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PLANT AND MACHINERY IN CONTEXT OF WORKS CONTRACT SERVICE- DENSE FOREST IN GST

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PLANT AND MACHINERY IN CONTEXT OF WORKS CONTRACT SERVICE- DENSE FOREST IN GST
By: Rachit Agarwal
May 4, 2020
All Articles by: Rachit Agarwal       View Profile
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PLANT AND MACHINERY IN CONTEXT OF WORKS CONTRACT SERVICE- DENSE FOREST IN GST

Section 2(19) of CGST Act, 2017- Capital Goods means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business;

Section 17(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

2[(a)xxxxxxxxxxx

(aa) xxxxxxxxxxx

(ab) xxxxxxxxxxx

(b) xxxxxxxxxxxx

 (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 clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

(e) xxxxxxxxxxxxxxx

(f) xxxxxxxxxxxxxxxx

(g) xxxxxxxxxxxxxxxx

(h) xxxxxxxxxxxxxxx

(i) xxxxxxxxxxxxxxxx

(6) The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed.

Plant and Machinery’ has been described in the Explanation to Section 17(5) as follows :

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.

Hence the term Plant & Machinery with reference to Section 17(5)(c) & 17(5)(d) shall mean

  1. Apparatus fixed to earth by foundation or structural support
  2. Equipment fixed to earth by foundation or structural support
  3. Machinery fixed to earth by foundation or structural support
  4. Foundation and Structural Support to Apparatus, Equipment and Machinery

The above express Plant and Machinery has been defined in the context of Works Contract Service only. However Apparatus, Equipment and Machinery has not been defined in the CGST Act, 2017.

Section 3(26) of the General Clauses Act, 1897, similarly does not provide an exhaustive definition of the said expression. It reads:

Section 3(26) : “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.”

The term “attached to the earth” has not been defined in the General Clauses Act, 1897. Section 3 of the Transfer of Property Act, however, gives the following meaning to the expression “attached to the earth”:

“(a)   rooted in the earth, as in the 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.”

Goods and Services used for the construction of Plant & Machinery will be allowed for the credit of Input Tax.

Works Contract Services for the construction of Plant & Machinery will be allowed for the credit of Input Tax.

C.B.E. & C. Flyer No. 28, dated 1-1-2018

Plant and Machinery in certain cases when affixed permanently to the earth would constitute immovable property. When a works contract is for the construction of plant and machinery, the ITC of the tax paid to the works contractor would be available to the recipient, whatever is the business of the recipient. This is because works contract in respect of plant and machinery comes within the exclusion clause of the negative list and ITC would be available when used in the course or furtherance of business.

In an application filed before AAR under GST, Karnataka by Shri Keshav Cement & Infra Ltd reported in 2019 (10) TMI 570 - AUTHORITY FOR ADVANCE RULING, KARNATAKA  Apparatus, equipment, and machinery which are fixed to earth by foundation or structural support alone are entitled to qualify as plant and machinery for admissibility of credit, otherwise not.

As per Order No. 58/1/2002-CX, dated 15-1-2002, goods can be manufactured at site.

Hence goods can go themselves in construction at site. Merely goods are constructed at site should not be treated as immovable property. Further even such goods are manufactured at site and becomes immovable property, such property shall not fall within the ambit of Section 17(5)(c) and 17(5)(d) as per the specific exclusion.

CAPITAL GOODS AS PER RULE 2 OF CENVAT CREDIT RULES, 2004

(a) “capital goods” means :-

(A)   the following goods, namely :-

(i)     all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, grinding wheels and the like, and parts thereof falling under [heading 6804 and wagons of sub-heading 860692]] of the First Schedule to the Excise Tariff Act;

(ii)    pollution control equipment;

(iii)   components, spares and accessories of the goods specified at (i) and (ii);

(iv)   moulds and dies, jigs and fixtures;

(v)    refractories and refractory materials;

(vi)   tubes and pipes and fittings thereof; [     ]

(vii)  storage tank, [and]

[(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis [but including dumpers and tippers],]

used -

(1)   in the factory of the manufacturer of the final products, [        ]; or

[(1A) outside the factory of the manufacturer of the final products for generation of electricity [or for pumping of water] for captive use within the factory; or]

(2)        for providing output service;

User Test Theory

As per the User Test Theory, any item independently could not be treated as movable or immovable. For instance cement if used for the construction of factory and building will be termed as immovable property however the cement used for the purpose of structural support of apparatus, equipment or machinery will fall within the ambit of Plant & Machinery as per definition of Plant & Machinery defined in Explanation to Section 17(5)

Commissioner Of C. EX., Coimbatore Versus  Jawahar Mills Ltd [2001 (7) TMI 118 - SUPREME COURT]- The main contention of Mr. Rohtagi, however, is that the question whether an item falls within the definition of ‘Capital goods’ would depend upon the user it is put to. The submission is that parts of the items in respect whereof availing of Modvat credit has been allowed by the Tribunal could not be treated as ‘Capital goods’ as the manufacturer could not establish that the entire item was used in the manufacture of final product. To illustrate his point, Mr. Rohtagi submitted that part of a cable may go into the machine used by the manufacturer and, thus, may qualify the requirement of clause 1(a) and, at the same time, another part of the cable which is used only for lights and fans would not so qualify. We have no difficulty in accepting the contention of the learned Additional Solicitor General that, under these circumstances, user will determine whether an item qualifies or not the requirement of clause

DEFINITION OF APPARATUS, EQUIPMENT AND MACHINES AS PER JUDICIAL PRONOUCMENTS

Singh Alloys & Steel Ltd Versus Assistant Collector of Central Excise [1993 (1) TMI 97 - CALCUTTA HIGH COURT]

Para 20

“Apparatus

A compound instrument designed to carry out a specific function.

Appliance

A piece of equipment that draws electric or other energy and produces a desired work-saving or other result. Such as an Electric heater, a radio or an electronic range.

Equipment

One or more assemblies capable of performing a complete function.

Machine

A mechanical, electric, or electronic device, such as a computer, tabulator, sorter or collator.

Machinery

A group of parts or machines arranged to perform a useful function.

Plant

The land, buildings, and equipment used in an industry.

Tool

Any device, instrument, or machine for the performance of an operation, for example, a hammer, saw, lathe, twist drill, drill press, grinder, planner, or screw driver. To equip a factory or industry for production by designing, making and integrating machines, machine tools, and special dies, jigs, and instruments so as to achieve manufacture and assembly of products on a volume basis at minimum cost.”

Modern Malleable Ltd Versus Commissioner OF C. EX., Calcutta-II [2007 (11) TMI 232 - CESTAT, KOLKATA]- Hon’ble Supreme Court in the case of CC v. C - Net Communications (I) (P) Ltd. - 2007 (9) TMI 15 - SUPREME COURT held that the word ‘apparatus’ would certainly mean the compound instrument or chain of series of instrument designed to carry out specific function or for a particular use (in para 17). It follows that “apparatus” are normally instruments or equipments enhancing, reducing or controlling certain function of a principal system and does specific function or serve specific purpose.

2020 (4) TMI 795 - Appellate Authority For Advance Ruling, Gujarat In Case of M/S Satyesh Brinechem Private Limited- Para 18.2- Even if the works contract service and goods and / or services are received for construction of immovable property, if such construction of immovable property is ‘plant and machinery’, the same would be outside the purview of clauses (c) and (d) of Section 17(5) of the CGST Act, 2017 and eligible for input tax credit.

Rule of ejusdem generis would not apply for the term "Other Civil Structure" in Section 17(5)

The foundation or Structural support, which have been used to fix the apparatus, equipment, and machinery to earth, may be in the nature of civil structure, but such foundation and structural supports have been specifically included in the main part of the definition of ‘plant and machinery’. When the exclusion clause (i) excludes ‘land, building or any other civil structures’ from the purview of the definition of ‘plant and machinery’, the phrase ‘any other civil structures’ naturally refers to all other civil structures, other than foundation and structural supports used to fix the apparatus, equipment, and machinery to earth.

The Doctrine of ejusdem generis with respect to word "Other Civil Structure" shall not be applicable. Reliance was placed on judgement of Hon’ble Supreme Court in the case of Assistant Collector of Central Excise Vs. Ramdev Tobacco Company [1991. (51) ELT 631 (S.C.)] = 1991 (1) TMI 136 - SUPREME COURT, Commissioner VAT Vs.  Taneja Mines Pvt. Ltd. [2011 (273) E.L.T. 228 (Del.)] = 2010 (8) TMI 721 - DELHI HIGH COURT

Restricted Meaning of Plant and Machinery in context of Works Contract Service

The expression ‘plant and machinery’ is specifically defined in the GST Acts. In the explanation below section 17 of the GST Acts, the definition ‘plant and machinery’ uses the term ‘means’. As per the principles of interpretation of law laid down by the higher judiciary, the definition using the term ‘means’ has to be strictly construed to mean only what is stated therein, nothing more, nothing less. In this regard, the judgement of Hon’ble High Court of Kerala in the case of Kerala Public Service Commission Vs. State Information Commission, Kerala [2011 (272) E.L.T. 18 (Ker.)] = 2011 (3) TMI 1299 - KERALA HIGH COURT

Modern Malleable Ltd Versus Commissioner OF C. EX., Calcutta-II [2007 (11) TMI 232 - CESTAT, KOLKATA]- Hon’ble Supreme Court in the case of COMMISSIONER OF CUSTOMS, NEW DELHI VERSUS C-NET COMMUNICATION (I) PVT. LTD. - 2007 (9) TMI 15 - SUPREME COURT held that the word ‘apparatus’ would certainly mean the compound instrument or chain of series of instrument designed to carry out specific function or for a particular use (in para 17). It follows that “apparatus” are normally instruments or equipments enhancing, reducing or controlling certain function of a principal system and does specific function or serve specific purpose.

The Supreme Court Bench dismissed the Petition for Special Leave filed by FAIR BANKS MORSE INDIA LTD. VERSUS UNION OF INDIA [2015 (3) TMI 1374 - SC ORDER]. Fair Banks Morse India Ltd Versus Union Of India [ 2014 (9) TMI 481 - ALLAHABAD HIGH COURT]- Whether column and shaft assembly and discharge head assembly is a machine or not. Note 5 defines the expression “machine” as any machine, machinery, plant, equipment, apparatus or appliances.

25. Collins Cobuild Dictionary, 2004 edition defines “machine” as a piece of equipment, which uses electricity or an engine in order to do a particular kind of work.

26. Webster’s Dictionary defines “machine” as an apparatus, made of organised, interacting parts, which takes in some form of energy, modifies it, and delivers it in a more suitable form for a desired function.

27. Oxford Dictionary, 2013 edition, defines “machine” as a piece of equipment with moving parts that is designed to do a particular job and usually needs electricity, gas, steam, etc. in order to work.

28. The meaning of “machine” defined in Note 5 is in relation to machine, machinery, plant, equipment, apparatus or appliance points to one direction, namely, that the machine must do a particular kind of work, whether it is a machinery or a plant or an equipment or an apparatus or an appliance, which can only function with the use of energy.

The Allahabad High Court in its impugned order had held that the components of power driven pump i.e. column and shaft assembly, discharge head assembly and bowl assembly were accessories and not ‘machine’ and, therefore, were not classifiable under Chapter Heading 84.13 of the Central Excise Tariff. Such components were not eligible to exemption under Notification No. 155/86-C.E

Machine as defined in Note 5 must do particular kind of work with use of energy

Larsen & Toubro Ltd Vs Commissioner Of Central Excise, Madras [1998 (5) TMI 95 - CEGAT, MADRAS]- The definition of `machine’ as defined in the book THEORY OF MACHINES by P.L. Ballaney is noted here below :

1.1 Machine. A machine, according to one of the definitions given in Oxford English Dictionary, is “an apparatus for applying mechanical power, consisting of a number of inter-related parts, each having a definite function”, and this is the sense in which the word `machine’ is used here. It is very broad based definition and includes the concept of mechanical advantage as the sole object of a machine. A machine will be found to consist of an assembly of links or pieces. If motion is imparted suitably to one, all may receive motion, but their relationship will depend upon the nature of connections. If a force is applied suitably to one, a force may be obtained suitably from the other, but the relationships of the forces will depend upon the nature of connections.

Example. A beginner may be inclined to include petrol engine within the definition of a machine. Though, he is not far out in his thinking, a word of caution may be necessary. If it is confined to only this aspect that mechanical work, i.e. (Force x Displacement) is applied at the piston to obtain mechanical work at the crank shaft, i.e. (Torque x Angular displacement), in this case, the petrol engine can be called a machine. But the thermodynamics of combustion and all allied phenomenon compel us to call it an engine (Heat Engine). But machine tool in the workshop like lathe, shaper, planer etc. are machines. These satisfy both the definitions of mechanical advantage as sole object of machine and an apparatus for applying mechanical power.

As per the above definition, it is an apparatus for applying mechanical power, consisting of number of inter-related parts, each having a definite function.

National India Rubber Works Ltd Versus  Union Of India And Others [1987 (10) TMI 63 - DELHI HIGH COURT]- The word ‘machine’ as defined in the New Webster’s Dictionary of the English Language is as follows : “contrivance, an apparatus, a mechanical apparatus or contrivance; something operated by a mechanical apparatus’’ and the ‘machinery’ has been defined as :“Any collection or functioning unit of machines or mechanical apparatus; the parts of a machine, collectively; any combination or system of agencies by which action is maintained”. The ‘detonator’ is defined as follows :“a device that explodes, used for causing another substance to explode.”. In The Concise Oxford Dictionary the word ‘detonator’ is defined to mean “detonating contrivance” and the word ‘machine’ is defined to mean “apparatus for applying mechanical power, having several parts each with definite function; instrument that transmits force or directs its application”. The word ‘machinery’ is defined to mean “machines, work of a machine, mechanism, contrivances”. So the plain meanings of the aforesaid words make it clear that the detonator which is a contrivance for causing explosion of other substance can be called a machinery.

Godrej & Boyce Mfg Co Ltd Versus Commercial Taxes Officer, Anti-Evasion, Zone-1, Jaipur [2017 (5) TMI 267 - RAJASTHAN HIGH COURT] - I have also gone through the judgments relied upon by the counsel for the assessee and also by all the three authorities. It would be appropriate to quote the relevant para of the judgment of the Karnataka High Court in the case of State of Karnataka v. Sanjiv Mehra and Another (1989 (11) TMI 289 - KARNATAKA HIGH COURT) which is as under :-

“This Court again had an occasion to explain the concept of the term “machinery” in KB. Dani Versus State of Karnataka - 1979 (7) TMI 215 - KARNATAKA HIGH COUR This Court in that decision after referring to several decisions on the point, held thus :

“….. ‘machine’ means a mechanical device consisting of a planned and an organised arrangement of various parts, each part having definite functions and, as a result of combined functioning, does some work, which may be impossible or difficult for human physical power to perform or even if it can be done it cannot be done continuously for a long period or with the speed and with the same uniformity with which the machinery does the same work. Supply of power to the machine could be either by the natural forces or by human or animal energy, or electric energy or any other type of energy.”

In the present cases, the respondent produced certain literature before the assessing authority in support of its contention that door closers should be treated as hardware. According to the respondent the term “door closers” was deal with and considered by a committee known as Builders Hardware Section Committee constituted under the aegis of Indian Standards Institution, New Delhi, and produced the brochure entitled “Indian Standard Specification for Door Closers (Hydraulically Regulated)” which stated that automatic door closers are being increasingly used by builders. According to the said brochure “a hydraulic door closer is an equipment for automatic closing of doors by the help of spring such that the phase of closing is slowed down by a hydraulic damper”. Applying the test laid down by the Privy Council and this Court in the decisions referred to above, it is clear that the contraption or device known as door closer consists of an arrangement having certain parts containing several materials which uses hydraulic oil filling and also with the main arm securely fitted to the shaft by a square or hexagonal profile or profile of any other suitable shape with a nut and a washer. The assembly consists of not less than sixteen items of material. Thus, the function of the door closer being one to retard the closing of the door by use of a hydraulic damper, the device clearly comes within the description of “machine”. We are aware of the decision of the Supreme Court which says that there should not be any technical approach nor should a commodity be understood in any technical sense but in the ordinary parlance of commercial context to class an item of goods in one category or another. In the present cases, considering the nature of the arrangement of the device and its functions it cannot be said that it is merely a door hinge and a simple device, not to be called a machine. Therefore, we cannot but reject the contentions raised on behalf of the respondent. The above discussion leads to the irresistible conclusion that door closers of the type sold by the respondent are machinery for the purpose of entry 20 of the Second Schedule to the Act and the decision to the contrary rendered by the Tribunal will have to be set aside restoring the orders of the assessing and appellate authorities.”

Methodex Systems Ltd Versus A.C. of Commercial Taxes (Zone-1), Bang. [2015 (1) TMI 62 - KARNATAKA HIGH COURT] -Machine/machinery - In order to construe a particular goods as machinery, it ought to be a mechanical device consisting of a planned and an organized arrangement, to perform a work which otherwise a man would have performed - Such a work is done in a more convenient way and may be faster than what a human being could do - Thus, it is a case of reduction or substitution of manual work by a machine - Such work may or may not result in a new product - Further, what may be examined is how the goods is perceived in the market

Ibex Gallagher Pvt Ltd Versus Commissioner of C. Ex., Bangalore-III [2008 (6) TMI 125 - CESTAT BANGALORE]- Appliance means “a machine that is designed to do a particular thing in home such as preparing food, heating or cleaning” according to Oxford’s Advanced Learner’s Dictionary. Equipment means “the things that are needed for a particular purpose or activity. Definition of System, which means “a group of things, pieces of equipment, etc., that are connected or work together”. The impugned item itself is known as Power Fence System.

Tata Sons Limited Versus Union Of India [ 1981 (9) TMI 277 - BOMBAY HIGH COURT]- Decision dated August 10, 1972 of Acting Chief Justice K.K. Desai in Miscellaneous Petition No. 330 of 1968 (IBM World Trade Corporation v. The Municipal Corporation of Greater Bombay and Another). The learned Judge took the view that possibly all machineries can be described as ‘apparatus’ but the expression ‘apparatus’ cannot be held to have been used in Item 52 in respect of articles which were classifiable as ‘machinery’ under Item No. 50. The learned Counsel also placed reliance upon  the decision of this Court in the case of I.B.M. World Trade Corporation v. Union of India reported in 1979 (7) TMI 102 - BOMBAY HIGH COURT and submitted that the Customs Department claimed that the Data Processing Machines are “machines” and not “appliances. Shri Talyarkhan is right in his submission that the computer cannot be described as “electrical appliance” because it is not an article of domestic use. In my judgment, the submission of Shri Talyarkhan that in view of the Tariff definitions, judicial decisions and because the Customs itself treated “computers” as “machine”, the decisions of the authorities below holding that the computers are liable to duty under Item 73 of the Tariff are incorrect, deserves acceptance.. Once it is found that the “computer” is “machine”, then the duty could be levied only under Item No. 72 and it would not be appropriate to stretch the meaning so as to attract the duty under Item No. 73 under the heading “electrical apparatus

REPLACEMENT OF LIFT

Meaning of Lift Bombay Lifts Act, 1939, the Bombay Lifts Rules, 1958 and Bombay Lifts (Amendment) Rules, 20- “lift” as has been defined in clause 3(c) to mean a “hoisting mechanism” equipped with a car which moves in a substantially vertical direction, is worked by power and is designed to carry passengers or goods or both; and “lift installation” which includes the lift car, the lift way, the lift way enclosure and the operating mechanism of the lift and all ropes, cables, wires and plant, directly connected with the operation of the lift.

As evident from the above definition Lift is a machine.

Machine means as Oxford Dictionary, 2013 edition, defines “machine” as a piece of equipment with moving parts that is designed to do a particular job and usually needs electricity, gas, steam, etc. in order to work.

Further Section 17(5)(c) and (d) excludes the plant and machinery from the ambit of immovable property. As per Explanation to Section 17(5)- Plant and Machinery means apparatus, equipment or machines………………". Hence in our view Lift is a Machine which is run by electrical energy which is capable to carry out specific functions irrespective of the fact that it is immovable property.

However some contrary rulings has been passed in which there was no discussion on the term Plant & Machinery and reliance was placed on the judicial pronouncements passed in earlier laws as follows:

AAR, Maharashtra in an Application by Palmas Co-Operative Housing Society Ltd [2020 (2) TMI 497 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA]- Replacement of existing lift/elevator by applicant, a CHS, paying GST on Maintenance charges collected. Applicant pleaded that the Lift is Equipment hence falls within the ambit of Plant and Machinery as defined in explanation to Section 17(5). Held:  Lift, after erection and installation is an immovable property because it becomes a part of an immovable property i.e. a building - in other words it is to be considered as an integral part of the building itself and it is not a separate part of the building - Therefore, manufacture, supply, installation and commissioning of lifts/elevators is in the nature of Works Contract (WCS) activity which results in creation of an immovable property - In view of Explanation to S.17 of the CGST Act, applicant is not entitled to ITC of GST paid on replacement of existing lift/elevator at its premises.

STORAGE UNITS, RUNNING COUNTERS ARE ORDINARILY IMMOVABLE

Furniture- This term refers to the movable items such as chair, table, desk

Fixture- This term refers to the immovable portion of furniture as over cabinet, pantry, kitchen

Furniture ordinarily means the movable contents of a house or room e.g. table, chairs, cots, etc. whereas a fixture is a “thing fixed or fastened in position”.

CRAFT INTERIORS PVT. LTD. VERSUS COMMISSIONER OF C. EX., BANGALORE [2006 (10) TMI 2 - SUPREME COURT]-  Furniture’ refers to movable items such as desks, tables, chairs, required for use or ornamentation in a house or office. Thus, ordinarily furniture is not something immovable or something which is fixed in a position which can be removed only by cannibalizing. We agree with learned Counsel for the appellants that the latter are fixtures and not furniture. We hold that items which are ordinarily immovable or which ordinarily cannot be removed without cannibalizing e.g. storage units, running counters, overhead unit, rear and side unit, wall unit, pantry unit, kitchen unit and other items which are ordinarily immovable or cannot be removed without cannibalizing are not furniture

WORKS CONTRACT SERVICES USED FOR THE PURPOSE OF LET OUT

Safari Retreats (P.) Ltd. v. Chief Commissioner of Central Goods & Service Tax. 2019 (5) TMI 1278 - ORISSA HIGH COURT- "In our considered opinion the provision of Section 17(5)(d) is to be read down and the narrow restriction as imposed, reading of the provision by the Department, is not required to be accepted, inasmuch as keeping in mind the language used in EICHER MOTORS LTD. VERSUS UNION OF INDIA [1999 (1) TMI 34 - SUPREME COURT], the very purpose of the credit is to give benefit to the assessee. In that view of the matter, if the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, it is required to have the input credit on the GST, which is required to pay under Section 17(5)(d) of the Central Goods and Services Tax Act, 2017. In that view of the matter, prayer (a) is required to be granted". The Supreme Court Bench  after condoning the delay issued notice in Special Leave Petition against the Judgment and Order dated 17-4-2019 of Orissa High Court in Writ Petition (C) No. 20463 of 2018 as reported in 2019 (5) TMI 1278 - ORISSA HIGH COURT (Safari Retreats Private Limited v. Chief Commissioner).[Chief Commissioner v. Safari Retreats Private Limited - 2020 (3) TMI 1150 - SC ORDER]

In this regard matters pending before High Court are-

Writ Petition has been filed before Hon'ble High Court of Bombay by Hinganghat Integrated Textile Park Pvt Ltd against Union of India challenging the validity of provisions of Section 17(5(c ) and 17(5)(d) of the CGST, 2017 on the ground of double taxation and discrimination with similarly situated other establishments. [HINGANGHAT INTEGRATED TEXTILE PARK PRIVATE LIMITED VERSUS UNION OF INDIA AND ORS. 2019 (10) TMI 1008 - BOMBAY HIGH COURT ]

The petitioner company, Kamal Cogent Energy Private Limited, has also challenged the levy of 9 per cent Central GST (CGST) and Rajasthan GST (RGST) for the land that it took on a 99-year lease from the Rajasthan Industrial Development and Investment Corporation (RIICO).

UNION OF INDIA AND OTHERS VERSUS WEST COAST PAPER MILLS LTD. AND ANOTHER  [2004 (164) E.L.T. 375 (S.C.)]- Once an appeal is filed before this Court and the same is entertained, the judgment of the High Court or the Tribunal is in jeopardy. The subject matter of the lis unless determined by the last Court, cannot be said to have attained finality. Grant of stay of operation of the judgment may not be of much relevance once this Court grants special leave and decides to hear the matter on merit

Advance Ruling have passed the ruling without considering the above Judgment passed by Orissa High Court as the same is pending before Supreme Court

Appellate Authority for Advance Ruling, Karnataka in an appeal filed by IN RE: M/S. TARUN REALTORS PVT. LTD. [2020 (3) TMI 981 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA]

Appellant is developing a shopping Mall entered into various lease agreements with their customers / tenants (Service recipients) and will be leasing all unit(s) at the Mall together with the right to use the staircases, common areas and other common facilities

Lift, Escalator, Travellator, Water treatment Plant, Sewage Treatment Plant, HSD yard, Mechanical Car Park, DG Set and, Transformers – These do not qualify as plant or machinery but are items which are procured for the purpose of construction of the immovable property

Orissa High Court has been appealed against by the Chief Commissioner of Central Taxes, Bhubaneshwar in SLP (C) No 026696 and the same is pending in the Apex Court. Since the order of the High Court has not yet attained finality, the same does not have persuasive value

In an application filed before AAR under GST, Rajasthan by IN RE: M/S. INDAG RUBBER LIMITED - 2020 (1) TMI 662 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN- Applicant has entered into agreement with M/s Elcom Systems for providing on lease a Maintenance Repair and Overhaul facility. Applicant further engaged M/s Akanksha Contracts pvt Ltd for supply various goods and services for setting up the MRO facility on its land. Held provisions of Section 17(5)(d) of the CGST Act, 2017 is clear that if the goods or services are used for the construction of an immovable property, the ITC shall not be available irrespective of the use of the said property.

In an application filed before AAR under GST, Tamil Nadu by IN RE: M/S. SREE VARALAKSHMI MAHAAL LLP [2020 (1) TMI 31 - AUTHORITY FOR ADVANCE RULING, TAMILNADU]- Applicant pleading that since immovable property being constructed by him is not for sale but for supply of renting services, ITC not deniable to him - HELD : Bar on availing ITC on inputs/input services used in construction of building under Section 17(5)(d) of Central Goods and Services Tax Act, 2017 is applicable even if said immovable property is used for furtherance of business. AAR held that  the judgment rendered by the Hon’ble High Court 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 that prayers of the applicant for eligibility to credit of input tax paid on goods/services used for construction which is rented for commercial purposes was accepted. However applicant plea to hold Section 17(5)(d) as ultra vires was not accepted

Nipro India Corporation Private Limited (Maharashtra), 2018 (10) TMI 745 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA - Authority for Advance Ruling, Maharashtra. Input tax credit - input services - cost of civil works incurred under Extension project - Mechanical Works - Electrical Works - Applicant submits that input tax credit in relation to ‘Mechanical Works’ and ‘Electrical Works should be admissible as such costs pertain to construction of plant and machinery. Whether on facts and circumstances of the case, the input tax credit of tax paid on costs proposed to be incurred in relation to Mechanical Works’ and ‘Electrical Works’ under the Extension Project can be treated as ‘admissible under the Central Goods and Services Tax Act, 2017? Held that : - Most of the services were held to be admissible. The credit on following services denied: Structural work, external finishing work, internal finishing work, M and E related civil work - M and E related civil works - Plumbing - Gardening water supply system - dismantling work - Fire protection work - sprinkler works - Extinguishers - fire documentation - relocation work - process waste water supply system (pipelines outside factory premises and civil work even inside factory) - works related to civil construction - demolition work.

 

By: Rachit Agarwal - May 4, 2020

 

Discussions to this article

 

Very nicely drafted along with relevant judgments and Advance Rulings.

I had a query that clause (d) of section 17(5) refers to "Plant OR Machinery" however the definition therein defines "Plant AND Machinery". Whether the use of OR in clause (d) is intentional to exclude it from the definition or it is a drafting error?

(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.

By: Ashwarya Agarwal
Dated: 05/05/2020

Dear Ashwarya Agarwal Ji

Appellate Authority for Advance Ruling, Karnataka in an appeal filed by Tarun Realtors Pvt Ltd. = 2020 (3) TMI 981 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA

The exception to the restriction contained in Section 17(5)(d) is regarding “Plant” or “Machinery. The words “Plant” and “Machinery” have not been defined separately under the GST Acts. However, the expression “Plant and machinery” is defined in the explanation to Section 17 of the CGST Act and such definition is for the purposes of Chapter V (Input Tax Credit) and Chapter VI (Registration) of the CGST Act. Justice G.P. Singh in the Principles of Statutory Interpretation (Thirteenth Edition) Chapter 7 page 485 has stated as follows:

The word ‘or’ is normally disjunctive and ‘and’ is normally conjunctive but at times they are read as vice versa to give effect to the manifest intention of the Legislature as disclosed from the context.

16. Applying the above principle to the instant case, we are of the opinion that in this case, the word ‘or’ in clause (d) of Section 17(5) of the CGST Act can be read as ‘and’ since it appears to give effect to the intention of the legislature to allow input tax credit on the construction of plant and / or machinery.

Hope the same is clarified.

By: Rachit Agarwal
Dated: 05/05/2020

Sir,

S17((5)(d)─ITC for construction of Immovable Property.─Till decision from Supreme court in the case of Safari Retreats Private Limited (2019) 31 J.K.Jain’s GST & VR 429 = 2019 (5) TMI 1278 - ORISSA HIGH COURT, ITC on Immovable Property constructed for Letting out of Property on Rent after grant of completion certificate; whether to be shown as Ineligible ITC in GSTR-3B-Table No.4–Clause D?

CA Om Prakash Jain, Jaipur, 9414300730, opjain02@yahoo.co.in

By: OmPrakash jain
Dated: 05/05/2020

In my Opiniion ITC related to goods/ services in relation to the property to be let out to be shown under "Other ITC" of GSTR 3B and at the same time reverse the same under "Other Reversal".

By this mechanism the assessee has the claimed the credit considering the time limit u/s 16(4) and reversal has been done as the matter is pending before Supreme Court.

At the same time, assessee should write the letter to the Jurisdictional Officer about the above fact.

By: Rachit Agarwal
Dated: 07/05/2020

 

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