ITC Admissible on Capital Goods Installed Outside Factory Premises.

The Gujarat AAAR In the matter of Elixir Industries Private Limited [2025 (10) TMI 240 - APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT] held that Input Tax Credit (ITC) is admissible on capital goods such as wires, cables, and electrical equipment used for power transmission from the grid to the factory, even if installed outside factory premises and subsequently transferred to Gujarat Energy Transmission Corporation Ltd. (GETCO) for maintenance, provided the conditions under Section 16 of the CGST Act, 2017 are met.

Facts:

The Assistant Commissioner, CGST & Central Excise, Division VII Bharuch (“the Appellant”), representing the Revenue, filed an appeal against the favorable Advance Ruling given to the Respondent.

Elixir Industries Private Limited (“the Respondent”) is a 100% Export Oriented Unit manufacturing of non-woven spun lace products, requiring high-tension power supply. The Respondent installed a 66 KV feeder bay and a 750-meter 66 KV underground cable line from GETCO’s substation to its factory premises under GETCO’s policy.

The Respondent capitalized the value of these capital goods and paid the corresponding GST, seeking ITC on the same. The ownership of installed assets was transferred to GETCO by agreement for maintenance, with no consideration.

The Appellant argued that since these assets were installed outside factory premises and ownership was with GETCO, they fall under immovable property blocked under Section 17(5)(c) and (d) of the CGST Act. ITC should be disallowed, and reversal under Section 18(6) is warranted.

The Respondent contended that the assets are integral plant and machinery essential for business, not permanently fixed to earth, removable for maintenance, meeting eligibility under Section 16 of CGST Act. Further, transfer to GETCO was only for maintenance and does not affect ITC eligibility.

The Appellant approached the Gujarat AAAR under Section 100 of the CGST Act challenging the initial ruling allowing ITC.

Issue:

Whether ITC is admissible on capital goods such as wires, cables, and electrical equipment installed outside factory premises and transferred to GETCO for maintenance, or whether such ITC is blocked under Section 17(5) and liable for reversal under Section 18(6) of CGST Act?

Held:

The Gujarat AAAR in 2025 (10) TMI 240 - APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARATheld as under:

• Observed that, the Respondent satisfied all the conditions under Section 16 of the CGST Act, 2017, including possession of tax invoice, receipt of goods and services, payment of GST to Government, and timely filing of returns.
• Noted that, Section 17(5) of the CGST Act blocks ITC on goods used for construction of immovable property except plant and machinery, where “plant and machinery” is defined as apparatus and machinery fixed to earth by foundation or structural support used for making outward supply of goods or services.
• Observed that, the installed assets (wires, cables, and feeder bay) are not permanently fixed to the earth and they are kept in ducts allowing for removal and maintenance, which supports their classification as plant and machinery rather than immovable property.
• Held that, the assets installed outside factory premises and transferred to GETCO for maintenance purposes fall within the scope of plant and machinery as per the Explanation to Section 17 and are therefore eligible for ITC.
• Further clarified that, the exclusions under Section 17(5) for land, building, civil structures, telecommunication towers, and pipelines laid outside factory premises do not apply to these electrical transmission assets.
• Noted that CBIC Circular No. 219/13/2024-GST dated June 26, 2024 that clarifies ITC eligibility on ducts and manholes used in optical fiber cable networks, drawing a parallel to affirm ITC admissibility on the Respondent’s cables and electrical equipment.
• Noted that, though the capital goods were subsequently handed over to GETCO, this does not bar initial ITC availment; any reversal of liability under Section 18(6) of the CGST Act arises separately and was not before the Authority.
• Rejected the Revenue’s appeal and upheld the prior Advance Ruling allowing ITC to the Respondent

Our Comments:

The AAAR’s decision clarifies the eligibility of ITC on capital goods installed outside factory premises but integral to business operations, emphasizing a pragmatic approach consistent with the legislative framework. The ruling distinguishes immovable property from movable plant and machinery under Section 17, supported by CBIC Circular clarifications.

The decision aligns with rulings in similar contexts (e.g., Prism Cement, Hindustan Coca Cola), affirming that business-essential capital goods, even if transferred to third-party maintenance entities, do not automatically disqualify ITC. The ruling provides guidance for taxpayers on structuring investments in infrastructure with GST compliance certainty.

Relevant Provisions:

Section 16 of the CGST Act, 2017: 

“16. Eligibility and conditions for taking input tax credi.-

(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.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;

(b) he has received the goods or services or both.

Explanation.- For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services-

(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;

(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be paid by him along with interest payable under section 50, in such manner as may be prescribed:

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon. ..”

Section 17(5)(c) & (d), CGST Act, 2017: 

17. Apportionment of credit and blocked credits.-

“(5) Notwithstanding anything contained in sub-section (1) of Section 16 and sub-section (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 and machinery on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation 1.-For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

Explanation 2.––For the purposes of clause (d), it is hereby clarified that notwithstanding anything to the contrary contained in any judgment, decree or order of any court, tribunal, or other authority, any reference to “plant or machinery” shall be construed and shall always be deemed to have been construed as a reference to “plant and machinery.”

Section 18(6), CGST Act, 2017: 

“18. Availability of credit in special circumstances.-

(6) In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.”

Relevant extract of the Circular:

CBIC Circular No. 219/13/2024-GST dated June 26, 2024: 

“Whether the input tax credit on the ducts and manholes used in network of optical fiber cables (OFCs) for providing telecommunication services is barred in terms of clauses (c) and (d) of sub-section (5) of section 17 of the CGST Act, read with Explanation to section 17 of CGST Act ?

1. Sub-section (5) to Section 17 of the CGST Act provides that input tax credit shall not be available, inter alia, in respect of the following:

1. 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; or
2. 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.

2. Explanation in section 17 of CGST Act provides that 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 land, building or any other civil structures; telecommunication towers; and pipelines laid outside the factory premises.

3. Ducts and manholes are basic components for the optical fiber cable (OFC) network used in providing telecommunication services. The OFC network is generally laid with the use of PVC ducts/sheaths in which OFCs are housed and service/connectivity manholes, which serve as nodes of the network, and are necessary for not only laying of optical fiber cable but also their upkeep and maintenance. In view of the Explanation in section 17 of the CGST Act, it appears that ducts and manholes are covered under the definition of “plant and machinery” as they are used as part of the OFC network for making outward supply of transmission of telecommunication signals from one point to another. Moreover, ducts and manholes used in network of optical fiber cables (OFCs) have not been specifically excluded from the definition of “plant and machinery” in the Explanation to section 17 of CGST Act, as they are neither in nature of land, building or civil structures nor are in nature of telecommunication towers or pipelines laid outside the factory premises.

4. Accordingly, it is clarified that availment of input tax credit is not restricted in respect of such ducts and manhole used in network of optical fiber cables (OFCs), either under clause (c) or under clause (d) of sub-section (5) of section 17 of the CGST Act.”

(Author can be reached at [email protected])