ITC Allowed on Concrete Tower as Essential Plant Support Under Section 17 of CGST Act

The AAAR, Gujarat held that the applicant is eligible to claim ITC on inputs and input services used for constructing a concrete tower supporting VCV lines at its factory for manufacturing EHV cables. The concrete structure was found to be an essential foundation and structural support for plant and machinery under the second explanation to section 17 of the CGST Act, 2017. Consequently, such ITC does not fall under the restrictions of section 17(5)(c) and (d). The ruling noted that since ITC is allowed on ducts and manholes used in optical fiber cables, similarly, ITC on the concrete tower construction cannot be denied. The applicant's claim for ITC was thus upheld.

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ISSUES:

Whether input tax credit (ITC) is available on inputs and input services used for construction of a concrete tower supporting vertical continuous vulcanization (VCV) lines for manufacturing extra high voltage (EHV) cables under Section 17(5)(c) and (d) of the Central Goods and Services Tax Act, 2017 (CGST Act)?Whether the concrete structure supporting the VCV lines qualifies as "plant and machinery" under the explanation to Section 17 of the CGST Act, thereby permitting ITC on its construction'Whether the construction of the concrete tower is on the taxable person's "own account" and how that affects ITC eligibility under Section 17(5)(d)?Whether the clarification in CBIC Circular No. 219/13/2024-GST dated 26.6.2024 regarding ITC on ducts and manholes used in optical fiber cable networks is applicable by analogy to the concrete structure in question?

RULINGS / HOLDINGS:

The appellant is eligible to avail ITC on inputs and input services used for construction of the concrete tower supporting and erecting the VCV lines, as the concrete structure constitutes foundation and structural support forming part of plant and machinery under the explanation to Section 17 of the CGST Act, 2017.The concrete tower is not excluded as "land, building or any other civil structures" because the exclusions do not include foundation and structural supports to plant and machinery, which are expressly included within the definition of plant and machinery.The construction, although on the taxable person's own account, qualifies for ITC because plant and machinery are exempted from the ITC block under Section 17(5)(c) and (d).The CBIC Circular clarifying ITC availability on ducts and manholes used in optical fiber cable networks is not directly applicable but supports the analogous reasoning that ITC is not restricted when the structure is integral to plant and machinery.The impugned ruling denying ITC was set aside as it failed to consider whether the concrete structure forms part of plant and machinery.

RATIONALE:

The Court applied Section 17(5)(c) and (d) of the CGST Act, 2017, which block ITC on works contract services and goods or services used for construction of immovable property, except when the immovable property consists of plant and machinery.The explanation to Section 17 defines "plant and machinery" as apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services, and expressly includes such foundation and structural supports but excludes land, buildings or civil structures, telecommunication towers, and pipelines outside factory premises.The Court undertook a functional and structural analysis of the VCV tower, noting the necessity of the concrete structure as foundational and structural support essential for the operation of the manufacturing process and the heavy machinery installed therein.The Court distinguished "civil structures" from foundation and structural supports, holding that the latter are integral to plant and machinery and thus eligible for ITC.The Court noted a legislative amendment changing "or" to "and" in Section 17(5)(d) regarding plant and machinery, though not yet notified, reinforcing the interpretation of the definition.The Court relied on the Supreme Court's judgment in Safari Retreats P Ltd. regarding ITC denial on immovable property construction except for plant and machinery, and the functionality test for qualifying as plant and machinery.The Court rejected the GAAR's denial of ITC, which did not address whether the concrete structure was part of plant and machinery, and found the appellant's reliance on CBIC Circular and case law persuasive by analogy.

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