M/s Sundharams Private Limited (AAR) 2020 ITL (GST) 776

Whether applicant is entitled to avail Input Tax Credit under CGST in respect of taxes to be paid on its purchase of paver blocks laid on the land??

Case  Description:-

Facts of the case:-

• The applicant M/s Sundharams Private Limited is engaged in providing warehousing, storage and support services to the Original Equipment Manufacturers (OEM) of automobile industry. During the course of these services, the cars are stored in the applicant's stock yard prior to their transit to the respective car dealers. The applicant company collects rent for the same and pays applicable GST.
• The applicant has purchased tax paid Paver Blocks which are laid in the parking area of the land without any attachment to the earth. The object of laying such blocks is to ensure efficient and safe parking of automobiles of OEMs during the contract period. If the cars are placed on the ordinary surface, it will be subject to quicker wear & tear due to accumulation of water, dust etc. in the wheels of such automobiles.
• Such Paver Blocks are not be permanently embedded on earth and are capable of being removed as such without causing damage to them for reuse elsewhere. Moreover, the Lease Deed executed by the company with its land owners contains a clause to the effect that the company shall remove such Paver Blocks and take possession of the same on vacation of the premises. Hence, such Paver BLocks are to be construed as moveable items.

Submission of the Applicant:-

• Laying of Paver Blocks on land does not amount to construction of immovable property u/s 17(5)(c) of the CGST Act, 2017. Expenses on the Paver Blocks are not capitalized as a part of immovable property (land) in the applicant's books of accounts, hence the input credit on the same is not disallowable u/s 17(5)(d) r.w. explanation to section 17(5) of CGST Act, 2017.
• Further, as per explanation to Section 17(5) (c) & (d) of CGST Act, 2017, the prohibition to avail input tax credit is applicable only in respect of expenditure which is capitalized in the books of accounts. Hence, if the expenditure on purchase of paver blocks is not capitalized & treated as revenue expenditure, there is no bar on availing credit.
• These Paver Blocks are laid on the land as moveable property and therefore, can be easily dismantled and re-laid at any other location. Paver Blocks are not fastened or permanently embedded on the earth as part of the land, rather they are only laid on the plain surface for parking of cars. Applicant company has fully complied with the conditions contained in the section 16(2) of CGST Act for claiming of ITC.
• Laying of the Paver Blocks cannot amount to works contract service for construction of the immoveable property under section 17(5)(c) of CGST Act since, the expression "construction" for the purpose of section 17(5)(c) and 17(5)(d) includes reconstruction, renovation, addition or alteration or repairs to the extent of capitalization to the said immoveable property. In the case of the applicant, the expenditure on the Paver Block has been booked as revenue expenditure in the books of accounts and therefore, the same will not amount to construction of immoveable property. Accordingly, the ITC claimed by the applicant cannot be hit by restriction placed u/s 17(5)(c) of the CGST Act.
• For placing of the Paver Blocks, the base is prepared with stone and dust which are rolled very firmly. Then coarse aggregate is added on the surface and rolled. Grit powder of 30mm is applied on the surface. After levelling, the paver blocks are placed on the surface manually. The Paver Blocks are having interlocking and the gaps are filled with sand. Paver Blocks are easily detachable and removable and therefore the same being moveable goods could be used at any other land or site. It does not become the part and parcel of the immoveable property. If the goods are movable from one place to another in the same position or liable to be dismantled or re-elected at a later place, it will not be movable property which is the exact case of the present applicant.
• Even assuming without admitting that permanently fitted Paver Blocks acquire the character of "Immovable Property", the claim of Appellant for ITC has to be allowed based on the decision of Orissa High Court's decision in Safari Retreats Pvt. Ltd.vs. Chief Commissioner of CGST reported in 105 Taxmann 324 = 2019 (5) TMI 1278- Orissa High Court

Contention of the Jurisdiction Officer:-

• The purpose of laying of Paver Blocks as per applicant is to ensure efficient parking of automobiles during contract period. If the cars placed on the ordinary ground, it will be subject to quicker wear and tear due to accumulation of water, dust etc. in the wheels. Hence, only laying of Paver Blocks in loose form on the land is not sufficient.
• To serve the applicant's purpose, compact, firm structure and close fixing of blocks is required. However, applicant is silent on whether cementing material or interlocking blocks used or not. But it appears from photographs attached by the applicant that, Paver Blocks are fastened to land using interlocking blocks and firm support of outer wall. These blocks are not kept loosely on the ground.
• Hence, mere cementing material not used doesn't mean Paver Blocks are not fastened to earth. Further, laying of such block is time consuming, skillful job requires to be carried out with due diligence and same way activity of dismantling also. Therefore, mere capability of removal and reuse elsewhere, doesn't mean blocks are not permanently embedded to earth.
• One cannot shift Paver Blocks as and when required like moveable goods. It requires certain period of permanency and also without fixing Paver Blocks using cementing material or interlocking system, you cannot enjoy benefits of laying Paver Blocks.
• The flexibility to re-use does not mean that blocks will be removed and re-erected frequently. They are not meant to be permanently fixed to earth however when the need arise, client may remove them and re-erect. So, primarily nobody will lay Paver Blocks with intention to remove it. It appears that to give permanence, dealer has entered into contract with OEM and landowner also.
• Hence, laying of the Paver Blocks on the land amounts to construction of immovable property u/s 17(5). Therefore, ITC is not allowable to M/s Sundharams Private Limited.

Observations of Authority:-

• The Paver Blocks brought to the site wouldn't serve any purpose unless the same are placed on land on their own weight, fitted by way of interlocking, and made working. The site would be an immovable property such as vacant land.
• It is not the case that in case it is desired to do away with it, one can remove the system and put it into place on some other piece of vacant land, as it is, because the installation of Paver Blocks take support from the boundaries of vacant land and the contours of the new vacant land cannot/may not be the same as the present vacant land.
• Also, removal would always involve a total dismantling which cannot be without loss or damage. Such systems have a longevity of existence in terms of the aspect that these are not set up and removed frequently. 
• Hence, the question in these set of facts is whether the impugned activity could be said to be one as resulting into immovable property.
• If the chattel is movable to another place as such for use, it is movable but if it has to be dismantled and reassembled or re-erected at another place for such use, such chattel would be immovable.
• The impugned car parking system, to be installed on vacant plot of land, by way of laying of Paver Blocks, does not result into supply as chattel. In fact, before installation, there can be no goods as such which could be called a 'parking system'.
• The system requires substantial work of interlocking of the Paver Blocks using support from the boundary walls of the said land, to be done at the site to be called a 'parking system'. Once made operational the 'parking system' obtains a state of permanency. It is not such as can be easily removed from the existing place and put into place at some other location.
• Thus, in the present case, Paver Blocks are to be considered as immovable property. Section 17(5)(d) bars a taxable person from taking ITC for construction of immovable property, even when such goods or services or both are used in the course or furtherance of business. Further, it is also seen that the immovable property in the subject case is neither plant nor machinery. Thus, we find that, Section 17(5)(d) provides that no ITC is available in respect of any goods or services by a taxable person for construction of an immovable property on his own account even if such inputs and input services are used in the course and furtherance of business. The provisions of Section 17(5)(d) squarely applies in the subject case and thus the applicant cannot avail input tax credit.
• We find that, in the case of Sree Varalakshmi Mahaal LLP, the Advance Ruling Authority in Tamil Nadu = 2020 (1) TMI 31- AAR, TamilNadu, while deciding application u/s 97(2)(d) raised on the question "Whether the ITC available on spent for construction of building materials can be claimed and utilized to nullify the cascading effect of taxation?" has ruled that, no ITC is available against any goods or services received by the applicant for construction of Marriage Hall on his own account even if used in the course, or furtherance of his business of renting the place.
• We find that the department has filed an appeal against the judgement of the Hon'ble High Court Orissa in the case of M/s Safari Retreats Pvt. Ltd., and another V/s Chief Commissioner of Central Goods & Service Tax & Others = 2019 (5) TMI 1278- Orissa High Court, which is presently pending. Hence, in view of the above, we are of opinion that since the case of M/s Safari Retreats Pvt. Ltd. is pending with the Supreme Court, the same has not attained finality. We also find that the Hon'ble High COurt has given the relief to the party invoking its writ jurisdiction while categorically holding that they are not inclined to hold section 17(5)(d) to be ultra vires. Therefore, we are nor relying upon the judgement of the Hon'ble High Court.

Ruling by Advance Ruling Authority:-

We are of the view that the subject would qualify as immovable property and therefore applicant cannot avail ITC in the subject case as per Section 17(5)(d) of the CGST Act, 2017.