As offices get ready to reshape workstations and the entire workplace, a ruling by the Appellate Authority for Advance Ruling (AAAR) may come in handy. The ruling by Karnataka Appellate Authority for Advance Ruling (AAAR) permits input tax credit (ITC) on detachable sliding and stackable glass partitions.
Setting aside a ruling given by AAR (Authority for Advance Ruling) in a case relating to Wework India Management Private Ltd (Applicant), the Karnataka AAAR said: “Input tax credit can be availed by the Appellant on the detachable sliding and stackable glass partitions which are movable in nature,” the AAAR said in its order.
According to Harpreet Singh, Partner at KPMG, this is an interesting ruling that rightly propagates looking at extent and object of annexation, capability to dismantle etc. to determine whether partitions are movable or immovable, and hence eligible for credit. “With internal re-structuring of office areas on account of Covid-19, such rulings could assume significance in determining credit eligibility of furniture etc,” he said.
Technically, the ruling by AAAR or AAR is persuasive than referral in similar matters. They are applicable only to the applicant and jurisdictional officer related to the application. However, tax policymakers use them in new circulars and notifications. Also, once such a ruling is challenged in the High Court, the direction given by the Court can be used as referral in similar matters.
In the said case, the applicant was engaged in providing shared workspace to freelancers, start-ups, small and large businesses. During the course of providing the said service, the applicant procured detachable sliding and stacking glass partitions, which were fitted in the building to provide co-working space to its members. Given the above facts, the Karnataka’s AAR disallowed ITC on such detachable sliding and stacking glass partitions. Aggrieved by the decision, the applicant approached AAAR to determine whether ITC can be availed of on the detachable sliding and stacking glass partition.
The applicant argued that detachable sliding and stacking glass partitions were being fitted in the building for the co-working space being let out to its members and, thus, qualify to be used in the course or furtherance of its business. Hence, the criterion laid down under Section 16(1) of CGST Act for availing of ITC stands satisfied.
According to the application, credit restriction under Section 17(5) is only with respect to inputs/input services that are used ‘for construction of an immovable property’ and the term ‘for’ used in the said provision is more specific than ‘in relation to’. Accordingly, ITC on goods or services which are directly used for construction of immovable property should be disallowed. Further, it was submitted that the detachable sliding and stacking glass partitions are not inextricably linked to the construction itself and, hence, should not be covered under the specific exclusion.
Provision of Section 17(5)(d) restricts ITC with respect of construction, only when capitalised as immovable property. Further, it was contended that fixtures of partitions are not capitalised as immovable property but are in fact recorded as ‘furniture and fixtures’, since the glass partitions can be detached and re-used and are not considered to be the permanent civil assets. That detachable sliding and stacking glass partitions should qualify as a ‘movable property’ and accordingly, ITC on such goods should be allowed.
After hearing all the arguments, the AAAR said that detachable sliding and stackable glass partitions are movable property and addition/fixing of glass partitions does not amount to construction of immovable property. Accordingly, ITC on such goods should be eligible.