2020 (11) TMI 1052 - AAAR - GST

Input Tax Credit Denied on Paver Blocks Purchase: Appellate Authority Affirms Decision

The Appellate Authority upheld the Maharashtra Authority for Advance Ruling's decision that the Appellant is not entitled to avail Input Tax Credit on the ... Input tax credit - purchase of Paver Blocks, laid on the land which are being used by them in the course of providing their taxable output supply to their customers - Laying of the Paver Blocks on the land amounts to construction of immovable property under Section 17(5)(d) of the CGST Act, 2017 or not - capitalization of expenses on the Paver blocks - HELD THAT:- The immovable property inter-alia includes the things which are attached to the earth. Now, in the present case, it has been submitted that the 'Paver Blocks' are laid on the surface of the automobiles stock yard with the aid of the filling material, i.e. sand and the outer wall, constructed at the automobiles stock yard. Here, it is amply clear that the filling materials, i.e. sands and the outer walls helps the 'Paver Blocks” to remain attached and fixed to the Earth - Once it has been established that the 'Paver Blocks' are attached to the land/surface, the same is considered as an immovable property in terms of its definition provided under the General Clauses Act, 1897. The Appellant has contended that the MAAR did not appreciate the technical nature, mobility and characteristics of the 'Paver Blocks' before holding the laid out 'Paver Blocks' as an immovable property. It has further been contended that the subject 'Paver Blocks' can easily be moved from one place to another without being damaged and re-erected there, thereby, conforming to the inherent nature of movable property. In this regard, it is observed that the 'Paver Blocks', once laid over the surface to comprise the parking system, cannot be moved “as it is” to another place as the same is also supported by the edge restraints provided by the outer wall constructed along the perimeter of the parking area of the said stock yard, which causes the paver blocks to get fastened or embedded to the earth permanently - The fact that it would clearly not be intention of the Appellant to move these 'Paver Blocks' from one place to another, lends certain degree of permanency to the 'Paver Blocks' laid over the surfaces, which is the essential characteristics of the immovable property. The issue which is important here is whether it was the intention of the Appellant to dismantle the paver blocks. It is seen that the Appellant has taken over the land on lease for a period of 5 years. It can be deduced from it that the paver blocks are intended to be a permanent structure and there is no intention to dismantle it frequently and take it to any other place. On perusal of Section 17(5)(d) of the CGST Act, 2017, it is observed that the clause “to the extent of capitalization, to the said immovable property” is applicable only with respect to the reconstruction, renovation, additions or alterations or repairs of the said immovable property, and not with respect to the original construction work of an immovable property. In the present case, the laying of 'Paver Blocks' over the surface of the stock yard would not come under the ambit of the aforesaid explanation as the same cannot be categorized as reconstruction, renovation, additions or alterations or repairs of an immovable property. The laying of 'Paver Blocks' will rather be construed as original construction work of immovable property which in the present case is 'parking system'. Issues Involved:1. Eligibility to avail Input Tax Credit (ITC) on the purchase of Paver Blocks.2. Whether laying of Paver Blocks amounts to construction of immovable property under Section 17(5)(d) of the CGST Act, 2017.3. Applicability of the explanation to Section 17(5)(d) regarding the capitalization of expenses.4. Relevance of judicial precedents cited by both parties.5. Timeliness of the Advance Ruling pronouncement.Detailed Analysis:1. Eligibility to Avail Input Tax Credit (ITC):The Appellant argued that they are eligible to avail ITC on the purchase of Paver Blocks as they are used in providing taxable output services. They contended that the blocks are movable and not permanently embedded in the earth, thus not constituting immovable property under Section 17(5)(d) of the CGST Act, 2017. The Appellant also claimed that the expenses for the Paver Blocks are treated as revenue expenditure, not capitalized, which should allow for ITC.2. Construction of Immovable Property:The Maharashtra Authority for Advance Ruling (MAAR) held that the Paver Blocks, once laid on the surface, become part of immovable property. They relied on various judicial precedents, including the Hon'ble Bombay High Court judgment in M/s. Bharati Airtel Ltd. and the Hon'ble Supreme Court judgment in Municipal Corporation of Greater Bombay vs. Indian Oil Corporation Ltd., to conclude that the Paver Blocks are attached to the earth and thus immovable property. The Appellant's reliance on the Supreme Court's ruling in Sirpur Paper Mills Ltd. was rejected as the facts were deemed different.3. Explanation to Section 17(5)(d) Regarding Capitalization:The Appellant argued that since the expenses on Paver Blocks are not capitalized but treated as revenue expenditure, they should be allowed to avail ITC. However, the MAAR and the Respondent contended that the explanation to Section 17(5)(d) applies only to reconstruction, renovation, additions, or repairs, not to original construction. The laying of Paver Blocks was deemed original construction, thus falling under the prohibition of ITC.4. Judicial Precedents:The Appellant cited the Hon'ble Orissa High Court judgment in Safari Retreats Pvt. Ltd., which allowed ITC for immovable property intended for letting out. However, the Respondent noted that this judgment is under appeal in the Supreme Court and has not attained finality. The Appellant also referred to the Karnataka AAR judgment in Wework India Management Pvt Ltd., which allowed ITC for detachable items. The MAAR, however, relied on the Bombay High Court and Supreme Court judgments to support their conclusion.5. Timeliness of Advance Ruling Pronouncement:The Appellant contended that the MAAR did not pronounce the ruling within the stipulated 90 days from the date of receipt of the application, as required under Section 98(6) of the CGST Act, 2017. This procedural lapse was noted but did not affect the substantive outcome of the ruling.Conclusion:The Appellate Authority upheld the MAAR's decision that the Appellant is not entitled to avail ITC on the purchase of Paver Blocks. The Paver Blocks, once laid, were deemed immovable property, and the expenses on their purchase were considered part of the original construction, thus falling under the prohibition of Section 17(5)(d) of the CGST Act, 2017. The appeal was dismissed, affirming the MAAR's ruling.