AAR Gujarat allows ITC for plant machinery foundations under Section 17(5) but blocks civil structures

AAR Gujarat ruled on ITC eligibility for works contract services and goods used in construction. ITC was allowed for foundation and structural support of Sand Mill, Spray Dryer, and HAG machines under Section 17(5) explanation 2, provided not capitalized. However, ITC was blocked for civil structures like sheds, roofs, and supports. ETP was deemed civil structure, making ITC ineligible for its foundation. Transformer foundation ITC was also denied following precedent. The ruling distinguished between plant machinery foundations (eligible) and civil structures (blocked).

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Issues Involved:
1. Eligibility of ITC on works contract services and materials for foundation and structural supports for specific machinery.
2. Eligibility of ITC on steel (TMT bars) used in foundation for machinery.

Summary:

Issue 1: Eligibility of ITC on Works Contract Services and Materials for Foundation and Structural Supports for Specific Machinery

Sand Mill and Spray Dryer:
The claim of ITC for the foundation and structural support for the Sand Mill and Spray Dryer is covered by the explanation 2 to Section 17(5) of the CGST Act, 2017, making the applicant eligible for ITC, provided it is not capitalized. However, ITC on the structure/shed erected on the left side of the Sand Mill and Spray Dryer is blocked as it falls under civil structure.

HAG (Hot Air Generating Machine and Equipment):
The foundation and structural support for the HAG machine are eligible for ITC under explanation 2 to Section 17(5), provided it is not capitalized. However, ITC on the roof and its supports over the HAG machine is blocked as it is considered a civil structure.

ETP (Effluent Treatment Plant):
The ETP is considered a civil structure, and ITC for its foundation and structural support is not allowed. This view is supported by rulings in the cases of Synergy Global Steel Pvt. Ltd. and Tarun Realtors Pvt. Ltd., where similar structures were excluded from the definition of "plant and machinery."

Transformer:
The applicant is not eligible for ITC on works contract services for the foundation structure on which the DG set is fixed to earth by foundation. This follows the ruling in the case of Tarun Realtors Pvt. Ltd.

Issue 2: Eligibility of ITC on Steel (TMT Bars) Used in Foundation for Machinery

Steel (TMT bars) procured by the applicant and used in works contract services for making the foundation to fix machinery to earth is eligible for ITC, subject to the findings recorded in paragraph 19 onwards.

Ruling:
1. WCS for Foundation and Structural Supports:
- Eligible for ITC for Sand Mill and Spray Dryer, and HAG machine foundations and supports, excluding civil structures like sheds and roofs.
- Not eligible for ITC for ETP and Transformer foundations and supports.

2. Steel (TMT Bars):
- Eligible for ITC when used in the foundation for fixing machinery to earth, subject to specific findings.

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