ADVANCE RULING ON ITC ON FURNITURE & FIXTURES

[Dr. Sanjiv Agarwal]

Input tax credit on work contracts for immovable properties is blocked under section 17(5) of the CGST Act, 2017. Under an evolving concept of business centres, (for example, ‘We Work’ model), there is use of detachable floors, wall panels, furniture and fixtures. These are generally not fixed and can be reused with the change in requirement. There being confusion on allowability of input tax credit on such items, an advance ruling was sought which was appealed and on appeal, the ruling was reversed, i.e., ITC held to be allowable.

In the instant case, the applicant was a company registered under GST and engaged in the business of supplying shared works pace/office space to the freelancers, start-ups, small businesses and large enterprises. The applicant procured goods and services from various contractors for fitting-out of the work spaces and provided the said workspace on rent, to various companies and individuals as sharing work-spaces. The applicant submitted that the applicant had paid GST on the inputs procured. Of the procurements, two of the major components which were in the nature of furniture and fixtures that were used in WeWork buildings were-

• Detachable 14mm Engineered wood with Oak top wooden flooring; and
• Detachable sliding and stacking glass partitions.

The applicant sought advance ruling from the Authority for Advance Ruling on the following questions:

1. Whether input GST credit can be availed by the applicant on the detachable 14mm 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”?
2.  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?

The Authority for Advance Ruling, vide Order dated 30.09.2019, ruled 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.

[ IN RE: M/S. WEWORK INDIA MANAGEMENT PRIVATE LIMITED - 2019 (10) TMI 1018 - AUTHORITY FOR ADVANCE RULING, KARNATAKA ].

Being aggrieved by the advance ruling, the assessee preferred an appeal u/s 100 of the CGST Act, 2017 before AAAR, Karnataka, on the grounds as enumunerted in para 7 of the Appellate order.

The AAAR observed that 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 its own account.

Further, 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, the glass partitions are movable property by applying the tests of extent and object of annexation.

Also, 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.

The AAAR, therefore, set aside the advance ruling on second question, i.e., the input tax credit of GST is not available on the detachable sliding and stacking glass partitions, and held that input tax credit can be availed by the Appellant on the detachable sliding and stackable glass partitions which is movable in nature. [IN RE: M/S. WEWORK INDIA MANAGEMENT PRIVATE LIMITED - 2020 (5) TMI 388 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA].