2022 (4) TMI 1141 - AAR - GST

Steel and cement input tax credit denied for works contract services under composite procurement arrangements

In Re: M/s. Coral Manufacturing Works India Private Limited

The AAR Tamil Nadu ruled that input tax credit on steel, cement and other consumables used in works contract services for construction of an integrated ... Input tax credit - steel, cement and other consumables (Annexure attached) to the extent of their actual usage in the execution of the works contract service when supplied for construction of immovable property, in the form of the factory which is an Integrated Factory building with Gantry Beam, which in turn used for mounting across the pre-cast concrete beams, poles and over which the crane would be operated - Structures, Pre cast, reinforced concrete beams, poles etc. (purchased as it is) which are used as supports to mount and operate the crane over 10 metres from ground, as shown in the pictures attached - Other capital goods, like rails which are fixed over the concrete arms for smooth travel of the over-head crane - HELD THAT:- Perusal of the agreement and invoices reveal that all pertain to Composite supply of Works Contract services of Construction falling under SAC 9954 and availed towards construction of factory premises to the applicant. It is the contention of the applicant that as per the Explanation in Section 17 of the GST Act, 'Plant and Machinery' includes foundation and Structural Supports, however there is no definitive provision when such foundation or structural support simultaneously carries the load of a roof or function as side wall also. The applicant has not furnished any documentary proof for purchase of the Pre-cast/supports, as it is, for which the credit eligibility is sought. Also, the applicant has sought their eligibility to credit in respect of other capital goods like rails. Again the applicant has not furnished the details of 'other capital goods' and also the factual details as to whether 'rails' are procured by them per-se, or rails are also laid as a part of Works Contract services. The agreements and the copies of Invoices furnished in support of the questions raised by them shows that they have availed the services of Works Contract' of construction of Integrated Factory. The applicant procures services of Works Contract' of Construction of 'Integrated Factory Premises' designed to take the load of various 'Plant and Machinery' to be housed for operations. The incremental foundations made is not the 'foundation with which the Plant and Machinery are fixed to earth', which is held as eligible along with the 'Plant and Machinery' as per the Explanation under Section 17 of the GST Act. Also, the applicant has not established that they individually procures steel, cement and other consumables for the works executed by their suppliers, thus the invoices for such goods have not been established to be in the name of the applicant. Therefore, the credit of steel, cement and other consumables even in proportion to the incremental volume of the earth foundation, side walls, beams, etc are not available as credit to the applicant. No ruling is extended on the 'Pre-cast, Reinforcements, supports' said to have been purchased as it is by the applicant and 'Other Capital goods' as the required facts of procurement and documentary substantiation is not made. Input Tax Credit of GST paid on Steel, cement and other consumables are not available for the applicant - The eligibility to credit of GST paid on structures, Pre cast, reinforced concrete beams, poles etc. (purchased as it is) and other capital goods are not answered as the question is not substantiated with the factual documents. Issues Involved:1. Eligibility of Input Tax Credit (ITC) on steel, cement, and other consumables used in the execution of works contract service for construction of immovable property.2. Eligibility of ITC on structures, precast, reinforced concrete beams, poles, etc., used as supports for operating cranes.3. Eligibility of ITC on other capital goods like rails fixed over concrete arms for crane movement.Issue-wise Detailed Analysis:1. Eligibility of ITC on Steel, Cement, and Other Consumables:The applicant sought an advance ruling on whether ITC is admissible for steel, cement, and other consumables used in the construction of an Integrated Factory Building with Gantry Beam. The applicant argued that these materials are used for reinforcing the foundation and structures, which support the mounting and operation of cranes. They contended that the enhanced civil engineering works are essential for the installation and operation of overhead cranes, and hence, the GST paid on these materials should be eligible for ITC.The ruling examined Section 17(5)(d) of the GST Act, which restricts ITC on goods or services used for the construction of immovable property, except for plant and machinery. The explanation under Section 17 defines 'plant and machinery' to include foundation and structural supports but excludes land, buildings, and other civil structures. The ruling concluded that the additional foundation and beams are part of the civil structure of the factory and not the foundation for the plant and machinery. Therefore, the GST paid on steel, cement, and other consumables used for these civil structures is not eligible for ITC.2. Eligibility of ITC on Structures, Precast, Reinforced Concrete Beams, and Poles:The applicant also sought ITC on precast, reinforced concrete beams, poles, etc., used as supports for operating cranes. However, the ruling noted that the applicant did not furnish documentary proof for the purchase of these items as it is. The ruling emphasized that advance ruling can only be extended based on verified facts, and in the absence of substantiating documents, the eligibility for ITC on these items could not be determined. Therefore, no ruling was provided on this issue due to the lack of factual substantiation.3. Eligibility of ITC on Other Capital Goods like Rails:The applicant sought ITC on other capital goods like rails fixed over concrete arms for the smooth travel of overhead cranes. Similar to the previous issue, the ruling noted that the applicant did not furnish details of these capital goods or whether the rails were procured separately or as part of the works contract services. Due to the lack of documentary evidence, the ruling could not determine the eligibility for ITC on these capital goods. Therefore, no ruling was provided on this issue as well.Conclusion:The ruling concluded that the ITC on steel, cement, and other consumables used for the construction of the factory building is not admissible. The eligibility for ITC on structures, precast, reinforced concrete beams, poles, and other capital goods like rails could not be determined due to the lack of factual substantiation and documentary evidence. The ruling emphasized the importance of providing detailed and verified documentation to determine the eligibility for ITC.