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Case Title |
Mother Earth Environ Pvt Ltd |
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Court |
Karnataka AAAR |
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Honorable Judges |
Member Ranjana Jha & Member Shikha C |
|
Citation |
2021 (12) GSTPanacea 72 HC Karnataka KAR/AAAR/10/2021-22 |
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Judgement Date |
13-December-2021 |
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Council for Petitioner |
Shri K.J Kamath Veena J Kamath |
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Council for Respondent |
NA |
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Section |
Section 100.101 |
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In Favour of |
In Favour of Revenue |
The Karnataka Bench of Member Ranjana Jha & Member Shikha C has held that the landfill is constructed using geo synthetic materials which serve to protect the soil and groundwater. This however, will not disqualify a landfill from being a civil structure. Bench are therefore of the opinion that the lower Authority was right in construing that the land filling pit is a civil structure. The definition of ‘plant and machinery’ as given in the Second Explanation to Section 17 clearly excludes a civil structure from being considered as a plant. By virtue of this exclusion, bench hold that the Appellants are not eligible for input tax credit on the goods and services used for construction of the land filling pit.
Facts of the Case
The Appellant is engaged in the business of solid waste management. They provide services for treatment, storage and disposal of hazardous waste. They collect hazardous waste from various industries across Karnataka and dispose the same as per the guidelines of Central Pollution Control Board (CPCB) and Karnataka State Pollution Control Board (KSPCB). For processing and disposal of the solid waste, they have taken land on lease from the Government and constructed a land filling pit into which the solid waste is filled and closed and sealed for 30 years. The land fill pit has been capitalised in their books of accounts as an asset and they have claimed depreciation under Income Tax
In order to obtain a ruling on the classification of the service provided by them, the Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following question:
“Whether the land filling pit can be considered as ‘Plant and machinery’ and therefore eligible for input tax credit or; whether the landfilling pit is to be considered as ‘civil structure’ and therefore become ineligible for input tax credit.”
The AAR received an opinion from the jurisdictional office of the Principal Commissioner of Central Tax, West Commissionerate, Bangalore wherein it was stated that the landfill pit is an immovable civil structure which is constructed by the applicant on his own account and does not fit into the definition of plant and machinery. Based on the above opinion, the AAR vide its order KAR ADRG No 46/2020 dated 11th September 2020 held as under:
“The land filling pit is not a plant and machinery but a civil structure.”
On receipt of the advance ruling order dated 11th Sept 2020, the Appellant approached the High Court of Karnataka with a Writ Petition No 2140/2021 on the grounds that the AAR had, before passing the order, referred the matter to the Principal Commissioner of Central Tax, Bangalore West Commissionerate who had given his opinion that the structure constructed by the Appellant is a civil structure; that based on the said report of Bangalore West Commissionerate, the AAR passed a ruling on 11-09-2020. However, the Appellant was not given a copy of the report at any point of time and hence the order passed by the AAR on 11-09-2020 is violative of the principals of natural justice. The Hon’ble High Court of Karnataka vide its order dated 7th April 2021 set aside the AAR order dated 11-09-2020 and remanded the matter back to the AAR for fresh consideration.
After following the directions of the Hon’ble High Court of Karnataka, the AAR passed the denovo advance ruling order No. KAR ADRG 46/2020 dated 30-07-2020 and held as follows:
“The land filling pit is a civil structure, not a plant or machinery for the purpose of Chapter V and Chapter VI of the CGST Act”.
Aggrieved by the same ruling given by the AAR in the denovo proceedings, the Appellant has filed this appeal on the following grounds
The Appellant submitted that he AAR has verbatim reproduced, at several places, the same content from the earlier order dated 11-09-2020 which was set aside by the Hon’ble High Court in W.P No 2140/2020; that the impugned order does not provide any discussion and reasons on the judicial precedents submitted by the Appellant; that the Hon’ble High Court had given a specific direction that the AAR pass fresh order without being influenced by its earlier order but this was not done which amounts to violation of principles of natural justice and hence is liable to be set aside.
Court Held
Considering the facts as recorded, held that in the case of a landfill, the purpose is to dispose of hazardous waste and manage the leachate in order to avoid serious damage to the environment.
Hence, the landfill is constructed using geo synthetic materials which serve to protect the soil and groundwater. This however, will not disqualify a landfill from being a civil structure.
Bench are therefore of the opinion that the lower Authority was right in construing that the land filling pit is a civil structure. The definition of ‘plant and machinery’ as given in the Second Explanation to Section 17 clearly excludes a civil structure from being considered as a plant.
By virtue of this exclusion, bench hold that the Appellants are not eligible for input tax credit on the goods and services used for construction of the land filling pit.
Analysis of the Judgement
Goods and services received for construction of immovable property on own account has been specifically put under the blocked credit list under Section 17(5)(d) with the rider that it shall not apply to plant or machinery.
Accordingly, in the second explanation given in Section 17, while providing the meaning of the term plant and machinery, it has been clearly stated that Buildings and Civil Structures shall not be covered under the term Plant. However, while so clarifying, it has been accepted and understood that plant and machinery many a times requires support structure and/or foundation for installation and cannot work otherwise.
Thus, civil structures such as foundation and supporting structure for fastening of plant and machinery to earth has been included as part of plant and machinery. However, any other civil structure has clearly been excluded from the definition of ‘plant and machinery’. The land filling pit comes within the ambit of the exclusion and hence is not eligible for input tax credit.
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