ITC eligibility on houseboat

[HIMANSHU BHUSHAN]

Dear users, I want to ask whether houseboat would be considered as movvable or immovable under GST? Because in case it is consdiered as immovable, ineligibility of ITC under Section 17(5)(c) and (d) relating to works contract and construction of immovable property may get attracted.

Thanks in advance

[Raam Srinivasan Swaminathan Kalpathi]

Under provisions of the Income-tax Act, 1961 houseboats are NOT considered as Immovable property for purposes of availing deduction Sec.54 - 'Profit on sale of property used for residence'.  These have been considered as 'movable assets' and Sec.54 deduction have been denied.  

[Sadanand Bulbule]

Dear Sir

Immovable property is defined under Section 3(26) of the General Clauses Act, 1897 as including land, benefits arising out of the land, and things attached to the earth, or permanently fastened to anything attached to the earth. “Things attached to the earth” is defined under Section 3 of Transfer of Property Act, 1882 as (a) rooted in the earth, as in the case of trees and shrubs, (b) imbedded in the earth, as in the case of walls and buildings, and (c) attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached. The permanency of such fastening is required to be tested based on the nature of the components, that is, it is to be seen whether it can be removed, dismantled and assembled/used elsewhere without damage.

Keeping this interpretation in mind, houseboats shall have to move on water to be functional.What is movable is not immovable. Accordingly the entitlement of ITC has to move positively.

[Ganeshan Kalyani]

I agree with the view of the experts. ITC is eligible.

[KASTURI SETHI]

   A   foolproof reply  by Sh.Sadanand Bulbule, Sir.

[Sadanand Bulbule]

Dear Sir

Please refer the following CBIC Circular also:

Circular No. 219/13/2024-GST

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, Pl. refer to your post at serial no. 5 dated 28.06.24.

The ratio of the above circular has cemented your reply posted at serial no. 2 dated 19.06.24 The circular was issued on 26.06.24 and your reply was posted on 02.06.24. Hence your reply was and is visionary. Rather, I would like to term it as "more visionary than anticipatory".

To be continued.

[KASTURI SETHI]

(i) Houseboat is motorized and non-motorized. Mostly house boats are motorized.

(ii) Houseboat is a temporary stay. It is out of the scope of residential dwelling. 

(iii)  It is not permanently  fixed in the lake. It is anchored.

(iv)  Houseboat is an equipment and hence it falls in  the  definition and scope of  machinery.

[KASTURI SETHI]

In continuation of my above post

Hence there is no doubt about moveability of houseboat. One example ; Truck is also an equipment. Just like as truck is moveable on road (land), houseboat is moveable on water. In the above latest circular, ITC has been allowed on 'ducts' and 'manholes' which are permanently fixed to earth on the ground that these are not specifically excluded.in Section 17 (5). of CGST Act

What is worthwhile to highlight that in the said circular, the Board has used the words, 'it appears' in para no. 3 of the circular. When the Board is clarifying some issue the usage of the words, 'it appears' can create legal problem later on in the specific context and purpose for which circular has been issued.

[Sadanand Bulbule]

Dear Sh. Sethi Sir

Your last observation is very apt to the extent of using the phrase "it appears" by the apex body like CBIC. In my personal and limited understanding, the clarification would have been more emphatic without that phrase. What appears to one need not appear the same to the other,especially to the judicial courts. With all this, the use of phrase "it appears" in the circular may not be without valid reason. The wisdom of the CBIC is wider than the taxpayers. I hope so.

[Padmanathan KV]

I agree with views of the Experts. However for academic discussion sake:-

A.1. Pls consider the Sub-section (3) of section 12 of IGST Act, 2017 which reads as under:

(3) The place of supply of services,––

(a) directly in relation to an immovable property, including services provided by architects, interior decorators, surveyors, engineers and other related experts or estate agents, any service provided by way of grant of rights to use immovable property or for carrying out or co-ordination of construction work; or

(b) by way of lodging accommodation by a hotel, inn, guest house, home stay, club or campsite, by whatever name called, and including a house boat or any other vessel; or

(c) by way of accommodation in any immovable property for organising any marriage or reception or matters related thereto, official, social, cultural, religious or business function including services provided in relation to such function at such property; or

(d) any services ancillary to the services referred to in clauses (a), (b) and (c),

shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located:

A.2. The use of the expression immovable property OR boat OR vessel, in a way, signifies the fact that boat or vessel is not immovable property. Hence, in my humble opinion, one can take cue from IGST Act itself to say that house boat is not an immovable property.

B.1. Interestingly, one can find that in European Union Jurisdiction (EuVAT), the European Court of Justice (ECJ) in Leichenich (C-532/11), in the context of leasing/renting of houseboat, has held that such leasing is of immovable property and EuVAT is not exigible. The relavant extract of the ruling is as under:

20      Following those findings of the national court, it is necessary to examine the situation of the houseboat not in an isolated manner, but taking account of its integration into its site.

21 Having regard to those factual elements, it must be held that the non-submerged part of the ground corresponding, in the case in the main proceedings, to the plot contiguous with the site of the houseboat on the water constitutes immovable property. Similarly, the submerged and demarcated part of the riverbed, which is covered by the river water on which the houseboat rests, constitutes immovable property (see, to that effect, Fonden Marselisborg Lystbådehavn, paragraph 34; Case C‑451/06 Walderdorff [2007] ECR I‑10637, paragraph 19). The national court observes that use of the houseboat permanently prevents any other use of the waters which it covers.

22 The houseboat, the non-submerged part of the ground and the submerged part of the riverbed constitute a whole which forms the main subject-matter of the leasing contract.

23 It is apparent from the order for reference that the houseboat, without any system of propulsion, has been immobilised on that part of the river water for many years. It is attached to the demarcated part of the riverbed by means of anchors and is attached to the bank by chains and ropes. Those immobilisation measures cannot be removed easily, that is to say without effort and considerable cost. In accordance with the case‑law of the Court of Justice, it is not necessary for a construction to be indissociably incorporated into the ground in order to be regarded as immovable property for the purposes of applying the rules on VAT (Maierhofer, paragraph 33).

24 By the terms of the leasing contract which is concluded for a duration of five years and which shows no wish of the parties to confer an occasional and temporary character to the use made of the houseboat, the latter is used exclusively for the permanent operation of a restaurant‑discotheque. Moreover, the houseboat has a postal address and telephone line and is connected to the water and electricity mains.

25 Taking account of the houseboat’s link with the elements that constitute its site and of the fact that it is fixed to those elements, which render it, in practice, a part of that space taken as a whole, and taking into account also the contract which allocates the houseboat exclusively and permanently to the operation, on that site, of a restaurant‑discotheque, and taking account of the fact that the latter is connected to the various mains, it must be held that the whole constituted by the houseboat and the elements which compose the site where it is moored must be regarded as immovable property for the purposes of applying the exemption referred to in Article 13B(b) of the Sixth Directive.

B.2. The above ruling cannot be adopted directly into Indian GST Law context. One has to consider the circumstances (basically, involves leasing/renting) under which C-532/11 has been rendered by ECJ and also that the jurisprudence related to immovable property in India (General Clauses Act, law of registration, Transfer of Properties Act, Stamp Duty laws, etc.) is quite different.

AI Summary

Debate on ITC Eligibility for Houseboats: Movable or Immovable Property Under GST? Section 17(5) in Focus. The forum discusses the eligibility of Input Tax Credit (ITC) for houseboats under the Goods and Services Tax (GST) framework, questioning whether houseboats are considered movable or immovable property. Participants argue that houseboats are movable, as they are not permanently affixed to the earth, thus not falling under the immovable property category, which would restrict ITC eligibility under Section 17(5) of the CGST Act. References are made to legal definitions and a CBIC circular, supporting the view that houseboats should be classified as movable, allowing ITC claims. Comparisons with European VAT rulings are also mentioned but deemed contextually different.