TaxTMI 
TaxTMI 
2021 (7) TMI 1344
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....es across Karnataka and dispose the same as per the guidelines of Central Pollution Control Board (CPCB) and Karnataka Mother Earth State Pollution Control Board (KSPCB). They have obtained the land on lease from the Government and constructed land filling pit for processing and disposal of solid waste. They have given a detailed brief on the construction of the land fill pit. On completion of filling landfill pit, it is closed and sealed as per the environmental guidelines and it is maintained for further 30 years without doing any activity on that particular landfill pit. The applicant contends that the landfill pit is plant and machinery and they have capitalised the same in their books of accounts. Further, they have claimed depreciation under the income tax excluding the GST paid thereon. 3. In view of the above, the applicant has sought advance ruling on the following question: Whether the term "other civil structure" used in the definition of "Plant and Machinery" restricts the Land filling Pit from considering it as Plant & Machinery and thereby restricts ITC to be availed on it. 4. An Advance Ruling had been issued in this case on 11.09.2020 and the applican....
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.... to say that ITC can be availed on supplies of Goods and Services used for construction of Plant and Machinery and further the act has provided the definition of plant and machinery". 6.2 As per Explanation 2 to Sec 17 (5) "Plant and Machinery" means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes - (i) land, building or any other civil structures; (ii) Telecommunication towers; and (iii) Pipelines laid outside the factory premises. "Here the Plant and Machinery the Company is referring to is a "Land Filling Pit" which is an apparatus fixed to earth with the help of a structural support that are used for making outward supply of services and does not amounts to any Civil Structure". 6.3 Documents needed for claiming ITC: a. An invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31; b. An invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the pa....
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....ortion". 6.4 The Industrial waste management is essential to protect the environment. The applicant company has undertaken the work of the collection of the medical and industrial solid waste for processing and then disposal of the same scientifically, which in turn helps the country to maintain the intention of "Swachch Bharath". In the process of construction of Plant and Machinery which involves various inputs viz., cement, sand, steel, aluminium, wires, plywood, paint, electrical equipments, etc., and also services in the form of consultancy service, architectural service, legal and professional service, engineering service and other services. Therefore, the applicant has to purchase/receive these goods and services for carrying out the said construction. All these goods and services which are purchased / received for such constructions are taxable under the GST Act. 6.5 The GST Act was implemented with effect from 1st July, 2017 inter-alia with the object of avoiding the cascading effect of various indirect taxes and so as to reduce the multiplicity of a number of indirect taxes. The said GST Act is based on the VAT concept of allowing input tax credit of tax paid on ....
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.... tax credit would be a sharp and inevitable increase in the cost which the owner of the Plant and Machinery would be compelled to incur. 6.8 As already pointed out, these two types of transactions cannot possibly be compared or bracketed together, for the purpose of levy of GST, as already explained in detail earlier. The treatment of these two different types of immovable properties as one for the purpose of GST is itself contrary to the basic principles regarding classification of subject matter for the levy of tax and, therefore, violates Article 14 of the Constitution. Such a classification also constitutes the treatment of assesse like the client on a totally different footing as compared with other assesse who have a continuous business and an unbroken tax chain. Thus, the same violates the client's fundamental right to equality guaranteed by and under or Article 14 of the Constitution, on this distinct and independent ground also. Further, as also pointed out hereinafter, the GST authorities are themselves reading down Section 17 (5) (d) and treating it as inapplicable for any person who constructs Plant and Machinery for further supply of Goods and Services and pays C....
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....GST Act, the authorities under both the Acts cannot contend that in the middle of the business the client is not entitled to take credit of input tax, against the CGST and SGST paid on services rendered using such plant and machinery and such an interpretation clearly goes against the intention of the Legislature and also frustrates the object for which the aforesaid Acts were enacted. Such an interpretation will debar those taxable persons like the client, who carry on a continuous business without any break but in spite of that they would be treated differently being denied the benefit of taking input tax credit as available to those taxable person under Section 16 of both CGST Act and SGST Act and such classification of taxable persons into two category even though both have continuous business activities and both have an unbroken tax chain is a clear violation of the fundamental rights of the client as guaranteed under Article 14 and 19 (1) (g) of the Constitution of India. 6.12 The classification which the legislature has made in CGST Act and SGST Act by denying input tax credit to one class of taxable persons having a continuous business by placing them under Section....
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....e. The Plant and Machinery which the client is constructing is neither "intended for sale' nor "on his own account' but it is "intended for offering services". Therefore, by no stretch of imagination, it can be concluded that the Plant and Machinery which is constructed by the client is `intended for sale' or 'on his own account' and as such when the said Plant and Machinery is constructed purely for the purpose of offering service, then such construction of the Plant and Machinery will not come within the mischief of Section 17 (5) (d) of CGST Act and SGST Act. On the aforesaid clear position of law, if the GST authorities are trying to bring the client case under section 17 (5) (d) of both the aforesaid Acts then several words has to be read into the Section 17(5)(d) of the said two Acts which are not permissible in law and it is a well settled law that in constructing fiscal statute and in determining the liability of a subject to tax, one must have regard to the strict letter of law and no words can be added to a statute or read into it which are not there. 6.14 Legislature has also imposed another condition in Section 17(5) (d) of both the aforesaid Acts which reads as when....
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....alore, which are as under: 7.1 The work involved in the construction of the landfill, as seen from the scope of work documents, is civil in nature on the basis of the following lines. • Basic design of cells in landfills, liner installation and leachate collection system. • Technical specifications for single composite liner system, double composite liner system, cover system. • Construction of main leachate pipe, tank and treatment facility. • Design of slopes • Various design requirements for liner system's adequate stability at the base of the landfill (in soft soil), along the sides of the landfill, adequate strength to withstand construction loads/ vehicle loads et al. 7.2 The above-mentioned details as per applicant's submission clearly shows that the landfill pit comprises extensive civil work in order to be built pit, which is basically a concrete structure after undertaking extensive geological survey of the property, a design is made and then extensive construction work is undertaken. 7.3 Further, the term 'immovable property' has not been defined in the GST law but it is defined in Section 3(26) of....
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.... is clearly stated for - "land, building or any other civil structures". Also, on similar issue in the case of Safari Retreats Private Limited, the Department has filed an appeal before Hon'ble Supreme Court of India as Hon'ble High Court of Orissa has allowed ITC (though not declared ultra vires) on goods and services consumed in construction of shopping malls rented out by the assessee. Hence as discussed above, it is opined that ITC cannot be claimed on construction of Landfill Pit as per Section 17(5)(d) of CGST Act 2017." 8. Sri. K.G. Kamat, Advocate and Duly Authorised Representative of the above concern appeared and made the following additional submissions in support of the application of the applicant and in addition to those that are already on record: and the same reads as under: "A. The exclusion contained under Second Explanation in Section 17 of the CGST Act, is not applicable to Section 17(5)(d) as the former explains the expression "plant and machinery" and not "plant or machinery" 1. According to literal rule of statutory interpretation if the words of a statute are clear and unambiguous primarily they should be given effect. It is submitted th....
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....g not accepting that civil structure can be excluded from plant or machinery, the Applicant's land filling pit is not a civil structure 3. It is observed from the comments on the application from the office of the PCCT, that all the relevant facts have not been understood or considered, in its proper perspective, before giving the opinion that the land filling pit qualifies to be a civil structure as it comprises extensive civil work and that it is basically a concrete structure. It is opined that the following structures are proposed to be constructed on the project site: 1. Land filling pit 2. Temporary Waste Storage Area 3. Utility / Parking 4. Green Belt Area 5. Office & Laboratory Area 6. Labour shed 7. Compound wall 4. One of the fundamental facts which is missed to be considered by the PCCT is that it is only the other structures and not the land filling pit which involve the use of concrete, bricks or cement. Construction materials like steel, cement and bricks will be sourced from local manufacturers for the purposes of other structures only and not for the land filling pit, in respect of whic....
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....merely for the reason that some of the machinery or parts of 'silos' are made out of steel and cement, it will not fall within the exempted group of civil structure, not eligible for input tax credit. It further observed that, the 'silos' with various machineries form an integral part of it, need to be considered as plant and the 'steel and cement' used for construction of the 'silo' and the connected machineries, by itself will loss its identity as 'steel and cement, but it gets merged as a final plant with a specific purpose. On going through the explanation extracted as above, with respect to the construction, purpose, mechanism and usage of the 'silos', we are in perfect agreement with the findings of the Tribunal that 'silos' cannot be identified as mere 'civil structure' falling within the negative list under S.R.O. 324/2005. The 'silos' which forms integral part of the machinery has the real characteristics of a plant or machinery, mentioned in the definition contained in Section 2(x) of the K.V.A.T. Act, which makes them to fall within the category 'capital goods' for which input tax credit can be allowed." (Emphasis supplied) 7. Therefore, assuming not accepting t....
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....ctivities but merely constituted a place wherein they were carried on, the building could not be regarded as a plant". ii. PCCT's interpretation of meaning of "plant and machinery" is against well settled principles of law 11. The PCCT has opined that Plant and machinery in common parlance mean a place where industrial activity takes place or a factory where certain material is produced or big machinery used to carry out certain processes of production. The term 'plant and machinery' therefore should be interpreted to mean a place where certain manufacturing activities/processes of production are carried out with the help of inputs. The PCCT has not provided any supporting statutory provisions or judicial decisions to state how the said opinion regarding the meaning of plant and machinery is arrived at. Without prejudice, it is respectfully submitted that such a narrow interpretation of the word "plant" is against well settled principles of law. 12. The said observation is contrary to the law laid down by the Hon'ble Apex Court in the case of Scientific Engineering House (P) Ltd. Vs. Commissioner of Income Tax, Andhra Pradesh (AIR 1986 SC 338). T....
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....e company's operations and observed: It seems to me that every part of this dry dock plays an essential part The whole of the dock is I think, the means by which, or plant with which, the operation is performed. Lord Guest indicated a functional test in these words: In order to decide whether a particular subject is an 'apparatus' it seems obvious that an enquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary. In other words the test would be: Does the article fulfil the function of a plant in the assessee's trading activity? Is it a tool of his trade with which he carries on his business? If the answer is in the affirmative, it will be a plant." 13. Therefore, the restrictive meaning sought to be given to the term "plant" by the PCCT is contrary to law. It is relevant to note that the Hon'ble High Court of Karnataka, refused to give a restrictive meaning to term "plant", in view of the above decision of the Hon'ble Supreme Court. The Hon'ble High Court of Karnataka in the case of J.K. Cement Works Vs. The State of Karnataka (2017 [7] G.S.T.L. 408) held as follow....
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.... present case, we find considerable force in the submissions made by the learned counsel for the petitioner assessee and we do not find any good reason to hold that cement used for civil works and laying foundation and erection of plant and machinery by the assessee during the relevant period should not constitute a part and parcel of 'plant" and thus, Capital Goods used for manufacturing of cement by the petitioner assessee later on and, in our opinion, the petitioner would thus be entitled to claim input tax credit in respect of the tax paid by it in respect of such cement purchased and used by it during the relevant period, prior to the commencement of its commercial production, for the purpose of erection of the plant and machinery." 14. In the present case, the land filling pit is a plant. The entire process of disposal takes place in the land filling pit and it is not a mere storage mechanism as the processing of content of the land filling pit and its monitoring is continuous as per the standards prescribed by the concerned Statutory authorities having control on such hazardous wastes collected by the Applicant. iii. Plant need not be used for mechanical op....
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....ture or part thereof is something by means of which the business activities are carried on, it would amount to a plant. On the other hand, where the structure plays no part in carrying on of those activities, but merely constitutes a place in which such activity is carried on, it cannot be regarded as a plant. Viewed from this angle even if a building has special features, generally speaking, it may remain a building and not a plant. 18. On the application of the principles laid down in the above decisions, the Tribunal, in our opinion, has rightly come to the conclusion that the screening wall and the ceiling of the auditorium having been constructed with requisite installations so as to have a proper control of the sound effect and for the efficient screening of the films may be treated as part of "plant" but no other part of the building can be included in the said term. The furniture, fittings and fixtures consisting of wooden walls including false ceiling and wooden panelling of the walls and the walls including false ceiling and wooden panelling of the walls and the chairs would come within the purview of 'plant" for development rebate. However, as held by the Tribun....
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...., the leachate undergoes further treatment through a conventional wastewater treatment plant constructed wetland treatment system. Applying the above principles to the present case, the functionality test is satisfied by the land filling pit of the Applicant, without which neither the hazardous waste can be decomposed, nor can the leachate be managed. It is submitted that the process of disposal of hazardous waste takes place in the land filling pit only. It is a tool of his trade and thus fulfils the functionality test. D. The observation that the Land Filling Pit is embedded in the earth and therefore not a plant is contrary to the law: 18. The PCCT has observed that the land filling pit is embedded in the earth and therefore, applying the definition of 'immovable property' from General Clauses Act, the pit is not a plant or machinery. It is respectfully submitted that there is no basis at law, to arrive at such an opinion. 19. Without prejudice to the above, the PCCT has placed reliance on Section 3 of the Transfer of Property Act on the definition of "attached to earth". It is relevant to note that this definition is in the light of transfer ....
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....s business in view of the functionality test. 22. Without prejudice to the above submission, there have been several instances where the Hon'ble Courts have held that a structure is a "plant" even though it was embedded in the earth. Some of these decisions are as follows: a. In Commissioner of Income Tax Vs. Oil India Ltd.(1992) 105 CTR (Cal) 356) it was held that oil wells constitute plant b. In Tribeni Tissues Ltd. Vs. Commissioner of Income Tax [1991] 190 ITR 487 (Cal) it was held that tube wells constitute plant. 23. In fact, in the case of Scientific Engineering House (P) Ltd. Vs. Commissioner of Income Tax, Andhra Pradesh (AIR 1986 SC 338) it was held that plant would include any article or object, fixed or movable, used by businessman for carrying on his business. Therefore, the fact that the land filling pit is embedded in the earth is not relevant to understand if it falls within the ambit of Plant or Machinery. The land filling pit qualifies to be a plant or machinery as provided under Section 17 (5) (d) of the CGST Act. 24. In view of these decisions the observation made in the erstwhile Clarification now being set aside by t....
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....services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation.-For the purposes of clauses (c) and (d), the expression 'construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property; Further, another Explanation is provided for the purpose of Chapter V (Section 17 falls under Chapter V of CGST Act, 2017) which is given below: Explanation.-For the purposes of this Chapter and Chapter VI, the expression "plant and machinery" means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises 14. The applicant, in their submissions, basically emphasized on three aspe....
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.... deciding the question of Civil Structure, i.e. whether the land filling pit is a civil structure or not. 17. We find that the applicant has not given any reason as to why the land filling pit should not be called a civil structure. Hence, we go to the brief submitted by the applicant regarding construction of the landfilling pit. Components of Landfill Design are: • A liner system at the base and sides of the landfill, which prevents migration of leachate or gas to the surrounding soil. • A leachate collection and treatment facility, which collects and extracts leachate from within and from the base of the landfill and then treats the leachate to meet standards, notified under EP Act 1986. • A gas collection and treatment facility (optional), which collects and extracts gas from within and from the top of the landfill and then treats it or uses it for energy recovery. • A final cover system at the top of the landfill, which enhances surface drainage, prevents infiltration of water and supports surface vegetation. • A surface water drainage system, which collects and removes all surface runoff from the landfill sit....
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....us, equipment and machinery fixed to earth by foundation or structural support. All attains the character of immovable property and if it is for all that machinery under this definition would be machinery which has attained the character of immovable property by it getting fixed to the earth. Plant in this context would now be in the sense of apparatus and equipments other than machinery which are fixed to the earth by foundation or structural support. It is very clear from the nature of the construction done by the applicant that, this is neither equipment nor apparatus and hence would not be termed as plant. Further, the exclusion clauses makes it very clear that civil structures are not plants. 22. The analysis of the exclusions i.e. land, buildings or any other civil structures, telecommunication towers and pipelines would definitely not form part of machineries and would definitely fall under the category of "fixed assets" in the form of "plant". Hence when these are excluded, definitely they are excluded from the claim of input tax credit even if they are plant in the general sense of business. The applicant has explained that the structure is covered under "plant" and thi....