2019 (7) TMI 617 - AAR - GST

ITC denied for breakwater construction as immovable property, not plant/machinery under GST Act. Works contract services classification not addressed.

In Re: M/s. Konkan LNG Private Limited

The applicant was deemed ineligible to avail/utilize Input Tax Credit (ITC) for the construction of a breakwater wall, as it was considered immovable ... Input tax credit - inputs - goods/ services used on the construction of the break water wall - whether the breakwater that is being constructed for the applicant can be considered to be “Plant and Machinery”? - HELD THAT:- The applicant has agreed that the breakwater is an immovable property. Any apparatus, equipment & machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both can be considered as plant and machinery. Further, the exclusion clause includes Land, Building or any other Civil Structure - the breakwater can be considered as a civil structure. Such apparatus, equipment and machinery should be used for making outward supply of goods or services or both. In the subject case the breakwater will, if any, be facilitating the receipt of raw material i.e. LNG by the applicant. It is not going to be used for rendering outward supply of goods or services or both. As per the decision of Hon’ble High Court in the case of Mazgaon Dock Limited [1991 (3) TMI 114 - BOMBAY HIGH COURT] for the breakwater, to qualify for inclusion in the term ‘plant’, it must be established that it is impossible for the regasification plant to function without the breakwater. In the subject case the applicant’s regasification plant is already functioning without the complete breakwater in place, as can be seen from their submissions. The applicant has not been able to establish that it is impossible for them to function without breakwater wall. Works contract services - whether predominantly earth work or not? - whether services of the works contract by the contractor is covered under item (vii) of serial No.3 of Table of the N/N. 11/2017-CentraI Tax (Rate) dated 28th June, 2017 as amended by N/N. 31/2017 - Central Tax (Rate) dated 13th October, 2017? - HELD THAT:- As per provision of section 95 of CGST ACT, this authority can give a ruling to the applicant on matters or questions raised, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant - Since the breakwater is going to be constructed by a contractor the supply, if any, in such a case will be undertaken by the contractor and not the applicant. Hence in view of the provisions of Section 95 of the GST Act, the issue is not within the purview of this authority and therefore this question is not being answered. Issues Involved:1. Eligibility to avail/utilize input tax credit (ITC) for taxes paid on the construction of the breakwater wall.2. Classification of works contract services in relation to earthwork under Notification No. 11/2017-Central Tax (Rate).Detailed Analysis:Issue 1: Eligibility to Avail/Utilize Input Tax CreditThe applicant, engaged in regasification of LNG, sought clarification on whether they could avail ITC for taxes paid on the construction of a breakwater wall adjacent to their jetty. The breakwater wall, according to the applicant, is integral to the jetty's operation, ensuring safety and operational efficiency by protecting against high waves and tides.The applicant argued that the breakwater wall should be considered as 'plant and machinery' and not fall under the exclusion clause of Section 17(5) of the GST Act, which disallows ITC for construction of immovable property (other than plant or machinery). They supported their claim by citing various judicial precedents where structures integral to business operations were considered as plant and machinery.However, the authority observed that the breakwater wall is an immovable property and does not qualify as 'plant and machinery' under the GST Act's definition. The breakwater wall is a civil structure, and as per Section 17(5)(d), ITC is not available for immovable property construction. The authority emphasized that the breakwater wall, while facilitating the receipt of raw material (LNG), is not used for making outward supply of goods or services, thus disqualifying it from being considered as plant and machinery.The authority concluded that the applicant is not eligible to avail/utilize ITC for the construction of the breakwater wall.Issue 2: Classification of Works Contract ServicesThe applicant also sought a ruling on whether the works contract services intended for the breakwater construction, which they claimed predominantly involved earthwork, fall under item (vii) of serial No. 3 of Notification No. 11/2017-Central Tax (Rate).The authority noted that it is governed by the provisions of Chapter XVII of the CGST Act, which allows for advance rulings on matters related to the supply of goods or services by the applicant. Since the breakwater construction is to be carried out by a contractor, the supply in question is undertaken by the contractor, not the applicant. Therefore, the authority determined that this issue does not fall within its purview and did not provide an answer.Conclusion:1. Eligibility to Avail/Utilize ITC: The applicant is not eligible to avail/utilize ITC for the construction of the breakwater wall as it is considered an immovable property and not plant and machinery under the GST Act.2. Classification of Works Contract Services: The authority did not answer this question, as it pertains to the contractor's supply, which is outside the scope of the applicant's query under the advance ruling provisions.