Company eligible for ITC on transmission cables and electrical equipment under section 16 despite transfer to GETCO

The AAR Gujarat held that the applicant was eligible to claim ITC on capital goods including wires, cables, and electrical equipment used for electricity transmission from power station to factory premises. The Authority found that conditions under section 16 were fulfilled and restrictions under sections 17(5)(c) and 17(5)(d) did not apply. The underground cables were not fixed to earth and could be removed for maintenance, qualifying as plant and machinery. The subsequent transfer of service line to GETCO at zero value under agreement did not bar ITC availment, though section 18(6) liability was noted for future consideration.

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Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on capital goods used for transmission of electricity from the power station to the factory premises.
2. Compliance with Section 16 and Section 17 of the CGST Act, 2017.
3. Impact of transferring capitalized goods to GETCO on ITC eligibility.

Detailed Analysis:

1. Eligibility of Input Tax Credit (ITC) on Capital Goods:
The applicant, engaged in the manufacture of various products under Chapter 56 of the Customs Tariff Act, 1975, sought a ruling on whether a manufacturer is eligible to take ITC on capital goods such as wires/cables and electrical equipment used for transmitting electricity from the power station to the factory premises, even if these are installed outside the factory premises as per the rules and policy of GETCO.

2. Compliance with Section 16 and Section 17 of the CGST Act, 2017:
The applicant claimed compliance with Section 16 of the CGST Act, 2017, which outlines the eligibility and conditions for taking ITC. The applicant asserted that they had satisfied all conditions, including possession of a tax invoice, receipt of goods and services, payment of tax to the government, and furnishing of returns. The authority confirmed that the applicant's claim appeared correct.

Section 17 of the CGST Act, 2017, which deals with the apportionment of credit and blocked credits, was also considered. The applicant argued that ITC is not blocked under Section 17(5)(c) and (d), as the goods are capitalized only on the basic value and installation charges, and the tax portion is availed as ITC. The authority noted that the goods in question (cables/wires, equipment, etc.) are not fixed to earth but kept in a duct and can be removed for maintenance, thus not falling under the exclusions listed in the explanation to Section 17.

3. Impact of Transferring Capitalized Goods to GETCO on ITC Eligibility:
The applicant informed that the goods would be transferred to GETCO through an agreement on a stamp paper at zero value, and these would remain the property of GETCO. The authority found no provision under the CGST Act, 2017, barring the availment of ITC if the capitalized goods are subsequently handed over to GETCO. However, the applicant was reminded of the liability under Section 18(6) of the CGST Act, 2017, which was not delved into as it was not the issue at hand.

Ruling:
The applicant is eligible to take ITC on the capital goods in the form of wires/cables and electrical equipment (specifically, 750 meters of new 66 KV S/Cable, 630 mm square aluminum corrugated sheath U/G cable line for the installation of a 66 KV feeder bay at the sub-station of GETCO) used for the transmission of electricity from the power station of the DISCOM to the factory premises of the applicant.

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