2025 (10) TMI 240 - AAAR - GST

Appeal dismissed; Revenue's challenge denying ITC on capital goods (wires, cables, equipment) under s.17(5), s.18(6) rejected

The Assistant Commissioner, CGST Excise, Division-VII, Bharuch, and Central Vadodara-II Versus M/s Elixir Industries Private Limited.

AAAR upheld the lower authority's findings and dismissed the departmental appeal. Revenue's challenge-that capital goods (wires, cables, electrical ... Blocking of ITC - availability of ITC on the capital goods, in the form of wires/cables electrical equipment etc - categorization as plant and machinery or not - primary ground raised by Revenue is that the installation of 66KV feeder bay is outside the factory & the ownership lies with GETCO - reversal of ITC in view of the fact that goods will be transferred to GETCO - HELD THAT:- It is found that the departmental appeal does not put forth any grounds as to why the findings are not legally tenable except for a bald averment that the same cannot be categorized as ‘plant and machinery’ & hence blocked by section 17(5) and that the aspect of section 18(6) was not followed. It is found that when Board has clarified that ITC is not restricted even in respect of ducts and manhole used in OFCs under section 17(5) of the CGST Act, 2017, the question of restricting the ITC on capital goods in the form of wires/cables electrical equipment etc. [viz 750 meters new 66 KV S/Cable (3+1), 630 mm square aluminium corrugated sheath/G cable line for installation of 66 KV feeder bay at sub-station of GETCO] used for transmission of electricity from power station of the DISCOM to the factory premises of the applicant, simply does not arise. The findings of the GAAR upheld - the departmental appeal filed by the Assistant Commissioner, CGST and Central Excise, Division VII, Bharuch, Vadodara-II Commissionerate is rejected. ISSUES PRESENTED AND CONSIDERED 1. Whether input tax credit (ITC) is available on capital goods in the form of high-tension cables, electrical equipment and allied works (66 KV S/Cable and feeder bay installation) laid outside factory premises for transmission of electricity to the registered person's factory. 2. Whether such capital goods/works fall within the exclusions of section 17(5)(c) and/or 17(5)(d) of the CGST Act - i.e., whether they constitute construction of immovable property (other than plant and machinery) or fall within the exclusion 'pipelines laid outside the factory premises'. 3. Whether subsequent handing over/transfer of the capitalized goods to the distribution company (GETCO) affects the initial availment of ITC and if so, whether section 18(6) imposes an obligation to reverse or repay ITC. ISSUE-WISE DETAILED ANALYSIS Issue 1: Availability of ITC on the high-tension cable/feeder bay installed outside factory premises Legal framework: Section 16 (conditions for availing ITC) and section 17 (blocked credits) of the CGST Act govern eligibility; section 18(6) prescribes liability in case capital goods are transferred to an unregistered person or otherwise. The Explanation to section 17 defines 'plant and machinery' and lists exclusions. Precedent treatment: The Advance Ruling Authority concluded ITC was available. The Appellate Authority examined that conclusion and the supporting findings; no binding adverse precedent was produced by Revenue to rebut the ruling. A Board circular (CBIC) clarifying treatment of ducts and manholes for OFC networks was relied on as persuasive guidance. Interpretation and reasoning: The Court reviewed undisputed factual findings that conditions under section 16 were satisfied (tax invoices, receipt of goods/services, payment of tax and returns, payment to supplier within 180 days). The impugned ruling found the cables and associated equipment were not fixed to earth in the manner contemplated by the Explanation and were housed in ducts allowing removal/maintenance. Applying the statutory text and the Explanation's scope, the Authority held these items are not blocked by sections 17(5)(c)/(d). The Appellate Authority gave weight to the Board's clarification that ducts and manholes used for optical fibre cable networks are not barred under section 17(5), reasoning by analogy that items forming part of a transmission network (and not ordinary civil structures) fall within 'plant and machinery' and are not covered by exclusions. No legal provision was identified which outrightly prohibits initial availment of ITC on capital goods later handed over to a distribution company; instead the statute contemplates post-availment consequences (see Issue 3). Ratio vs. Obiter: Ratio - ITC is available where conditions of section 16 are satisfied and the goods/equipment used for transmission are not excluded by the Explanation to section 17; factual characteristics (not fixed to earth, removable, housed in duct) are material to classification. Obiter - analogy to ducts/manholes for OFC networks via CBIC circular, used as persuasive, non-binding clarification supporting the statutory interpretation. Conclusion: ITC on the specified 66 KV cable and associated equipment used for transmission of electricity to the factory is allowable; the Advance Ruling's grant of ITC is upheld. Issue 2: Applicability of exclusions under section 17(5)(c) and 17(5)(d) (construction/immovable property and pipelines outside factory premises) Legal framework: Section 17(5)(c) bars ITC for works contract services supplied for construction of immovable property (other than plant and machinery); section 17(5)(d) bars ITC for goods/services received for construction of immovable property (other than plant or machinery) on own account. The Explanation defines 'plant and machinery' and explicitly excludes certain items (land, buildings, telecommunication towers, pipelines laid outside factory premises). Precedent treatment: The Advance Ruling analyzed clauses (c) and (d) and the Explanation and concluded the items in question do not fall within the barred categories. The Appellate Authority found no contestation of those factual and legal findings by Revenue and no persuasive authority to overturn them. The CBIC circular addressing ducts/manholes in OFC networks was adopted as interpretive guidance. Interpretation and reasoning: The Authority distinguished between civil/immovable structures and apparatus/equipment that form part of a transmission network. The Explanation's exclusions are specific and do not automatically capture all external works; the equipment here (cables in ducts, removable for maintenance) function as part of the outward supply/transmission network and are not in the nature of excluded pipelines or civil structures. The factual finding that cables are not fixed to earth in the requisite manner and are maintainable and removable is pivotal to exclude the operation of 17(5)(c)/(d). Ratio vs. Obiter: Ratio - the statutory exclusions under the Explanation must be applied to the substance and factual mode of attachment/use; items that are removable and not structural foundations do not fall within the exclusions and therefore are not blocked under section 17(5)(c)/(d). Obiter - reliance on CBIC circular for analogy to OFC ducts/manholes, used to reinforce the interpretation. Conclusions: Sections 17(5)(c) and (d) do not bar ITC on the subject cables/equipment given their functional characteristics and factual status; the Advance Ruling's conclusion that these provisions do not block ITC is sustained. Issue 3: Effect of subsequent handover of capitalized goods to the distribution company and applicability of section 18(6) Legal framework: Section 18(6) addresses adjustments/liability where capital goods on which ITC has been availed are subsequently transferred to another person or otherwise disposed of (statutory obligations to compensate/adjust as prescribed). Precedent treatment: The Advance Ruling expressly noted there is no provision preventing initial availment of ITC even if capital goods are later handed over; it cautioned the applicant about potential liability under section 18(6) but did not adjudicate that liability as it was not the question framed. The Appellate Authority observed that GAAR had recorded this position and that Revenue did not contest or produce contrary legal grounds. Interpretation and reasoning: The Authorities distinguished between (a) the entitlement to initially claim ITC upon satisfaction of section 16 conditions and (b) separate statutory consequences if the capital goods are later transferred (section 18(6)). The ruling treats section 18(6) as a mechanism to address post-availment transfer consequences, not as a bar to initial availment. Since the question before the ruling did not require determination of any obligation under section 18(6) on facts of transfer to the distribution company, the Authority restricted its decision to availability of ITC and recorded that section 18(6) may operate subsequently. Ratio vs. Obiter: Ratio - initial availment of ITC is governed by section 16 and the exclusions in section 17; section 18(6) may impose subsequent liabilities but does not ipso facto negate an otherwise valid initial claim. Obiter - the ruling's caution about section 18(6) without adjudication of reversal/repayment on concrete transfer facts is a non-decisive observation. Conclusion: The initial availment of ITC is not barred by the prospect of subsequent transfer to the distribution company; any obligation to reverse or repay ITC under section 18(6) is a separate issue to be determined when such a factual transfer and statutory mechanism are actually invoked. Cross-references and Administrative Clarification CBIC clarification regarding ducts and manholes used in optical fiber cable networks was treated as persuasive administrative guidance supporting the interpretation that network components not of the nature of excluded civil structures/pipelines are within the ambit of plant and machinery for ITC purposes; this clarification reinforced the conclusion under Issues 1 and 2. Overall Conclusion The Appellate Authority upheld the Advance Ruling allowing ITC on the specified capital goods (66 KV cable and related equipment); sections 17(5)(c)/(d) do not bar ITC on the facts found, and section 18(6) may create subsequent liabilities but does not prevent valid initial availment of ITC. The departmental appeal was rejected as devoid of merits.