• WeWork India Management Pvt. Ltd. (‘the Appellant’) is engaged in providing shared workspace to businesses enterprises
• The Appellant procured goods and services (after payment of GST) for fitting out of such workspaces
• As per section 17(5) of the Central Goods and Service Tax Act, 2017 (‘the CGST Act’), input tax credit (‘ITC’) cannot be claimed on procurement of goods and services received for construction of an Immovable Property (‘IP’)
• The Appellant has sought an Advance Ruling on the following from Karnataka Authority for Advance Ruling (‘the KAAR’):

Ø  Whether ITC can be availed on the detachable 14MM Engineered Wood With Oak top Wooden Flooring (‘Wooden Flooring’) which is movable in nature, capitalized as ‘furniture and fixture’ and is not capitalized as IP?

Ø  Whether ITC can be availed on the Detachable Sliding and Stacking Glass Partition (‘Glass Partition’) which is movable in nature, capitalized as “furniture and fixture” and is not capitalized as IP?

• The KAAR allowed the ITC on Wooden Flooring, however, denied ITC on Glass Partitions
• Being aggrieved from the above ruling, the Appellant had filed appeal against aforementioned KAAR before the Karnataka Appellate Authority for Advance Ruling (‘the AAAR’)

• As per Section 17(5)(d) of the CGST Act, the term ‘construction’ includes re-construction, renovation, additions, alterations or repairs, to the extent of capitalization to the said IP
• The term IP has not been defined under the GST law. However, as per Section 3(26) of the General Clause Act, 1897 it is defined as including land, benefits arising out of land, and things attached to the earth, or permanently fastened to anything attached to the earth
• The term ‘attached to earth’ is defined under Section 3 of the Transfer of Property Act as meaning a) rooted in the earth (as in the case of tree and shrubs); b) imbedded in the earth (as in the case of walls or buildings); or c) attached to what is so imbedded for permanent beneficial enjoyment of that to which it is attached
• In order to ascertain whether the Glass Partition is permanently attached to the earth or not, the following two fold tests must be applied:

• The extent of Annexation – Annexation of the fixture/ object by which it ceases to be detachable & would need to be demolished for removal; and
• The object of Annexation – If the intent of annexation of the movable property is permanent beneficial enjoyment of the IP, the fixture becomes an IP. However, if the intent of annexation is the beneficial enjoyment of the movable property, the same will remain movable

• Upon application of above tests, it was held by the AAAR that the Appellant will be eligible to avail ITC on the Glass Partition, since the same:

• Are not permanent and not embedded to the earth
• Can be dismantled and moved according to the requirement of the clients
• Are fixed only to provide the clients sense of privacy and there is no permanency
• Are accounted in the books of accounts under the head ‘furniture and fixtures’ and not capitalised as IP
• Do not qualify as IP and will not be hit by the provisions of Section 17(5)(d) of the CGST Act