purchase of underground water line from an unregistered person by a GST holder

[Balaji G]

a company proposes to purchase an existing water pipe line installed by a farmer for irrigation to use for the company purpose in as it is condition. will it be covered under GST. Company is registered under GST but may not have ITC benefit as their products are not taxable. kindly give your views. will it come under RCM as it is not in the listed goods or as the pipe work may be considered as a works contract will it attract GST.

[Sadanand Bulbule]

Dear Sir

Admittedly in your case no output tax is payable. Hence ITC available in the credit ledger cannot be utilised. There is no RCM on purchase of existing water pipelines from farmers. As existing water pipelines for irrigation are proposed to be purchased on "as is" basis, it does not fall under the definition of "works contract" under Section 2 [119] of the CGST Act, 2017.

[Shilpi Jain]

Is the pipeline owned by the farmer? Or is it only a right in the pipeline that he is transferring to you?

The pipeline does not come under exclusion in Sch III. 

Looks to be taxable. Further details may be required. There is no sale of land in this transaction right?

[KASTURI SETHI]

Installed water pipeline may fall under the definition   & scope of the term, 'plant' See Chapter 84 of Customs Tariff Act (as made applicable to GST Acts) for its taxability. The whole Chapter along with Chapter Notes will have to be carefully perused. 

[Padmanathan KV]

I agree with Shilpi Ma'am. Further details as to how the transaction is required. Is it transfer or right? is transfer of land involved?  

[Balaji G]

thank you for your timely replies. and sorry for not responding back in time for your queries. apart from the fact mentioned. The farmer does not own the lands. he laid the pipelines  through his own land and through other private and public lands at below 3 feet. My rationale for the query is if we purchased the pipe it is taxable. if we executed the work then  the services also taxable. so does it provide an option to purchase  an executed pipeline to limit the tax liability?  it is the need of the hour to get the water to our facility and we have executed an agreement of sale (not registered) and taken receipt for the payment.. Thank you once again

AI Summary

GST taxability of purchased underground pipeline depends on transfer character and classification, affecting reverse charge and ITC rights. Purchase of an existing underground irrigation pipeline installed by an individual should be treated according to the character of the transfer: an 'as is' purchase of tangible pipeline infrastructure is likely a supply of goods or capital asset (not a works contract) and may attract GST unless excluded; whether RCM applies and whether the buyer can claim input tax credit depends on whether the supply is within statutory listings, the seller's registration status, the precise classification (including possible treatment as Plant), and whether the transaction involves transfer of land or merely a right.