2020 (5) TMI 388 - AAAR - GST

Tax Ruling: ITC allowed on wooden flooring; glass partitions movable property

The Karnataka Authority for Advance Ruling allowed the input tax credit (ITC) on detachable 14mm Engineered Wood with Oak top Wooden Flooring, categorized ... Input tax credit - Restriction under Section 17(5)(d) - Construction of immovable property - Immovable property - tests of extent of annexation and object of annexation - Classification as furniture and fixtures versus immovable property - Condonation of delay under Section 100(2)Input tax credit - Restriction under Section 17(5)(d) - Construction of immovable property - Immovable property - tests of extent of annexation and object of annexation - Classification as furniture and fixtures versus immovable property - Eligibility of input tax credit on detachable sliding and stackable glass partitions - HELD THAT: - Section 16(1) entitles a registered person to take input tax credit subject to restrictions in Section 17(5). Clause (d) of Section 17(5) denies credit where goods or services are received for construction of an immovable property (other than plant or machinery) on his own account and are capitalised. The restriction applies only if all criteria in the clause and its explanation are satisfied: (a) used for construction (including reconstruction, renovation, additions or alterations or repairs to the extent of capitalization); (b) construction on his own account; and (c) goods or services capitalised in books of account (paragraph 14). To determine whether fixing the glass partitions amounted to 'construction of immovable property', the Authority applied the established two-fold tests - extent of annexation and object of annexation - drawn from the definition of 'attached to earth' (paragraph 16). The partitions, though fixed with nuts and bolts, are detachable and can be dismantled and re-used without demolition of the civil structure; the intent of annexation is for beneficial enjoyment of the movable fixture (flexible demarcation of workspace), not permanent beneficial enjoyment of the immovable (paragraphs 16-17). The partitions are accounted as 'furniture and fixtures' (movable assets) and not capitalised as immovable property; therefore the conditions for disallowance under Section 17(5)(d) are not met. Accordingly, procurement of the detachable sliding and stackable glass partitions is eligible for input tax credit and is not hit by Section 17(5)(d) (paragraphs 16-17, 18). [Paras 14, 16, 17, 18]Input tax credit can be availed on the detachable sliding and stackable glass partitions as they are movable in nature and do not amount to construction of immovable property under Section 17(5)(d).Condonation of delay under Section 100(2) - Condonation of 29 days' delay in filing the appeal under the proviso to Section 100(2) - HELD THAT: - The impugned AAR order was received on 11.10.2019 and the appeal was filed on 09.12.2019 - a delay of 29 days beyond the 30-day period. The proviso to Section 100(2) permits condonation of delay for a further period of 30 days. Having considered the appellant's explanation that deliberations with the parent company and stakeholders caused the delay, the Authority exercised its discretion to condone the delay (paragraph 10). [Paras 10]Delay in filing the appeal of 29 days is condoned under the proviso to Section 100(2).Final Conclusion: The AAAR set aside the portion of the AAR denying ITC on detachable sliding and stackable glass partitions and held such partitions to be movable (eligible for input tax credit); the Authority also condoned the 29-day delay in filing the appeal. Issues Involved:1. Eligibility of input tax credit (ITC) on detachable 14mm Engineered Wood with Oak top Wooden Flooring.2. Eligibility of ITC on detachable sliding and stacking glass partitions.Issue-wise Detailed Analysis:1. Eligibility of ITC on Detachable 14mm Engineered Wood with Oak Top Wooden Flooring:The Karnataka Authority for Advance Ruling (AAR) held that the input tax credit of GST can be availed by the applicant on the detachable 14mm Engineered wood with Oak top wooden flooring which is movable in nature and capitalized as 'furniture.' This part of the ruling was not contested by the appellant.2. Eligibility of ITC on Detachable Sliding and Stacking Glass Partitions:Background:The appellant, engaged in providing shared workspace/office space, sought an advance ruling on whether ITC can be availed on detachable sliding and stacking glass partitions, which are movable and capitalized as 'furniture and fixture.' The AAR denied ITC on these partitions, leading to the appeal.Appellant's Arguments:- Section 16 of the CGST Act: The appellant argued that under Section 16, they are eligible for ITC as the partitions are used in the course or furtherance of business.- Section 17(5)(d) of the CGST Act: The appellant contended that the restriction under Section 17(5)(d) does not apply as the partitions are not used 'for construction of an immovable property' but are movable and capitalized as 'furniture and fixture.'- Nature of Partitions: The partitions are detachable, not embedded in the earth, and can be dismantled and re-used. They argued that these do not qualify as 'immovable property' as per the definitions in the General Clauses Act, 1897, and the Transfer of Property Act, 1882.- Business Model: The appellant's business model offers flexibility in workspace configurations, and the partitions can be adjusted as per the client's needs, indicating they are not permanent fixtures.- Accounting Treatment: The partitions are recorded as 'furniture and fixtures' in the books of accounts, not as immovable property.Authority's Analysis:- Condonation of Delay: The authority condoned the 29-day delay in filing the appeal, considering the appellant's explanation regarding deliberations with the parent company and stakeholders.- Interpretation of Section 17(5)(d): The authority examined whether the activity of fixing the partitions qualifies as 'construction of an immovable property.' They noted that the term 'construction' includes additions or alterations to the extent of capitalization to immovable property.- Tests for Immovable Property: The authority applied the tests of extent and object of annexation to determine if the partitions are immovable property. They found that the partitions are not permanently attached to the earth and can be dismantled without demolishing the civil structure.- Accounting Treatment: The partitions are capitalized as 'furniture and fixtures,' not as immovable property. The authority disagreed with the lower authority's view that categorizing them as 'furniture and fixtures' does not change their nature.Conclusion:The authority concluded that the detachable sliding and stacking glass partitions are movable property and do not amount to the construction of immovable property. Therefore, the procurement of these partitions is eligible for ITC and not restricted by Section 17(5)(d) of the CGST Act.Order:The authority set aside the portion of the Advance Ruling order denying ITC on the detachable sliding and stacking glass partitions and ruled that ITC can be availed by the appellant on these partitions.