Permanently Attached to Earth- Object of Annexation is Important

In an Appeal filed before Appellate AAR, Karnataka by IN RE: M/S. WEWORK INDIA MANAGEMENT PRIVATE LIMITED [2020 (5) TMI 388 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA]

Facts: The Appellant procures these items for the purpose of creating work spaces which are given out on rent to various companies and individuals as sharing work spaces. The detachable glass partitions are fixed to the ground with the help of nuts and bolt and the same can be dismantled and re-used.

Question: Whether an activity of fixing the detachable sliding and stackable glass partitions qualifies as ‘construction of an immovable property’ or not?

Order: The normal understanding of the term ‘construction’ is to ‘make or build’ something. 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 his own account. What remains to be determined is whether the fixing of glass partitions amounts to construction of ‘immovable property’?

To ascertain whether the item is permanently attached to earth, many courts have consistently used two-fold tests -

(i) the extent of annexation and

(ii) the object of annexation.

The extent of annexation means annexing the fixture or object by which it ceases to be detachable. It would need to be demolished if one were to remove it.

The object of annexation test lays down that where a movable property gets annexed with an immovable property, if the intent of annexation is of permanent beneficial enjoyment of the immovable property, then the fixture becomes an immovable property.

If the intent of annexation is the beneficial enjoyment of the movable property, then the property still remains movable.

Applying the above tests to this case, we find that the glass partitions are not permanent and are not embedded to the earth. They can be dismantled and moved according to the requirements of the clients of the Appellant. Although they are fixed to the earth with nuts and bolts, they can be dismantled without demolishing the civil structure. Therefore, the detachable sliding and stackable glass partitions do not qualify as immovable property.

We have held that the glass partitions are movable property by applying the tests of extent and object of annexation

The intent of fixing the glass partitions is only to provide the clients a certain sense of privacy and for the purpose of demarcation of work space area. 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.

Our Analysis: The order pronounced by the Appellate Authority is in-line with the Judicial Pronouncement by Supreme Court

1. Supreme Court in case of Commr. of C. Ex., Ahmedabad Versus Solid & Correct Engineering Works [2010 (4) TMI 15 - SUPREME COURT]
2. Supreme Court in case of Sirpur Paper Mills Ltd. v. Collector - 1997 (12) TMI 109 - SUPREME COURT