2020 (5) TMI 388 - AAAR - GST

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

In Re: M/s. Wework India Management Private Limited

The Karnataka Authority for Advance Ruling allowed the input tax credit (ITC) on detachable 14mm Engineered Wood with Oak top Wooden Flooring, categorized ... Eligibility for GST input tax credit - detachable 14mm Engineered Wood with Oak top Wooden Flooring which is movable in nature - detachable sliding and stacking glass partition which is movable in nature - capitalized as “furniture and fixture”, and is not capitalized as “immovable property” - challenge to AAR decision - HELD THAT:- In the instant case, the foremost test to be applied for triggering the restriction under Section 17(5)(d) is whether an activity of fixing the detachable sliding and stackable glass partitions qualifies as ‘construction of an immovable property’ or not. The normal understanding of the term ‘construction’ is to ‘make or build’ something. For the purpose of Section 17(5)(d), the term ‘construction’ has been defined to include ‘re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.’ 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. Further, the detachable sliding and stackable glass partitions are accounted in the Appellant’s books of account as fixed assets under the head “furniture and fixtures”. They are not capitalised as immovable property but rather as movable assets. The lower Authority has observed that declaring the fixtures under the head “Furniture and Fixtures” does not make the items movable and they continue to be immovable property. However, the glass partitions are movable property by applying the tests of extent and object of annexation. 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. Input tax credit can be availed by the Appellant on the detachable sliding and stackable glass partitions which is movable in nature - the decision of AAR modified. 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.