#GSTCase-52- Warehouse being constructed USING Pre-Fabricated Technology is an immovable property, and thus ITC is not admissible on inward supplies for its construction by Virtue of Section 17(5) of CGST Act, 2017
Tewari Warehousing Co. (P.) Ltd  102 taxmann.com 295 (AAR-WEST BENGAL)
Whether Input Tax Credit is allowed for Construction of Warehouse using pre-fabricated technology?
Applicant is constructing warehouse on a piece of land, taken on lease from Kolkata Port Trust for a period of thirty years for the purpose of building a storage facility. The property under construction ‘Pre- fabricated Warehousing System’ (hereinafter ‘the System’) has been purchased from M/s Pennar Engineering Building Systems Ltd (hereinafter the Vendor).
2. Contention of the Applicant
Submission-1: It is fixed by anchor bolts to a low RCC platform embedded to the ground, and it is the only civil structure.
Submission-2:The rest of the structure, like columns, beams, rafters, wall sheets, roof shed etc. are all joined with one another by nuts and bolts, and can be easily dismantled and restructured at another location.
Submission-3:The low-rising RCC platform is, of course, permanently embedded to the ground. However warehousing system built thereon, can be dismantled, and thus reduces repeated capital expenses in the event of a shift of location.
Submission-4: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.
Submission-5:The utility of the RCC platform on which the System is being fixed is limited to allowing the warehouse to be set up and no further. It is the System that is beneficially enjoyed, not the RCC structure.
If 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, such an item will not be considered to be immovable property. He refers to the apex court’s judgments in Solid & Correct Engineering Works [(2010) 252 ELT 481 (SC)] and Sirpur Paper Mills Ltd [97 ELT 3 (SC)].
3. Observation by AAR
a) Definition of Immovable Property:
Section 3 of the Transfer of Property Act, 1882 defines the term “attached to the earth” to mean (a) rooted in the earth, as in the case of trees and shrubs, (b) embedded in the earth, as in the case of walls or buildings, and (c) attached to what is so embedded for permanent beneficial enjoyment of that to which it is attached. The essential character of ‘immovable property’, relevant to present context is that it is attached to the earth, or permanently fastened to anything attached to the earth, or forming part of the land and not agreed to be severed before supply or under a contract of supply.
b) Observation by AAR on the issue in Hand:
- Supply Made by Vendor to the Applicant includes not only Pre-Fabricated Warehousing System but also civil work developing the floor space and fixing of pre-fabricated structure built upon the floor: Pre-Fabricated Warehousing System transpired from the literature annexed to the Application, does not apparently include any specific description of the floor as a pre-fabricated load-bearing structure. In a cross-sectional diagram of the typical pre-engineered steel building the Vendor provides a vivid pictorial illustration of the various parts of the structure – the walls, roof, doors and windows etc. that will be built upon the floor, but does not provide any description of the floor as a pre-fabricated structure. Vendor is supplying building materials which provides a more cost-effective method to support the foundation for laying out the floor. It does not in any way claim that the floor itself is a pre-fabricated structure detachable from the foundation and associated civil work. In fact, the diagram showing a typical pre-engineered building does not at all include a cross-section of the floor as a pre-fabricated structure. It, therefore, appears that the Vendor is not supplying the floor as a pre-fabricated removable structure. The civil work undertaken is meant not only for fixing the pre-fabricated structure built upon the floor but also for developing the floor space itself.
- Pre-Fabricated Warehousing System is not the warehouse itself but it is a part of material used for construction of warehouse: Pre- Fabricated Warehousing System refers only to pre-fabricated structures that are used for constructing warehouse and not to the warehouse itself. Being a storage facility, a warehouse is associated with the space available, whereas the Pre- Fabricated Warehousing System refers to the materials and structures used for turning the space into a covered storage facility.As technology advances, the engineering for building a factory, house, and even a bridge uses more and more pre-fabricated structures, which have obvious benefits in terms of time and cost. Such building blocks should not, however, be confused with the property being built, which is directly associated with the beneficial enjoyment of the land. Therefore, the core issue is not the beneficial enjoyment of the Pre-Fabricated Warehousing System, but of the property of the warehouse being built.
- Floor is not a part of Pre-Fabricated System but is an essential part of Warehouse being constructed: The warehouse is meant for storage of goods that will lie stacked on the floor. Construction of the floor, its load-bearing capacity and the space it occupies is, therefore, critical to the construction of the warehouse. The Pre-Fabricated Warehousing System does not apparently include any specific description of the floor as a pre-fabricated load-bearing structure. In a cross-sectional diagram of the typical pre-engineered steel building the Vendor provides a vivid pictorial illustration of the various parts of the structure – the walls, roof, doors and windows etc. that will be built upon the floor, but does not provide any description of the floor as a pre-fabricated structure.
- Warehouse as a whole cannot be relocated without dismantling of the floor without substantial damage to the foundation: In this connection, reference may be made to clause 4(v) of the Circular No. 58/1/2002-CX dated 15/01/2002, where it is concluded that ‘if items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods.” Clearly, the warehouse cannot be relocated by unfixing the pre-fabricated structures alone. The dismantling of the floor, which is the most important component of the warehouse, is not possible without substantial damage to the foundation.
- Pre-Fabricated System is attached to the Floor for the beneficial enjoyment of the Floor attached to the Land: Vendor is not supplying floor as a pre-fabricated removable structure. The civil work undertaken is meant not only for fixing the pre-fabricated structure built upon the floor but also for developing the floor space itself. Beneficial enjoyment of the floor so inalienably attached to the land is integral to the enjoyment of the warehouse.
- Structure being built is not for temporary enjoyment: The intention, therefore, is beneficial enjoyment for more than two decades of the property being built. Unless the business is wound up, the Applicant, after the expiry of the lease, can approach for granting a fresh lease. The structure being built is, therefore, not for the purpose of temporary enjoyment, but intended to be used as a permanent structure subject to usual business uncertainties.
c) Cases Relied Upon by AAR:
- Intention or Factum of Fastening: -Triveni Engineering & Industries Ltd [(2000) 120 ELT 273 (SC)]: In determining whether an article is permanently fastened to anything attached to the earth both the intention as well as the factum of fastening has to be ascertained from the facts and circumstances of each case.
- Whether article can be used without fastening or attaching to earth/Whether article can be removed under ordinary circumstances:-S/S Triveni N L Ltd [RN – 910, 911 & 912 of 2001 (All)] Allahabad High Court– ‘Permanently fastened to anything attached to the earth’ has to be read in the context for the reason that nothing can be fastened to the earth permanently so that it can never be removed. If the article cannot be used without fastening or attaching it to the earth and is not removed under ordinary circumstances, it may be considered permanently fastened to anything attached to the earth.
- Why Pre-Fabricated Structures are different from Mobile Towers- Uttarakhand AAR in Vindhya Telelinks Ltd [(2018) 97 taxmann.com 564]- The order of the Uttarakhand AAR in Vindhya Telelinks Ltd [(2018) 97 taxmann.com 564] needs to be distinguished in this context. The ld AAR in Uttarakhand has been dealing with mobile towers fixed to a pit with a concrete base. Clearly, the intention is beneficial enjoyment of the mobile tower and not of the concrete base. The mobile tower can, of course, be easily dismantled and fixed elsewhere. The ld AAR has, therefore, treated the mobile tower infrastructure, including the pole, as movable property. In the case of the warehouse, however, the pre-fabricated movable structures do not constitute the property of the warehouse. They are building blocks applied to a civil structure attached to the land to construct a complete warehouse.
d) Cases Relied by the Applicant distinguished by AAR:
- There should be an intent to move the Structure:-Solid & Correct Engineering Works [(2010) 252 ELT 481 (SC)] –While examining whether a machine, fixed with nuts and bolts to a foundation, with no intent to permanently attach it to the earth, is an immovable property or not, Apex Court has held that such an attachment without necessary intent to making it permanent cannot be an immovable property. The emphasis is on the intention of the party. The Apex Court observes that the machine in question can be moved and has indeed been moved after the road construction and repair project, for which it was installed, is completed. However, if a machine is intended to be fixed permanently to a structure embedded in the earth, the moveable character of the machine, according to the Supreme Court, becomes extinct.
- Civil Structure embedded on Earth forms integral part of the property: Sirpur Paper Mills Ltd [97 ELT 3 (SC)]-Apex court has upheld the decision of the Customs, Excise and Gold Tribunal that a papermaking machine, attached to earth for operational efficiency, cannot be an immovable property merely because it is attached to a foundation embedded in the earth. The test is whether the machine can be dismantled and sold in the market. This judgment is based on the premise that the machine and not the foundation to which it is attached is the property being used and enjoyed. It is not relevant in the context where the civil structure embedded on earth forms an integral part of the property.
Conclusion 1: Warehouse to be used as a permanent structure without an intention to be removed in the near future: 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.
Conclusion 2: Warehouse is an Immovable Property in itself and cannot be conceived without the civil work supporting the pre-fabricated structure and floor upon which pre-fabricated structure is built upon: 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, therefore, 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.
It seems that while delivering the judgement AAR tried to ascertain what the applicant has received subsequent to completion i.e. was it the pre-fabricated system alone or a completed warehouse along with flooring and civil structures supporting the warehouse. If it is completed warehouse along with flooring and civil structures supporting the warehouse without any intention to remove it in foreseeable future, then it’s an immovable property although some parts of the warehouse i.e. pre-fabricated system might be movable but as a whole warehouse which includes flooring of the warehouse cannot be relocated without substantial damage. AAR concluded the judgement that the it’s the completed warehouse which is being contemplated to be received and warehouse cannot be conceived without beneficial enjoyment of the civil structure embedded on earth, therefore its an immovable property and covered by 17(5)(d) of the CGST Act, 2017.
The judgement is in the long list of AAR judgements on eligibility of Input Tax Credit Immovable Property vis-vis Section 17(5)(c) and 17(5)(d) of CGST Act, 2017. AAR has principally followed its own judgement in the matter of Skipper Ltd  100 taxmann.com 90 (AAR-WEST BENGAL).
Other decisions on Section 17(5)(c) and17(5)(d) are GGL Hotel & Resort Company Ltd., 2019] 101 taxmann.com 138 (AAR-WEST BENGAL), Jabalpur Entertainment Complex Private Limited (2018) 97 taxmann.com 587 and Bahl Paper Mills Ltd  94 taxmann.com 70 (AAR- UTTARAKHAND).