2020 (3) TMI 1427 - AAR - GST

NMDC Ltd. ineligible for GST Input Tax Credit on cross-country pipeline & O&M services

In Re: M/s National Mineral Development Corporation Limited

The Authority for Advance Ruling (AAR) held that NMDC Ltd. is not eligible for Input Tax Credit (ITC) on GST paid for laying a cross-country pipeline ... Input tax credit - laying of cross-country pipeline nearby river till the boundary wall of the Factory can be taken by the Applicant - Operation and Maintenance Services (O & M Services) obtained by the Applicant for the maintenance of the facility - HELD THAT:- The project for laying cross country pipelines outside the factory premises of the applicant can in no way be directly related to the outward supply of goods. As per Section 2(83) of CGST Act, 2017 outward supply in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business. Not acceding, but if assuming for the sake of discussion then too it would be far-fetched to imagine that these pipelines laid outside the factory premises to transport water from a water source to its factory are used for making any 'outward supply'. To apply the term 'used for' in the definition for plant and machinery, there should be a nexus between the impugned items on which ITC is being claimed and outward supply - It is also worth mentioning here that the provisions facilitating availment of Input Tax credit does not extend any blanket or unconditional permission for availment of credit on all items irrespective of its use, place of use and its role in making outward supply of goods or services or both, as appears to have been misconstrued by the Applicant. Eligibility of input tax credit on taxes paid on annual operation and maintenance services for the pipeline laid outside the factory premises - HELD THAT:- The pipe lines bid outside the factory premises of the applicant are not plant and machinery in view of the above exclusion clause as also that the said pipe lines merit treatment as immovable property. Thus there exist no grounds for availment of Input tax credit on the taxes paid on annual operation and maintenance services of the aforesaid pipeline laid outside the factory premises. Issues Involved:1. Admissibility of input tax credit of GST paid on goods and services used for laying of a cross-country pipeline outside the factory premises.2. Admissibility of input tax credit on Operation and Maintenance Services (O&M Services) for the maintenance of the cross-country pipeline outside the factory premises.Issue-wise Analysis:1. Admissibility of Input Tax Credit on Goods and Services for Laying Cross-Country Pipeline:The applicant, NMDC Ltd., sought clarification on whether it could avail input tax credit (ITC) for GST paid on goods and services used for laying a cross-country pipeline outside the factory premises. The applicant contended that the restriction under Section 17(5) of the CGST Act, 2017 applies only to pipelines laid outside the factory premises and not to other equipment and machinery.Legal Position:- Section 16(1) of the CGST Act allows registered persons to take credit of input tax charged on any supply of goods or services used in the course or furtherance of business.- Section 17(5) restricts ITC on goods and services used for construction of immovable property (other than plant and machinery). Specifically, pipelines laid outside the factory premises are excluded from the definition of 'plant and machinery.'- The definition of 'works contract' under Section 2(119) includes construction, erection, installation, and other services related to immovable property where transfer of property in goods is involved.Analysis and Conclusion:The Authority for Advance Ruling (AAR) noted that the pipeline in question is laid outside the factory premises, which is explicitly excluded from the definition of 'plant and machinery' under Section 17(5). The pipeline is considered immovable property, as it is attached to the earth and intended for long-term use, fulfilling the criteria of immovable property under various legal definitions, including the General Clauses Act, 1897, and the Transfer of Property Act, 1882.The AAR referenced several Supreme Court judgments to support the view that items embedded in the earth and intended for permanent use are immovable property. Consequently, the AAR concluded that NMDC Ltd. is not eligible for ITC on GST paid for laying the cross-country pipeline outside the factory premises.2. Admissibility of Input Tax Credit on Operation and Maintenance Services:NMDC Ltd. also sought clarification on whether it could avail ITC on GST paid for O&M services for the maintenance of the cross-country pipeline.Contentions:- The applicant argued that there is no restriction under Section 17(5) on availing ITC for O&M services of immovable property.- The applicant clarified that it does not intend to capitalize the O&M costs, which would otherwise invoke restrictions under Section 17(5)(d).Legal Position:- Section 17(5) restricts ITC on goods or services received for construction of immovable property (other than plant and machinery) on the taxpayer's own account.- The definition of 'plant and machinery' excludes pipelines laid outside the factory premises.Analysis and Conclusion:The AAR reiterated that the pipeline is considered immovable property and not plant and machinery. Therefore, ITC on O&M services for the pipeline is also restricted under Section 17(5). The AAR concluded that NMDC Ltd. is not eligible for ITC on GST paid for O&M services related to the cross-country pipeline laid outside the factory premises.Order:The AAR ruled that:1. NMDC Ltd. is not eligible for ITC on GST paid on goods and services used for laying the cross-country pipeline outside the factory premises.2. NMDC Ltd. is not eligible for ITC on GST paid for O&M services for the maintenance of the cross-country pipeline outside the factory premises.