The Karnataka Authority for Advance Ruling (AAR) has in its recent ruling on the issue of ITC on immoveable property has observed that the civil structure involves engineering work at both levels i.e. above and below the ground and accordingly adjudged that landfilling pit is not a plant and machinery but a civil structure. However it refrained from giving ruling on admissibility of ITC in view of the case of M/s Safari Retreats Pvt Ltd which is pending before Supreme Court.
Facts of the case:
- The applicant M/s Mother Earth Environ Tech Pvt Ltd, is into the business of solid waste management. They provide services for treatment , storage and disposal of hazardous waste. They collect hazardous waste from various industries across Karnataka and dispose the same as per guidelines.
- They obtained land on lease from the Government and constructed land filling pit for processing and disposal of solid waste.
- On completion of filling of land fill pit , it is closed and sealed as per the envirinmental guidelines and it is maintained for further 30 years without doing any activity on that particular landfill pit.
- The applicant considers the landfill pit as plant and machinery and capatalised the same and claimed depreciation under income tax on cost (excluding GST).
Issue on ITC on immoveable property on which Ruling was sought:
Whether the term “other covil structure’ used in the definition of “Plant and Machinery” restricts the Land filling Pit from considering it as Plant & Machinery and thereby restricts ITC to be availed on it.
Applicant’s interpretation of law:
- Section 17(5)(d) of the CGST Act mandates that ITC cannot be availed on goods and services utilised for construction of immovable property (other than Plant and machinery) on his own account including when such goods or services is used in course or furtherance of business. Thus ITC can be availed in respect of Plant and Machinery.
- As per Explanation 2 to Section 17(5) “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.
- Here the Plant and Machinery the Company is referring to is a “Land Filling Pit” which is an appratus fixed to earth with the help of an structural support that are used for making outward supply of services and does not amount to any Civil Structure.
- In the instant situation there is no break in chain of ITC as the appellant uses the pit for offerring services which are liable to GST. This fulfills the very objective of GST (tax on value addition) to prevent cascading effect.
- The applicant basically emphasized on three aspects i.e. denying the ITC supply is against the spirit of the Act and would result in cascading effect, Secondly, land filling plant is an apparatus fixed to earth with the help of structural support and for that reason can be called plant & machinery. Lastly, it is not a civil structure.
Karnataka AAR: Deliberation and Ruling on ITC on immoveable property
- Section 17(5)(d) of the CGST Act, 2017 denies availment of ITC on goods and services when supplied for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services are both are used in the furtherance of business. Here, two aspects are noteworthy. One is that such goods and services should be used for the construction of an immovable property and the other is that the activity is carried on his own account. Applicant does not deny that the land filling pit is an immovable property. However, the applicant contends that the activity is not carried on his own account but is intended for offering services. We do not agree with the applicant’s view because applicant has not constructed the landfill pit on behalf of someone else. He is not under any contractual obligation with any entity to construct the land filling pit. In fact he has obtained land from Government on long term lease basis and has done the construction on his own account to provide the output service.
- The explanation given at the end of Section 17(5) of CGST Act, 2017 defines plant and machinery as 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 Land, building or any other civil structure. We find that land filling pit is a combination of earth work and other capital goods as given in the brief submitted by the applicant. It can’t solely or in itself be identified as apparatus, equipment and machinery fixed to earth by foundation. It is also not a structural support for anything. Therefore, we do not agree with the applicant’s view that the land filling pit falls under plant and machinery.
- We observe that civil structure involves engineering work at both levels i.e. above and below ground. We find that that the applicant has performed civil work to create the landfill pits below the ground and therefore it is a civil structure.
- The applicant has further placed reliance on the judgment rendered by the Hon’ble High Court of Orissa in the case of “M/s. Safari Retreats Pvt. Ltd., and Another v. Chief Commissioner of Central Goods & Service Tax & Others”. It is seen that in the said case, the prayers are (a) eligibility to credit of input tax paid on goods/services used for construction which is rented for commercial purposes (b) to hold Section 17(5)(d) as ultra vires, While the Hon ble High Court has granted the prayer at (a) has not accepted the prayer at (b) stating that they are not inclined to hold the provision ultra vires. On a case to case basis, the Hon’ble High Court has granted the credit. Inasmuch as the said section is found to be valid by the Hon ble High Court, we do not find any reason to go beyond the Statutory Provisions. However, since the appeal against the High Court order supra is pending before the Hon ble Supreme Court, we refrain from commenting on the eligibility of the ITC in the instant case.
In view of the above deliberations the bench comprising of Dr M.P Ravi Prasad and Mashhood Ur Rehman Farooqui adjudged that landfilling pit is not a plant and machinery but a civil structure.
READ / DOWNLOAD ORDER:
***
[rainbow]Don’t miss the next GST Update / Article / Judicial pronouncement[/rainbow]
Subscribe to our newsletter from FREE to stay updated on GST Law
Resolve your GST queries from national level experts on GST free of cost.
Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
