EHV cable manufacturer denied ITC on concrete tower construction inputs under Section 17(5)(c) and (d) CGST Act 2017

AAR Gujarat ruled that the applicant cannot claim ITC on inputs and input services for constructing concrete towers to support VCV lines at their factory for EHV cable manufacture under Section 17(5)(c) and (d) of CGST Act, 2017. Following SC precedent in Safari Retreats P Ltd, the authority applied the functionality test and determined that since construction was for applicant's own use, the supply chain breaks, making ITC unavailable. The ruling rejected applicant's reliance on various judgments, noting they were mostly related to Income Tax Act and not relevant to GST provisions.

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ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the applicant, engaged in the manufacture of Extra-High Voltage (EHV) cables, is eligible to avail Input Tax Credit (ITC) on inputs and input services used for the construction of a concrete tower to support and erect Vertical Continuous Vulcanization (VCV) lines at their factory, in terms of Section 17 (5) (c) and (d) of the Central Goods and Services Tax (CGST) Act, 2017.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents

The relevant legal framework involves Section 17 (5) of the CGST Act, which outlines the conditions under which ITC is not available. Specifically, clauses (c) and (d) of this section address works contract services and goods or services received for the construction of immovable property, respectively. The explanation to Section 17 defines "plant and machinery" and outlines exclusions.

The court also considered a recent Supreme Court judgment in the case of M/s. Safari Retreats P Ltd, which provided an interpretation of Section 17 (5) (c) and (d), emphasizing the exceptions related to "plant and machinery" and the concept of construction on one's "own account."

Court's interpretation and reasoning

The court analyzed the provisions of Section 17 (5) (c) and (d) in light of the Supreme Court's interpretation in the Safari Retreats case. It noted that ITC is generally not available for works contract services or goods/services received for constructing immovable property unless they pertain to "plant and machinery" or are not on the taxpayer's "own account."

Key evidence and findings

The applicant argued that the VCV lines qualify as "apparatus and machinery" and that the concrete tower serves as a foundation and structural support, which should make the ITC eligible. They also cited various case laws to support their position.

Application of law to facts

The court applied the functionality test as laid out in the Safari Retreats case to determine if the concrete tower could be considered "plant or machinery." It concluded that the construction of the tower was on the applicant's "own account," as it was intended for use in their manufacturing process, thus breaking the ITC chain.

Treatment of competing arguments

The applicant's reliance on various precedents and a circular regarding ITC on ducts and manholes was dismissed as irrelevant, as these did not pertain directly to the construction of the VCV tower. The court emphasized that the Safari Retreats judgment provided a comprehensive interpretation of the relevant CGST provisions.

Conclusions

The court concluded that the applicant is not eligible for ITC on the inputs and input services used for constructing the concrete tower, as it falls under the exclusions outlined in Section 17 (5) (d) of the CGST Act.

SIGNIFICANT HOLDINGS

The court held that:

"The applicant is not eligible to avail ITC on inputs and input services used for construction of concrete tower to support and erect the VCV lines at the factory of the applicant, for manufacture of EHV cables, in terms of Section 17 (5) (c) and (d) of the CGST Act, 2017."

The judgment reinforced the interpretation that ITC is not available for constructions made on one's "own account" unless they qualify as "plant and machinery" under the specific exceptions provided in the CGST Act.

The court's decision relied heavily on the Supreme Court's interpretation in the Safari Retreats case, which clarified the application of Section 17 (5) (c) and (d), particularly regarding the exceptions related to "plant and machinery" and constructions on one's "own account."

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