2021 (12) TMI 473 - AAR - GST

Applicant eligible for Input Tax Credit on machine foundation as 'plant & machinery.' Limits clarified for construction services.

The ruling authority concluded that the applicant was eligible for Input Tax Credit (ITC) only on the machine foundation as it falls under the definition ... Input tax credit exclusion for works contract services for construction of immovable property - Availability of ITC on plant and machinery including machine foundation - Definition of plant and machinery for input tax credit - ITC not available on goods or services received for construction on own accountInput tax credit exclusion for works contract services for construction of immovable property - Availability of ITC on plant and machinery including machine foundation - ITC not available on goods or services received for construction on own account - Eligibility of input tax credit on GST charged by the contractor for works contract services in relation to construction activities carried out for the applicant. - HELD THAT: - The Authority examined Section 17(5) and its explanation to determine the scope of disallowance of ITC. Section 17(5) excludes ITC on works contract services when supplied for construction of an immovable property (other than plant and machinery), while the explanation identifies 'plant and machinery' to include apparatus, equipment and machinery fixed to earth by foundation or structural support and explicitly includes such foundation and structural support but excludes land, building or other civil structures and certain external pipelines. Applying these provisions to the facts, works contract services and goods/services used for construction of immovable property on the applicant's own account are generally ineligible for ITC, except where they relate to plant and machinery. Machine foundations fall within the explained scope of 'plant and machinery' and hence qualify for ITC. Civil structures and building-related works do not qualify. Therefore, only the portion of the contractor's charges attributable to machine foundations is eligible for input tax credit. [Paras 7, 8]The applicant is eligible for input tax credit only to the extent of machine foundation; ITC on works contract services or goods/services for construction of immovable property (other than plant and machinery) is not available.Final Conclusion: Advance ruling: ITC on GST charged by the contractor for construction is available solely in respect of machine foundations; ITC on other construction-related works for immovable property or on works undertaken on the applicant's own account is disallowed. Issues:Availability of Input Tax Credit (ITC) on GST charged by the contractor supplying service of works contract.Analysis:The case involved an application filed by a company seeking clarification on the eligibility of Input Tax Credit (ITC) on amounts charged by contractors for construction services. The applicant had hired contractors for construction in two different ways: where the applicant provided material and the contractor provided services, and where the contractor provided both material and services. The construction included various aspects like machinery foundation, rooms for chillers, boilers, generators, transformers, electrical poles, internal roads, factory building, drainage, and laboratory. The applicant sought an advance ruling on the availability of ITC on GST charged by the contractor for these services.During the personal hearing, the authorized representatives of the company reiterated the application's contentions. The Authority for Advance Ruling analyzed the case in light of Section 17(5) of the CGST/SGST Acts, which states that ITC shall not be available for works contract services for the construction of an immovable property, except when it is an input service for further supply of works contract service. The explanation to Section 17 clarified that 'construction' includes various activities related to immovable property.The ruling authority concluded that ITC can be availed only on the machine foundation as it falls under the definition of 'plant & machinery' provided in the explanation to Section 17. It was highlighted that plant & machinery do not include buildings, civil structures, or pipelines outside factory premises. Therefore, the applicant was deemed eligible for ITC only to the extent of the machine foundation. The ruling clarified that the applicant could avail ITC on the machine foundation but not on other aspects of the construction services provided by the contractor.In summary, the advance ruling clarified that the applicant was eligible for Input Tax Credit (ITC) only on the machine foundation, as per the provisions of Section 17 of the CGST/SGST Acts. The ruling highlighted the specific conditions under which ITC could be claimed for works contract services related to the construction of an immovable property, emphasizing the limitations and eligibility criteria based on the nature of the services provided.