GST Update on ITC Admissibility on Detachable Glass Partitions 54/2020-21

The ITC admissibility on goods that are affixed or attached to Earth is often the point of dispute as there are restrictions as regards availability of ITC on construction of immovable property under section 17(5) of the CGST Act, 2017. In the present update, we seek to analyse the recent decision pronounced by the Appellate Authority of Advance Ruling, Karnataka, in the case of M/s We work India Management Private Limited wherein the issue was regarding admissibility of ITC on the detachable sliding and stackable glass which can be moved and affixed anywhere. The AAR Karnataka vide order no. KAR ADRG 106/2019 dated 30.09.2019 ruled that detachable sliding and stackable glass partitions used in construction of workspaces are immovable in nature and hence are not eligible for Input tax credit. The AAR denied ITC by holding that the detachable sliding and stackable glass partitions are fixed to the building to create office space and amounts to construction of immovable property.

It was contended by the applicant that the credit restriction provided under section 17(5)(d) is with respect to “goods or services used for construction of immovable property” and so only the goods directly used in construction of immovable property are covered by this prohibition. The term “for” is specific and has narrow implication as compared to the term “in relation to” and since the term “for” is used, the ITC is not restricted.

The meaning of term immovable property was also interpreted and it was contended that as the term has not been defined under CGST Act, so reference needs to be made to section 3(26) of the General Clauses Act, 1897 which reads as follows-

Immovable property shall include land benefits to arise out of land and things attached to earth or, permanently fastened to anything attached to the earth.

In view of the above, the appellant submitted that the detachable sliding and stacking glass partition are fixed with the help of nuts and bolts to wooden flooring only to provide stability and they are neither rooted to the earth not embedded in the earth nor attached for the permanent beneficial enjoyment as the same can be detached and re-used. Reliance was also placed on the advance ruling in case of Nipro India Corporation Private Limited and decision of Odisha High court in case of Safari Retreats Private Limited allowing the ITC of goods and services used for construction of shopping mall meant for letting out. It was also contended that said glass is not capitalised as immovable property in the books of accounts but is being capitalised under “furniture and fixture” in accordance with prevalent accounting standards.

The AAAR referred to the two-fold tests consistently used by many courts to decide whether the item is permanently attached to earth -

(i) the extent of annexation and

(ii) the object of annexation.

The object of annexation test lays down that where a movable property gets annexed with an immovable property, if the intent of annexation is of permanent beneficial enjoyment of the immovable property, then the fixture becomes an immovable property. If the intent of annexation is the beneficial enjoyment of the movable property, then the property still remains movable.

Applying the above tests to this case, it was held that the glass partitions are not permanent and are not embedded to the earth. They can be dismantled and moved according to the requirements of the clients of the appellant. Although they are fixed to the earth with nuts and bolts, they can be dismantled without demolishing the civil structure. Therefore, the detachable sliding and stackable glass partitions do not qualify as immovable property and are not hit by the restriction placed under section 17(5) of the CGST Act, 2017.

In our opinion, the reasoning adopted by the AAAR is in alignment with the ratio laid down and affirmed by the Supreme Court in the erstwhile Central Excise regime. In the Central Excise Laws, one of the prominent dispute was regarding permanence of machinery installed and its taxability because Central Excise Duty was levied on manufacture of excisable goods. It is well settled that goods are movable in nature and so if installation of machinery lead to emergence of immovable property, central excise duty was not leviable. The tests for determining whether the activity resulted in emergence of immovable property was laid down in various judgements rendered by the Supreme Court. Reliance may be placed on the following decisions:-

· TRIVENI ENGINEERING & INDUS. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE [2000 (120) E.L.T. 273 (S.C.)]

· T.T.G. INDUSTRIES LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, RAIPUR [2004 (167) E.L.T. 501 (S.C.)]

· COMMR. OF C. EX., AHMEDABAD VERSUS SOLID & CORRECT ENGINEERING WORKS [2010 (252) E.L.T. 481 (S.C.)]

In all the above cited decisions, it was concluded that if the installed machinery which is affixed to Earth gets the character of permanence and after its installation, it is not possible to relocate the said machinery to another place except by dismantling it as waste and scrap, then it can be considered that the said machinery is immovable property. However, on the contrary, if the machinery is affixed to Earth only for wobble free and stable operation and can be shifted to another location, the said machinery is movable and is not to be considered as immovable property. The analogy adopted by the Apex Court has been followed by the AAAR while determining whether the detachable glass is to be considered as immovable property for denying the input tax credit or not. Hence, the ratio of decisions rendered in erstwhile regime is of immense importance as they aid in arriving at conclusions in GST regime as well.

This is solely for educational purpose.

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GST Update on ITC Admissibility on Detachable Glass Partitions 54/2020-21

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