Composite works contract: ITC allowed only on plant-and-machinery portion (structural steel, cranes, HVAC); advance claims must meet s.16(4) deadline

AAR held the contract is a composite "works contract" and input tax credit (ITC) is admissible only on the structural steel/plant-and-machinery portion (not civil or sheeting), noting cranes and HVAC qualify as plant & machinery. Applying a harmonious reading of s.13 and s.16, the authority held that where a supplier invoices an advance, ITC may be availed on that advance subject to the time-limit in s.16(4): before 30 November following the end of the relevant financial year or filing of the relevant annual return, whichever is earlier.

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ISSUES PRESENTED AND CONSIDERED

1. Whether input tax credit (ITC) is admissible on supply, fabrication and erection of structural steel works (pre-engineered building / PEB structural steel) used in construction of a new factory, or whether such supplies are blocked as construction of immovable property under Section 17(5)(c) & (d) of the CGST Act.

2. If ITC is partially admissible, what is the correct principle for identifying the proportion of structural steel works that qualify as "plant and machinery" (including foundation and structural supports) and thus are not covered by the embargo in Section 17(5)?

3. The temporal question: when may ITC be availed in respect of a supplier's tax invoice issued for an advance payment (mobilization advance) - whether ITC is governed by the deeming provisions for time of supply of services (Section 13(2)) and/or limited by the statutory cut-off under Section 16(4) (30th November following the end of the FY)?

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - ITC admissibility on structural steel works vs. blocked construction inputs

Legal framework: Section 16(1) entitles registered persons to ITC on inputs/input services "used or intended to be used in the course or furtherance of business," subject to conditions in Section 16(2). Section 17(5)(c) and (d) block ITC for works contract services and goods/services received for construction of immovable property (other than 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 ... and includes such foundation and structural supports" but excludes land, building or any other civil structures.

Precedent treatment: The Authority relied on an AAAR ruling that structural supports for overhead cranes may constitute plant and machinery for ITC eligibility (AAAR ruling reproduced by applicant). Applicant also cited Supreme Court and High Court decisions (Jayaswal Neco - MODVAT credit on railway track material; Opal Construction - structural steel as plant and machinery) as supportive authorities. The Tribunal (Authority) considered these precedents persuasive where they align with statutory definitions but did not treat them as overriding statutory text.

Interpretation and reasoning: The Authority emphasised statutory text over general parlance. The phrase "plant and machinery" must be strictly construed per the Explanation: (a) apparatus/equipment/machinery; (b) fixed to earth by foundation or structural support; (c) used for making outward supply; and (d) includes foundation and structural supports. Structural steel works forming part of an integrated factory building are generally part of immovable property and a works contract; however, where specific secondary structural elements serve exclusively as foundation/structural supports for identifiable machinery (e.g., overhead cranes, HVAC units) that are themselves plant and machinery used for outward supply or production, those structural supports fall within the statutory inclusion and are not blocked by Section 17(5). Accounting treatment alone (capitalisation as plant and machinery) does not determine tax character.

Ratio vs. Obiter: Ratio - The statutory definition controls; structural steel forming part of immovable property is generally blocked, but structural supports exclusively attributable to operation of plant and machinery are excluded from the embargo and eligible for ITC. Observations on dictionary meanings and cited cases are persuasive reasoning (obiter to extent not essential to statutory interpretation).

Conclusion: ITC is eligible proportionately only to the extent of secondary structural steel works that are exclusively attributable to and provide foundation/structural support for plant and machinery (specifically overhead crane movement and HVAC machines), subject to fulfilment of other conditions in Section 16(2) and the exclusions in Section 17(5). ITC on civil works and sheeting (walls/roof) remains ineligible.

Issue 2 - Principle and basis for quantification of eligible proportion of structural steel

Legal framework: The Eligibility hinges on statutory definition of "plant and machinery" which expressly includes foundation and structural supports that relate to apparatus/equipment/machinery used for making outward supply. Section 17(5) excludes "plant and machinery" from the blocking clauses; therefore the eligible portion must be the part of works that constitute such foundation/structural supports.

Precedent treatment: AAAR ruling (Coral Manufacturing) applied a proportionate approach - allowing ITC on overhead rails/gantry beams and a proportion of structural support calculated by reference to load transferred by crane components. Applicant's cited judicial precedents indicating structural steel may be plant/machinery were considered supportive but the Authority relied primarily on the statutory Explanation.

Interpretation and reasoning: The Authority held that PEB structural works in an integrated factory often lack independent existence and become part of immovable property; nevertheless, where secondary steel elements are exclusively for supporting machinery (cranes, HVAC), the statutory inclusion applies. Quantification must be on a nexus/exclusivity basis - ITC allowed only on the proportion of structural steel that is exclusively attributable to support of plant/machinery. The Authority accepted that contract documents, bill of quantities, supplier declarations and images can be used to segregate and apportion values. Civil/roof/sheathing portions are excluded.

Ratio vs. Obiter: Ratio - Eligible ITC is the proportion of structural steel works exclusively supporting plant and machinery; methodology of apportionment is factual and documentary (cost abstract, bill of quantities, supplier apportionment) and is a necessary part of the ruling. Reference to the Coral AAAR approach is treated as supportive precedent (followed insofar as it aligns with statutory test).

Conclusion: The correct basis is an exclusive-use and nexus test: identify secondary structural elements dedicated to plant/machinery, substantiate by contractual/bill-of-quantities/supplier apportionment or technical evidence, and admit ITC proportionate to that exclusive portion only; other structural/civil/sheeting works remain ineligible.

Issue 3 - Temporal rule for availing ITC on invoices issued for advance payments (mobilisation advance)

Legal framework: Section 13(2) (time of supply of services) deems supply to have occurred on the earlier of invoice issuance or receipt of payment and contains an Explanation deeming supply to the extent covered by payment. Section 16(2)(b) requires receipt of goods/services as a condition for ITC; Section 16(4) prescribes a statutory outer time-limit for availing ITC - "not after the 30th day of November following the end of the financial year to which such invoice pertains" (or filing of annual return, whichever earlier).

Precedent treatment: The Authority considered the reasoning of the Bombay High Court (L&T IHI Consortium) that Sections 13 and 16 must be read harmoniously so that advance payments which attract tax by operation of Section 13(2) do not produce an anomalous denial of ITC; but the Authority found Section 16(4)'s time-baratic effect operative.

Interpretation and reasoning: The Authority recognised the doctrine of harmonious construction and that Section 13(2) can deem supply (or part supply) when payment precedes actual provision. Nonetheless, Section 16(4) is a specific statutory limitation that governs the latest date by which ITC may be availed in respect of an invoice. When a supplier issues a tax invoice for an advance (mobilisation) and tax is paid, the recipient's entitlement to ITC arises subject to fulfilment of conditions (including receipt as per Section 16(2)); however, where the invoice exists and is within the ambit of Section 13(2) deeming, the statutory cut-off in Section 16(4) governs the outer temporal limit. Consequently, ITC in respect of invoices issued for advances must be availed before the 30th November following the end of the financial year to which the invoice pertains (or filing of annual return), even if the physical receipt or final adjustment occurs later.

Ratio vs. Obiter: Ratio - Section 16(4) imposes an absolute statutory time-limit for availing ITC on invoices (including advance invoices), and this time-bar is applicable even where Section 13(2) deems the supply earlier; harmonised reading does not override the explicit cut-off. The discussion of L&T IHI is treated as persuasive but not dispositive to displace Section 16(4).

Conclusion: ITC in respect of a supplier's tax invoice issued for an advance component must be availed by the recipient on or before the 30th November following the end of the relevant financial year (or filing of annual return), as provided by Section 16(4); reliance on Section 13(2)'s deeming does not extend the Section 16(4) statutory deadline.

OVERALL CONCLUSIONS (RULING OUTLINE)

1. ITC is admissible only proportionately on that part of the structural steel works which constitutes secondary structural support exclusively attributable to and providing foundation/structural support for plant and machinery (specifically overhead cranes and HVAC machines), subject to satisfaction of Section 16(2) conditions and not being otherwise blocked under Section 17(5). Civil works and sheeting for walls/roofs remain ineligible.

2. The statutory time-limit under Section 16(4) governs availing ITC on invoices issued for advance payments; ITC in respect of such advance invoices must be availed before 30th November following the end of the financial year to which the invoice pertains (or filing of relevant annual return), irrespective of later physical receipt or final adjustment.

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