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 Implications on Underground Water Pipeline Purchase: Reverse Charge Mechanism or Works Contract under CGST Act, 2017? A company registered under GST plans to purchase an underground water pipeline from a farmer for its use. The farmer installed the pipeline for irrigation, and the company seeks clarity on the GST implications of this transaction. Since the company's products are not taxable, it may not benefit from Input Tax Credit (ITC). The discussion includes whether the transaction falls under the Reverse Charge Mechanism (RCM) or as a 'works contract' under the CGST Act, 2017. Various participants suggest that the transaction may be taxable, and further details are needed to determine if land transfer is involved. The company has executed an unregistered sale agreement and received payment.