TMI Blog2019 (6) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... illbe constructed should not be seen as pipelines outside the factory , since the FSRU cannot be considered as a factory. To support their contention that the FSRU is not a factory, the applicant stating that the term factory is not defined under the CGST Act, has relied on dictionary meanings and brought out that it is essential to have building for anything to be called a factory and since there is no building in place there, the FRSU cannot be called a factory. In the subject case the FSRU is a place where there are workers who are working and the process that takes place there, is one of conversion of LNG to gaseous form. 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te issued under Central Goods and Services Tax Act, 2017 ( CGST 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 regasified natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery 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 pipelin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port which is used for making outward supply will be treated as plant and machinery . D.3 The term equipment is defined in the dictionaries as a thing which is used for particular or special purpose. In the present case, the Tie-in pipeline is used for delivery of natural gas from the terminal to the cross-country pipeline. Thus, the pipeline is used for the specific purpose of delivery. Further, as stated above, the delivery of gas up to the cross-country pipeline is an integral and essential part of the services provided by the applicant. D.4 Thus, the Tie-in pipeline is used for making outward supply of re-gasification services by the applicant. Accordingly, the Tie-in pipeline will be treated as plant and machinery . The exclusion clause in the Explanation to Section 17 i.e. Pipelines laid outside the factory premises is not applicable in present case. E.1 Clause (iii) of the explanation to section 17 excludes pipelines laid outside the factory premises from the definition of plant and machinery . Thus, ITC would be available only in respect of the pipelines which are laid inside a factory premises. E.2 The applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A thing composed of the fabric of the building and the ground that the fabric rests upon and encloses . It is further stated by the author that the land upon which the walls of a stone or brick building rest, or, indeed, of any other kind of building which in law is considered as annexed to the soil, and which is not clearly severed therefrom by the terms of the deed itself, must be considered as part of the building itself . In Stroud's Judicial Dictionary (Vol. I. 5th Edn.), the word 'building' is defined thus: What is a building must always be a question of degree and circumstances . In Black's Law Dictionary (5th Edn.), the meaning of the word building is given as follows: A structure or edifice enclosing a space within its walls, and usually, but not necessarily, covered with a roof. In Bourvier's Law Dictionary (A Concise Encyclopedia of the Law Vol. 1.3rd Revision) the meaning of building is given as an edifice, erected by art , and fixed upon or over the soil , composed of brick, marble, wood, or other proper substance, connected together , and designed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mises, and in order to be excluded from the definition of plant and machinery. the pipeline should be laid outside such factory premises. The wordings used in the Explan be read as it is and it cannot imply anything which is not expressly stated. A.1 Section 17(5) of the Central Goods and Services Tax Act, 2017 ( CGST Act ), inter alia, restricts the availability of ITC of GST paid on goods and services used for construction of immovable property. The relevant portion of the Section 17(5) is extracted as under: (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: (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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atutes so as to supply any assumed deficiency. A.5 Similar view was given in the decision of Supreme Court in case of A.V. Fernandez v. State of Kerala reported at AIR 1957 SC 657 = 1957 (4) TMI 46 - SUPREME COURT . The relevant portion of the said judgment is extracted as under- .It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter... A.6 Thus, the applicants submit that the exclusion clause pipelines laid outside the factory premises has to be strictly interpreted. The aforesaid exclusion clause presupposes that there should be a factory premises, and in order to be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty. Land and tenements; an estate, including land and buildings thereon; the subject-matter of the conveyance. F.F. Proctor Troy Properties Co. v. Dugan Store, 191 App.Div.685, 181 NYS 786. The area of land surrounding a house, and actually or by legal construction forming one inclosure witli it. A distinct and definite locality and may mean a room, especially building or other definite area, or a distinct portion of real estate. Land and its appurtenances. (v) Cambridge International Dictionary of English (in PI) the land and building owned by someone, esp. by a company or organization. (vi) The American Heritage Dictionary of English Language, III Edition 4. premises. a. Land and the building on it. b. A building or a part of building on it. (vii) Wharton s Law Lexicon. 1976 Reprint Ed premises is often used as meaning land or houses . (viii) Cochran s Law Lexicon, IV Edition Premises means houses or lands . (ix) Earl Jowitt, Dictionary of English Law Premises...from this use of the word, premises has gradually acquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular use. Apparatus means something which is inclusive of some other appliance. Apparatus are the implements used in an operation or activity. Equipment is an act of equipping or fitting, or the state of being equipped; to supply with whatever is necessary to efficient action in the way. Equipment is a thing which is used for a particular purpose. Webster Comprehensive Dictionary Apparatus - A complex devise or machine for a particular purpose: an X-ray apparatus . Apparatus - An integrated assembly of tools, appliances, instrument, etc. operating to achieve a specified result. Equipment - Whatever constitute an outfit for special purpose Machine - Any combination of mechanics for utilizing, modifying, applying, or transmitting energy, whether simple, as a lever and fulcrum, pulley, etc. or complex, as a Fourdrinier papermaking apparatus . Black s Law Dictionary Equipment - The articles or implements used for a specific purpose or activity Machine - A devise or apparatus consisting of fixe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y emergencies like leakage in pipeline etc. x. SCADA Monitoring system - This system is installed for supervision and control of pipeline remotely and for data / parameters acquisition remotely. xi. Power Generation Systems (Diesel Generators Solar Panels) -These are installed at Terminals and SV Stations for generation Of secondary power or back up power. xii. Filtering- This equipment is located at the start point and end point of the pipeline for filtration of Gas thereby separating any debris or solid contamination. xiii Gas Detention/ Leak Detection system - The Gas and leak detection systems are used to identify whether any leak has occurred in any part of the pipeline network. xiv. OFC cables - These are laid down alongside the pipeline for collection and transfer of data relating to the tie-in pipeline. xv. Gauges Transmitters - These instruments are installed in pipeline for measuring and transmitting parameters like pressure and temperature of gas. xvi. Cathodic Protection System - This system is installed in pipeline for controlling the corrosio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other statutes, when they are not dealing with the same subject, is bad interpretation. In this regard, the Hon ble Supreme Court in the case of M/s. Msco. Pvt. Ltd vs Union of India, 1985 AIR 76 = 1984 (10) TMI 44 - SUPREME COURT , held as under: But while construing a word which occurs in a statute or a statutory instrument in the absence of any definition in that very document it must be given the same meaning which it receives in ordinary parlance or understood in the sense in which people conversant with the subject matter of the statute or statutory instrument understand it. It is hazardous to interpret a word in accordance with its definition in another statute or statutory instrument and more so when such statute or statutory instrument is not dealing with any cognate subject. .emphasis supplied C.4 Thus, in view of the aforesaid judgment, it is incorrect to adopt the meaning of factory given in the Factories Act 1948 to interpret the term factory premises used in Explanation to Section 17(5) of the CGST Act. C.5 Further, even Section 2(m) of the Factories Act, 1948 defined factory as any premises where manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stribution of gas to the customers. The applicant s main concern is whether they are eligible to avail ITC of GST paid on goods and services used for the construction of the pipelines. In this context the questions raised and to be answered are (i) whether FRSU is a factory ; (ii) whether the pipeline flowing from the FRSU can be treated as pipeline outside the factory and (iii) whether the pipeline can be considered as an apparatus to be included in the expression plant and machinery . The answers to these questions will decide whether they are eligible to avail ITC of GST. The eligibility for taking input tax credit ( ITC ) is dealt in the Sections 16 and 17 of the CGST Act. Section 16 states that a registered person shall be entitled to take ITC on goods and services used or intended used in the course or furtherance of his business and 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plot Of land with plant for manufacture of goods. Therefore the pipeline will not amount to a pipeline laid outside factory premises The applicant also argued, without any strong reasoning, that the definition contained in Factories Act, 1948 should not be relied upon but only the dictionary meanings should be taken into consideration to define the term factory , We do not agree with this contention of the applicant. When there is no definition of factory available in the GST Act, a definition given in some other Act passed by the legislature can always be relied upon. Accordingly we are of the considered view that Section 2(m) of The Factories Act, 1948 which defines the term factory should be considered which is reproduced as under:- 2. (m) factory means any premises including the precincts thereof- (i) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or (ii) Whereon twenty or more workers are working, or were working on any day of the preceding twelv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory and not the building. A building will not be called a factory if there is no production or manufacture of something. Merriam Webster defines factory as under: Factory - An establishment devoted to the manufacture of something, including the building or buildings and machinery necessary to such manufacture; a manufactory. As per the above definition quoted by the applicant himself, it is an establishment devoted to manufacture of something. Here production /manufacture of something by an establishment is the critical aspect of a factory not just the building. It is relevant to mention here that there are some dictionaries which define factory ship which are given below: The freedictionary.com : An ocean vessel equipped to process fish or other marine food Merriam-Webster dictionary: a ship equipped to process a whale or fish catch at sea Therefore, 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 ..... 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