There have been various disputes w.r.t credit eligibility on a ‘Plant’ being in the nature of an immovable property. In GST regime the issue remains, with various interpretations arising out of Section 17(5)(c) & (d) of CGST Act 2017 along with relevant explanations in the law.
We have seen disputes raised in the form of credit restriction on expenses relating to construction of commercial building under section 17(5) in M/s.Safari Retreats case which is now pending with the Hon’ble Supreme Court.
This issue was recently discussed again by way of CBIC Circular 219/13/2024-GST dated 26th June 2024 to clarify credit eligibility in the case of ducts and manholes used in the telecommunication sector.
Applicable GST provisions:
Section 17(5) CGST Act:-
(c) Work 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) Construction of immovable property (other than plant and machinery)” on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation - ‘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
- land, building or any other civil structures,
- telecommunication towers; and
- pipelines laid outside the factory premises
Summary of the Circular
- ITC was being denied by GST authorities on ducts and manholes used in network of optical fibre cables (OFC) laid on the ground, being in the nature of immovable property.
- Ducts and manholes are basic components of OFC network use to provide telecommunication services.
- Generally laid with PVC ducts/sheaths are integral for laying the OFC and also for its upkeep and maintenance.
- Circular issued to avoid unwarranted litigation in the telecommunication sector
- Section 17(5)(c) & (d) highlighted along with explanation to ‘Plant & Machinery’ at end of ITC chapter in CGST Act.
- Clarified that ducts & manholes are not specifically excluded from the ‘Plant & Machinery’ definition given in the GST law.
- Specifically clarified that it is not in the nature of civil structures nor are in nature of telecommunication towers or pipelines laid outside the factory premises.
- Concluded that ducts and manholes are ‘plant & machinery’ and therefore, even if it results in an immovable property, ITC would be eligible and is not restricted u/s 17(5) of CGST Act.
Open issues based on Circular 219/2024
- When cement/ iron based pipes (RRC/DWC/GI pipes) are used instead of PVC ducts or sheaths would ITC be restricted?
Author comments: No, as the utility of OFC is linked to that of a plant and machinery. The implication of it being immovable in nature does not affect the eligibility of ITC anymore.
- Would the OFC not be considered as ‘pipelines laid outside the factory premises’ and therefore excluded from Plant & Machinery under GST?
Author comments: In the circular it is specifically clarified that it is not a pipeline laid outside the factory premises. As this is a beneficial circular and is binding on the GST authorities, the ITC position for the telecommunication sector on OFCs is safe. Although, pipelines outside factory which were held not to be Plant and Machinery in GST period as follows:
- Western Concessions Private Limited – Maharshtra AAAR – Tie-in-pipeline to deliver regasified LNG to cross country pipeline/national grid.
- Mumbai Aviation Fuel Farm Facility Pvt Ltd – Maharshtra AAAR – Connector pipeline from fuel farm to hydrant network used to fuel airlines.
The fact that pipelines gain the nature of immovable property and hence are not eligible to ITC must be done away with, taking cue of the above Circular. Representations from affected Industries/Associations are recommended to overcome such ITC restriction especially when the laying of pipelines outside factory is indispensable for manufacturing/business process. Alternatively, CBIC could issue the notification similar to NN 13/2016-CE(NT).
- What are the situations that warrant credit eligibility reassessment?
Author Comments:
-
- Specially designed structures/equipment fastened to the earth treated as immovable property instead of plant & machinery.
- Water/Sewage/Effluent treatment plant where ITC could be eligible.
- Civil/construction activity performed for installation or functioning of plant & machinery. ITC eligibility to be studied.
- Lift/HVAC related credits
- P&M projects
Taxpayers are recommended to review their ITC eligibility. The fact that the plant or machinery attains the nature of immovable property, or the department disputes it is civil structure or otherwise, the pith and substance of various decisions amplify the ITC eligibility when the plant & machinery nexus to business is clearly established. Obtaining professional expert opinion, claiming credit and reversing under protest/applying for refund where applicable can be explored.
Useful decisions
Input tax credit admissible w.r.t Cement used for laying foundation and erection of cement manufacturing plant & machinery [J.K Cement Works Vs State of Karnataka 2017 (7) G.S.T.L. 408 (Kar)]
Wires and cables are covered under the expression “Plant” as the same was necessary for the assessee to carry on his business [Jawahar Mills Ltd. v. CCE, 1999 (108) E.L.T 47/[1999]]
Silos constructed out of cement & steel are not civil structures and forms integral part of machinery [ Ambuja Cements Ltd. Division bench Kerala HC MANU/KE/5980/2019]
Steel items used for construction of plant & machinery, credit admissible [Kallakurichi Co-op Sugar Mills Ltd Vs CCE MANU/CC/0023/2020]
CENVAT Credit on pipes used for laying of pipelines for bringing water to the factory and services used for laying and maintenance of pipeline are admissible [Torrent Pharmaceuticals Ltd Vs CCE, Ahmedabad –III - 2014-TIOL-2217-CESTAT-AHM]
Cenvat credit of capital goods used in mining area eligible [Madras Cements Ltd vs CCE, Trichy - 2015-TIOL-272-SC-CX]
Crushers and conveyor belts, ropeway spares used for transportation of goods admissible ITC. [Raj Cement vs UOI (2006 (197) E.L.T. 491 (Raj.); . Birla Corporation Ltd vs CCE, Raipur - 2007-TIOL-111-SC-CX]
The main test to call a thing to be plant is without it business cannot be carried on [Harijan Evam Nirbal Varg Avas Nigam Ltd V.CIT, (1998) 229 ITR 776 (All)]
The term ‘Plant’ includes whatever apparatus or instruments are used by a business is carried on. It includes all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business. [CIT v. Bank of India, (1979) 118 ITR 809 (Bom)].
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