Warehouse constructed using pre-fabricated structure is immovable property & no ITC on inputs used in such construction: AAR

Categories: Advance Ruling
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Fact: M/s Tewari Warehousing Co. (P.) Ltd (“the Applicant”) the company that is engaged in supplying of warehousing services is constructing a warehouse under the name of M/s Pre- fabricated Warehousing System (“The System) on leasehold land, purchased from M/s Pennar Engineering Building Systems Ltd (hereinafter “the Vendor”).

Issue Involved: Whether the input tax credit is admissible on the inward supplies for construction of the said warehouse.

Applicant’s Interpretation of law: The applicant argues that anything embedded in the ground is not movable (except in certain cases like standing timber, grass, growing crops and the like) or anything that is permanently fixed to such things which are so embedded to the ground can be called an immovable property. The applicant further submits that the warehouse is nothing more than an assembly of the System, which is pre-fabricated and pre-engineered components, fixed together in a modular form with nuts and bolts and without welding so that it can be easily unfixed.

According to the Applicant, if the nature of annexation is such that an item so annexed can be removed without any damage and future enjoyment of that item in a similar capacity is not affected, then such an item will not be considered to be immovable property. Therefore, the provisions of section 17(5) (c) & (d) of the GST Act, blocking input tax credit on inward supplies for construction of immovable property, is not applicable.                                                                                                                            

Held: The Hon’ble AAR of West Bengal vide its Advance Ruling No. 40/WBAAR/2018-19 dated February 18, 2019 stated with reference to Section 17(5)(d) of the CGST Act, 2018 which provides that goods or 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, here “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.

Therefore, it was clarified that the Applicant is constructing a warehouse that is intended to be used as a permanent structure and associated with beneficial enjoyment of the land on which it is being built. The technology used for the construction of the warehouse involves the application of pre-fabricated structures and also civil work for supporting the pre-fabricated structure and developing the floor of the warehouse. The warehouse cannot be conceived without beneficial enjoyment of the civil structure embedded on earth. The warehouse being constructed is an immovable property, and the input tax credit is not admissible on the inward supplies for its construction, as the credit of such tax is blocked under section 17(5) (d) of the GST Act.

Citation: [2019] 102 taxmann.com 295 (AAR-WEST BENGAL)