Maharashtra AAR Whether the applicants are eligible to avail ITC of GST paid on goods and services used for construction of Tie-in pipeline, for delivery of re-gasified LNG from FSRU to the National Grid.?
MAHARASHTRA AUTHORITY FOR ADVANCE RULING
BEFORE THE BENCH OF
Shri B.Timothy Additional Commissioner of Central Tax member
Shri B.V Borhade Joint Commissioner of State Tax Member
|GSTIN Number if any user id||27AACCH4231P1ZD|
|Legal Name of Applicant||Western Concessions Private Limited formerly known as H.Energy Gateway Privet Limited|
|Registered Address / Address provided while obtaining user id||12th Floor Knowledge Park Hiranandani Business Park Powai Mumbai 400076|
|Details of Application||GST-ARA Application No. 94 Dated 26.11.2018|
|Concerned Officer||Division III Commissionerate navi Mumbai|
|Nature of Activity Proposed present in respect of which advance ruling sought|
|Description in Brief||That Applicant is engaged in regasfication of liquified Natural Gas And delivering the same to customers|
|Issues on which advance ruling required||Admissibility of input tax credit of tax paid or deemad to have been paid|
|Question (s) on which Advance ruling required||As reproduced in para 01 of the Proceeding below|
Under section 98 of the Central Goods and Service Tax Act 2017 and the Maharashtra goods and service Tax Act 2017
The present application has been filed under section 97 of the Central Goods and Services Tax Act,2017 and the Maharashtra Goods and Services Tax Act, 2017[hereinafter referred to as “the CGST and MGST Act”] by Western Concessions Private Limited (formerly known as H-Energy Gateway Private Limited), the applicant, seeking an advance ruling in respect of the following question.
whether the applicants are eligible to avail ITC of GST paid on goods and services used for construction of Tie-in pipeline, for delivery of re-gasified LNG from FSRU to the National Grid.
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression `GST Act’ would mean CGST Act and MGST Act.
02 FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen thus-
STATEMENT OF RELEVANT FACTS HAVING A BEARING ON THE QUESTION(S) ON WHICH ADVANCE RULING IS REQUIRED.
1. M/s. Western Concessions Private Limited (formerly known as H-Energy Gateway Private Limited (hereinafter referred to as “the applicant”) having its corporate head office at 12th Floor, Knowledge Park, Hiranandani Business Park, Powai, Mumbai, is, inter-alia, engaged in regasification of Liquified Natural Gas and delivering the same to customers.
2. The applicant has obtained registration and holding valid registration certificate issued under Central Goods and Services Tax Act, 2017 (“COST Act”).
3. The applicant is setting up a Liquified Natural Gas (LNG) re-gasification project at Jaigarh port in the state of Maharashtra (hereinafter referred to as “LNG Terminal”).
4. The LNG Terminal consists of a Floating Storage Regasification Unit (“FSRU’) with 4 MMTPA regasification capacity moored to jetty and has associated facilities like gas unloading arm, gas pipeline for delivering natural gas from the FSRU to the National Grid.
5. The re-gasified LNG is required to be inducted into the cross-country pipeline/national Grid in order to be supplied to the ultimate customer.
6. Therefore, the applicant is constructing a gas pipeline for delivering the high pressure natural gas from the FSRU to the National Grid.
7. The Development of the project consists of two legs as mentioned below:
i. Setting up of infrastructure facility, i.e., jetty, onshore receiving facility close to the jetty, etc. for enabling FSRU to regasify the LNG; and
ii. Connecting the Terminal with the cross-country gas pipeline to enable supply of re gasified natural gas to customer (referred to as the “Tie in Pipeline”).
8. The re-gasified LNG is of no use unless the applicant is able to supply the gas to its customers. Given the nature of the commodity, i.e., high pressure natural gas, pipeline is the only technically viable and safe method of supply
9. The Tie-in pipeline is, therefore, not constructed to provide gas transportation service to the customers, but it connects the gas terminal to cross-country pipeline to enable further distribution of gas to the customers.
10. The Tie-in pipeline would be laid under the ground and the length of the pipeline would be approximately 60 KMs.
11. Section 16 of the CGST Act deals with the eligibility of taking input tax credit (‘ITC’) and the conditions to be fulfilled by the registered person. Section 16(1), inter alia, states that a registered person shall be entitled to take ITC on goods and services used or intended to be used in the course or furtherance of his business. Section 16(1) is reproduced here under for ready reference:
“16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.”emphasis supplied
Further, Section 17(5) of the CGST Act provides that in certain cases, input tax credit will not be available even if the goods or services are used in the course or furtherance of business. The relevant portion of section 17(5) is extracted as under:
“(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely: –
(c) works contract services when supplied for construction of an immovable property [other than plant and machinery) except where it is an input service for further supply of works contract service; (d) 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.
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 premise emphasis supplied
13. Thus, the restriction on av ailment of ITC under Section 17(5)(c) and 17(5)(d) is not applicable in case where the goods or services are used for construction of Plant and Machinery. However, as per the explanation to Section 17, Plant and Machinery does not includes a pipeline laid outside the factory premises. As a consequence, the ITC of goods and services used for construction of a pipeline laid down outside the factory would not be available in terms of Section 17(5)(c) and 17(5)(d).
14. The applicant’s key activity is regasification of LNG, which inter alia includes delivery in a form and manner whichis consumable, usable and saleable. Hence, the provision of the gas to the nearest practical delivery point i.e. national grid, is an integral and essential part of the economic activity being carried out by the applicant.
15. Therefore, the Tie-in pipeline connecting the LNG terminal to the National Grid, which is immovable in nature, forms Plant and Machinery. Further, the re-gasification activity would be Undertaken by the applicants at the FSRU, which is not a factory per se.
16. Thus, the disallowance of ITC under section I 7(5)(c) and 17(5)(d) would not be attracted in case of Tie-in pipelines constructed by the applicants.
17. Under the aforesaid peculiar circumstances, we request you to expedite the resolution of the matter at hand and issue a ruling regarding the availability of ITC of GST paid on goods and services used for construction of Tie-in pipelines and also grant us with a personal meeting to represent our case in detail.
STATEMENT CONTAINING APPLICANT’S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE, IN RESPECT OF OUESTION(S) ON WHICH ADVANCE RULING IS REOUIRED.
C. Applicants understanding
C.1 Section 16 of the CGST Act deals with the eligibility of taking ITC and the conditions to be fulfilled by the registered person. Section 16(1) inter alia states that a registered person shall be entitled to take ITC on goods and services used or intended to be used in the course or furtherance of his business.
C.2 Section 17(5) of the CGST Act provides that in certain cases, input tax credit will not be available even if the goods or services are used in the course or furtherance of business.
C.3 Clause (c) of section 17(5) restricts availability of ITC in respect of works contract service used for construction of immovable property, except in case where it is an input service for further supply of works contract service. Clause (d) of Section 17(5) bars ITC in respect of goods or service used for construction of immovable property on assessee’s own account.
C.4 However, the above restriction on availment of input tax credit will not apply if the immovable property constructed is plant and machinery. The term “plant and machinery” is defined in the explanation to section 17 as apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply but, inter alia, excludes pipelines laid outside the factory premises.
C.5 In the present case, the applicant is constructing a Tie-in pipeline to deliver the re-gasified LNG to the cross-country pipeline/National Grid for further transportation to the customers. The said pipeline will be laid under the ground and the length of the pipeline would be approximately 60 KMs.
C.6 Since, the pipeline in the present case is embedded in the earth, it would qualify as an immovable property and thus the construction of said pipeline amounts to a Works contract under Section 2(119) of the CGST Act. However, the applicant is of the understanding that the tie-in pipeline qualifies to be a “plant and machinery” as per explanation to section 17 of the CGST Act, and hence the restriction under Section 17(5)(c) and 17(5)(d) would not be attracted in respect of construction of the said pipeline.
C.7 The applicants submit that following two conditions have to be fulfilled for the Tie-in pipeline to be regarded as plant and machinery in terms of explanation to Section 17 of CGST Act:
The pipeline should be an apparatus, equipment or machinery used for making outward supply; and
It should not be covered by the exclusion clause “pipeline laid outside the factory”.
The Tie-Pipeline is an apparatus, equipment or machinery used for making outward supply.
D.1 The terms ‘apparatus’, equipment’ and ‘machinery’ are not defined under the CGST Act. It is settled position of law that in absence of definition in the statute, the words used in the statute should be understood in their natural and ordinary sense. Accordingly, let us understand the meaning of the terms as understood in common parlance:
P Ramanatha Aiyar’s Advanced Law Lexicon:
‘Apparatus’ is a compound instrument designed to carry out a specific function or for a particular use.
‘Apparatus’ means something which is inclusive of some other appliance.
‘Apparatus’ are the implements used in an operation or activity.
Equipment is an act of equipping or fitting, or the state of being equipped; to supply with whatever is necessary to efficient action in the way.
‘Equipment’ is a thing which is used for a particular purpose.
Webster Comprehensive Dictionary
‘Apparatus’ – A complex devise or machine for a particular purpose: an X-ray apparatus.
‘Apparatus’ – An integrated assembly of tools, appliances, instrument, etc. operating to achieve a specified result.
‘Equipment’ – Whatever constitute an outfit for special purpose
‘Machine’ – Any combination of mechanics for utilizing, modifying, applying, or transmitting energy, whether simple, as a lever and fulcrum, pulley, etc. or complex, as a Fourdrinier papermaking apparatus.
Black’s Law Dictionary
‘Equipment – The articles or implements used for a specific purpose or activity.
‘Machine’ – A devise or apparatus consisting of fixed or moving parts that works together to perform some function. – Also termed apparatus.
D.2 Therefore, any instrument which is understood to be an apparatus, equipment or machine in common parlance and is permanently fixed to the earth by foundation and structural support which is used for making outward supply will be treated as “plant and machinery”.
D.3 The term equipment is defined in the dictionaries as a thing which is used for particular or special purpose. In the present case, the Tie-in pipeline is used for delivery of natural gas from the terminal to the cross-country pipeline. Thus, the pipeline is used for the specific purpose of delivery. Further, as stated above, the delivery of gas up to the cross-country pipeline is an integral and essential part of the services provided by the applicant.
D.4 Thus, the Tie-in pipeline is used for making outward supply of re-gasification services by the applicant. Accordingly, the Tie-in pipeline will be treated as “plant and machinery”.
The exclusion clause in the Explanation to Section 17 i.e. “Pipelines laid outside the factory premises” is not applicable in present case.
E.1 Clause (iii) of the explanation to section 17 excludes ‘pipelines laid outside the factory premises’
from the definition of “plant and machinery”. Thus, ITC would be available only in respect of the pipelines which are laid inside a factory premises.
E.2 The applicants understanding is that, the exclusion clause ‘pipelines laid outside the factory premises’ does not mean that what is covered within the definition of plant and machinery is only pipelines laid inside the factory premises’. The applicants submit that the above clause presupposes that there should be a factory premises, and in order to be excluded from the definition of plant and machinery, the pipeline should be laid outside such factory premises.
E.3 Therefore, the applicants submit that the, pipelines laid outside some premises, which are not factory premises, will also be covered within the definition of the term “plant and machinery”.
E.4 The applicants submit that the FSRU is not a factory premises and hence the Tie in pipeline laid outside FSRU will not be covered by the exclusion clause in the definition of “plant and machinery” given under Explanation to Section 17 of the CGST Act.
E.5 The term “factory” is not defined under the CGST Act. In absence of the definition of the term “factory” under the CGST Act, it is pertinent to understand the meaning of “factory” in common parlance:
Webster’s Comprehensive Dictionary
“Factory” – An establishment devoted to the manufacture of something, including the building or buildings and machinery necessary to such manufacture; a manufactory.
“Factory” – Building or range of building with plant for manufacture of goods.
Cambridge International Dictionary
“Factory” — a building or set of building where large amounts of goods are made using machines
E.6. Thus, in common parlance, factory is understood to be ‘building’ with plant and machinery for
manufacture of goods. A building is generally considered as a permanent enclosed structure with roof and walls constructed over a plot of land.
E.7 The Hon’ble Kerela High Court in the case Kalpakam Amma v. Muthurama Iyer Muthurkrishna, AIR 1995 Ker of V. 99, observed the meaning of the term “building” in its ordinary and natural sense as under:
“The first question to be decided is what is a building? The ordinary or natural meaning to be assigned to the word ‘building’ is given in P. Ramanatha Aiyar’s Law Lexicon (Reprint Edition 1987) at page 159, thus:
“A thing composed of the fabric of the building and the ground that the fabric rests upon and encloses”.
It is further stated by the author that “the land upon which the walls of a stone or brick building rest, or, indeed, of any other kind of building which in law is considered as annexed to the soil, and which is not clearly severed therefrom by the terms of the deed itself, must be considered as part of the building itself
In Stroud’s Judicial Dictionary (Vol. I. 5th Edn.), the word ‘building is defined thus: “What is a building must always be a question of degree and circumstances”. In Black’s Law Dictionary (5th Edn.), the meaning of the word building is given as follows: “A structure or edifice enclosing a space within its walls, and usually, but not necessarily, covered with a roof. In Bourvier’s Law Dictionary (A Concise Encyclopedia of the Law Vol. 1.3rd Revision) the meaning of building is given as “an edifice, erected by art, and fixed upon or over the soil, composed of brick, marble, wood, or other proper substance, connected t2gither, and designed for use in the position in which it is so fixed.”
E.8 Thus, in common parlance, a building is always understood as a structure over a land. Existence of land is an integral aspect for a structure to be regarded as a building. A floating structure in the water will not be regarded as a building by any ordinary and reasonable man. Accordingly, in the ordinary sense, the “factory” will mean a structure over a plot of land with plant for manufacture of goods.
E.9 In the present case, the applicant has a regasification unit (FSRU) which is a floating structure in water. Therefore, the applicants submit that the FSRU cannot be treated as a factory premises for the purpose of exclusion clause in the explanation to section 17. Accordingly, the Tie-in pipeline will not amount to a ‘pipeline laid outside factory premises’.
E.10 Hence, such tie-in pipeline will qualify as “plant and machinery” and the applicant will be eligible to avail input tax credit on the goods or services used in the construction of tie-in pipeline.
1. The undisputed facts of the present case are:
i. The applicant is importing a Floating Storage and Regasification unit (“FSRU”) which would be moored to jetty at Jaigarh port in the state of Maharashtra.
ii. The vessel has 4 MMTPA regasification capacity and associated facilities like gas unloading arm.
iii. In order to induct the high pressure natural gas into the cross-country pipeline/ national Grid, the applicant is constructing a pipeline from the jetty where FSRU would be moored to the National Grid.
iv. The Tie-in pipeline would be laid under the ground and the length of the pipeline would be approximately 60 KMs.
2. The applicant is seeking Advance Ruling on the availability of Input Tax Credit (“ITC”) of Goods and Service Tax (“GST”) paid on goods and services used for creation of the aforesaid Tie-in-pipeline.
3. The applicants further wish to make the following submissions in addition to the submission already made in Annexure-B. of the application made in FORM ARA-01,
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