LNG company denied input tax credit for breakwater construction under Section 17 GST provisions

The Bombay HC dismissed a petition challenging denial of input tax credit (ITC) on breakwater construction. The petitioner, an LNG regassification service provider, claimed ITC arguing the breakwater constituted plant and machinery. The HC held that breakwater walls and accropodes used for protecting vessels during LNG unloading do not qualify as plant and machinery under GST provisions. The court found the breakwater serves a protective function rather than being used for making outward supply of goods or services as required under Section 17 explanation. The HC upheld the tax authority's order denying ITC eligibility.

---

---

Issues:
1. Eligibility of Input Tax Credit (ITC) on the construction/reconstruction of the breakwater.
2. Interpretation of Section 17 (5) (d) of the CGST Act regarding ITC availability for construction of immovable property.

Issue 1: Eligibility of Input Tax Credit (ITC) on the construction/reconstruction of the breakwater:

The petitioner, engaged in regassification of LNG, sought advance ruling on ITC eligibility for constructing a breakwater to ensure safety during berthing and unloading of LNG carriers. Respondent No. 5 denied ITC, stating the breakwater does not qualify as "plant and machinery" under Section 17 (5) (d) of the CGST Act. Petitioner argued the breakwater should be considered "plant and machinery" as it facilitates operational efficiency. Respondent No. 6 upheld the denial, leading to the petition challenging this decision.

Issue 2: Interpretation of Section 17 (5) (d) of the CGST Act regarding ITC availability for construction of immovable property:

The key contention was whether the breakwater could be classified as "plant and machinery" for ITC purposes. Petitioner argued that the breakwater, despite being immovable, should qualify as "apparatus" under the definition of "plant and machinery." However, respondents contended that the breakwater, involving civil work and accropodes, is a civil structure, not "plant and machinery." The court analyzed Section 17 (5) (d) and the Explanation, emphasizing that "plant and machinery" must be used for making outward supplies, which the breakwater did not fulfill.

In the judgment, the court observed that the breakwater's primary function was to protect vessels during LNG unloading, not for making outward supplies. The court agreed with the respondents' interpretation that the breakwater did not meet the criteria to qualify as "plant and machinery" under the CGST Act. The court found no infirmity in the orders denying ITC eligibility and dismissed the petition.

In conclusion, the court upheld the decisions of the authorities, denying Input Tax Credit on the construction/reconstruction of the breakwater, as it did not meet the criteria to be classified as "plant and machinery" under Section 17 (5) (d) of the CGST Act.

---