equipment’, or ‘machinery’ would be a distortion of the meaning when the applicant himself has described it as a ‘pipeline’. When a specific description is available, it is not justified to bring a ‘pipeline’ within the meaning of ‘an ‘apparatus’, ‘equipment’, or ‘machinery’ by quoting convenient dictionary meanings just in order to claim ITC.
The applicant also contends that the pipeline should be considered as the one which is ‘not outside the factory ‘in as much as FRSU is not a factory. But as explained in the foregoing discussion we find that FRSU is a factory, and hence the pipeline laid for transporting re-gasified LNG from FRSU squarely falls within the meaning of a ‘pipeline outside the factory’.
To argue further, a pipeline cannot exist in vacuum without a factory. The expression “pipelines outside the factory” signifies that the pipeline is to transport some product from the factory to the end user. In the instant case the LNG, re-gasified in the ship, is transported through the pipeline which is outside the factory ship. Hence, we are of the view that the said pipeline is a “pipeline outside the factory”.
Having found that the FRSU is a ‘factory’ and that the pipeline to be laid is ‘outside the factory’ and that the said pipeline does not qualify to be an ‘equipment, apparatus or machinery’ for the purpose of claiming ITC, the restriction on availment of ITC under Section 17(5)(c) and 17(5)(d) is applicable in the present case.
Also Read AAAR order:- ITC not available on goods & services used for construction of Tie-in pipelines, from FSRU to National grid: AAAR
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, MAHARASHTRA
The present application has been filed under section 97 of the Central Goods and Services Tax Act,2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST and MGST Act”] by Western Concessions Private Limited (formerly known as H-Energy Gateway Private Limited), the applicant, seeking an advance ruling in respect of the following question.
whether the applicants are eligible to avail ITC of GST paid on goods and services used for construction of Tie-in pipeline, for delivery of re-gasified LNG from FSRU to the National Grid.
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression `GST Act’ would mean CGST Act and MGST Act.
02 FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen thus-
STATEMENT OF RELEVANT FACTS HAVING A BEARING ON THE QUESTION(S) ON WHICH ADVANCE RULING IS REQUIRED.
1. M/s. Western Concessions Private Limited (formerly known as H-Energy Gateway Private Limited (hereinafter referred to as “the applicant”) having its corporate head office at 12th Floor, Knowledge Park, Hiranandani Business Park, Powai, Mumbai, is, inter-alia, engaged in regasification of Liquified Natural Gas and delivering the same to customers.
2. The applicant has obtained registration and holding valid registration certificate issued under Central Goods and Services Tax Act, 2017 (“COST Act”).
3. The applicant is setting up a Liquified Natural Gas (LNG) re-gasification project at Jaigarh port in the state of Maharashtra (hereinafter referred to as “LNG Terminal”).
4. The LNG Terminal consists of a Floating Storage Regasification Unit (“FSRU’) with 4 MMTPA regasification capacity moored to jetty and has associated facilities like gas unloading arm, gas pipeline for delivering natural gas from the FSRU to the National Grid.
5. The re-gasified LNG is required to be inducted into the cross-country pipeline/national Grid in order to be supplied to the ultimate customer.
6. Therefore, the applicant is constructing a gas pipeline for delivering the high pressure natural gas from the FSRU to the National Grid.
7. The Development of the project consists of two legs as mentioned below:
i. Setting up of infrastructure facility, i.e., jetty, onshore receiving facility close to the jetty, etc. for enabling FSRU to regasify the LNG; and
ii. Connecting the Terminal with the cross-country gas pipeline to enable supply of re gasified natural gas to customer (referred to as the “Tie in Pipeline”).
8. The re-gasified LNG is of no use unless the applicant is able to supply the gas to its customers. Given the nature of the commodity, i.e., high pressure natural gas, pipeline is the only technically viable and safe method of supply
9. The Tie-in pipeline is, therefore, not constructed to provide gas transportation service to the customers, but it connects the gas terminal to cross-country pipeline to enable further distribution of gas to the customers.
10. The Tie-in pipeline would be laid under the ground and the length of the pipeline would be approximately 60 KMs.
11. Section 16 of the CGST Act deals with the eligibility of taking input tax credit (‘ITC’) and the conditions to be fulfilled by the registered person. Section 16(1), inter alia, states that a registered person shall be entitled to take ITC on goods and services used or intended to be used in the course or furtherance of his business. Section 16(1) is reproduced here under for ready reference:
“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.”
…emphasis supplied
Further, Section 17(5) of the CGST Act provides that in certain cases, input tax credit will not be available even if the goods or services are used in the course or furtherance of business. The relevant portion of section 17(5) is extracted as under:
“(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.- 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.”
… emphasis supplied
13. Thus, the restriction on availment of ITC under Section 17(5)(c) and 17(5)(d) is not applicable in case where the goods or services are used for construction of Plant and Machinery. However, as per the explanation to Section 17, Plant and Machinery does not includes a pipeline laid outside the factory premises. As a consequence, the ITC of goods and services used for construction of a pipeline laid down outside the factory would not be available in terms of Section 17(5)(c) and 17(5)(d).
14. The applicant’s key activity is regasification of LNG, which inter alia includes delivery in a form and manner which is consumable, usable and saleable. Hence, the provision of the gas to the nearest practical delivery point i.e. national grid, is an integral and essential part of the economic activity being carried out by the applicant.
15. Therefore, the Tie-in pipeline connecting the LNG terminal to the National Grid, which is immovable in nature, forms Plant and Machinery. Further, the re-gasification activity would be Undertaken by the applicants at the FSRU, which is not a factory per se.
16. Thus, the disallowance of ITC under section I 7(5)(c) and 17(5)(d) would not be attracted in case of Tie-in pipelines constructed by the applicants.
17. Under the aforesaid peculiar circumstances, we request you to expedite the resolution of the matter at hand and issue a ruling regarding the availability of ITC of GST paid on goods and services used for construction of Tie-in pipelines and also grant us with a personal meeting to represent our case in detail.
STATEMENT CONTAINING APPLICANT’S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE, IN RESPECT OF OUESTION(S) ON WHICH ADVANCE RULING IS REOUIRED.
APPLICANT’S INTERPRETATION
C. Applicants understanding
C.1 Section 16 of the CGST Act deals with the eligibility of taking ITC and the conditions to be fulfilled by the registered person. Section 16(1) inter alia states that a registered person shall be entitled to take ITC on goods and services used or intended to be used in the course or furtherance of his business.
C.2 Section 17(5) of the CGST Act provides that in certain cases, input tax credit will not be available even if the goods or services are used in the course or furtherance of business.
C.3 Clause (c) of section 17(5) restricts availability of ITC in respect of works contract service used for construction of immovable property, except in case where it is an input service for further supply of works contract service. Clause (d) of Section 17(5) bars ITC in respect of goods or service used for construction of immovable property on assessee’s own account.
C.4 However, the above restriction on availment of input tax credit will not apply if the immovable property constructed is plant and machinery. The term “plant and machinery” is defined in the explanation to section 17 as apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply but, inter alia, excludes pipelines laid outside the factory premises.
C.5 In the present case, the applicant is constructing a Tie-in pipeline to deliver the re-gasified LNG to the cross-country pipeline/National Grid for further transportation to the customers. The said pipeline will be laid under the ground and the length of the pipeline would be approximately 60 KMs.
C.6 Since, the pipeline in the present case is embedded in the earth, it would qualify as an immovable property and thus the construction of said pipeline amounts to a Works contract under Section 2(119) of the CGST Act. However, the applicant is of the understanding that the tie-in pipeline qualifies to be a “plant and machinery” as per explanation to section 17 of the CGST Act, and hence the restriction under Section 17(5)(c) and 17(5)(d) would not be attracted in respect of construction of the said pipeline.
C.7 The applicants submit that following two conditions have to be fulfilled for the Tie-in pipeline to be regarded as plant and machinery in terms of explanation to Section 17 of CGST Act:
