2025 (10) TMI 1246 - AAR - GST

Advance ruling allows ITC on capital goods and services for power transmission; compliant with Section 16, reversal under Section 18(6)

In Re: M/s. Alleima India Pvt. Limited.

AAR held the applicant eligible to claim ITC on capital goods and related services (wires/cables, electrical equipment, supervision and installation) used ... Eligibility to avail ITC on procurement of capital goods & related services in the form of wires/cables, electric equipment, supervision charges & installation service used for transmission of electricity from power station of DISCOM to the factory premises which are installed outside the factory as per rules & policy of GETCO in accordance with the provision of sections 16 & 17 of the CGST Act, 2017. The First averment of the applicant is that they have fulfilled all the conditions mentioned in Section 16 ibid - possession of a tax invoice, the goods and services have been received, the tax on supply has been actually paid to the Government and the applicant shall furnish the return under Section 39 - HELD THAT:- It is not privy to the fact that all the conditions have been fulfilled except for the fact that the applicant has submitted the relevant invoices of the supplier i.e M/s Rajesh Power, and the service provider i.e GETCO. In any case, it is also not required to go into this factual aspect, as this is a primary condition for availing input tax credit. However,the claim of the applicant that the conditions of Section 16 stand fulfilled are accepted. The second averment of the applicant is that they are not hit by the exclusions provided in Section 17(5)(c) and 17(5)(d) ibid - HELD THAT:- The applicant has submitted a copy of the agreement entered between them with GETCO. However, in the applicant’s case, there is nothing explicit in the agreement between them and GETCO, which reveals that the ownership of the underground cable line along with the other electrical equipment would vest with GETCO. The applicant has also submitted that the entire cost of the project (excluding GST) amounting to Rs. 5,73,72,146/- has been capitalised by them in their books of accounts. They have treated the said equipment as an enabling asset and capitalised the same. They have claimed it as an asset in their books of account and also claimed depreciation on its taxable value. They have further assured that if for any reason, the said assets are taken over or transferred back to GETCO for any reason, they are liable to reverse the input tax credit under the provisions of Section 18(6) for capital assets. Thus, the applicant is eligible to avail ITC on procurement of capital goods & related services in the form of wires/cables, electric equipment, supervision charges & installation service used for transmission of electricity from the power station of DISCOM to the factory premises which are installed outside the factory. ISSUES PRESENTED AND CONSIDERED 1. Whether input tax credit (ITC) is admissible under Section 16 read with Section 17 of the CGST Act, 2017 on procurement of capital goods and related services (wires/cables, electric equipment, supervision charges and installation services) used for transmission of electricity from a DISCOM/GETCO substation to a factory premises where such installations are located outside the factory premises. 2. Whether the goods and services used in laying underground high-tension (66 KV) cables and associated works constitute 'works contract' or 'construction of an immovable property (other than plant and machinery)' within the meaning of Section 17(5)(c) and 17(5)(d), thereby attracting the ITC blockage. 3. Whether ducts, manholes and similar components used for transmission networks fall within the definition of 'plant and machinery' in the Explanation to Section 17 and are therefore excluded from the blocked credits under Section 17(5). 4. Whether ownership, capitalization in books of account, or potential transfer of assets to the DISCOM/GETCO affects the eligibility to avail ITC, including interplay with Section 18(6) on reversal where assets are transferred. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of ITC under Section 16 read with Section 17 for capital goods and related services used for power transmission outside factory premises Legal framework: Section 16 prescribes general entitlement to take ITC subject to prescribed conditions (possession of tax invoice, receipt of goods/services, tax paid to government, furnishing of return). Section 17 contains apportionment rules and a list of blocked credits under sub-section (5). Precedent treatment: The Authority considered a prior ruling by the Gujarat Advance Ruling Authority on identical facts which allowed ITC for similar capital goods and services, and that ruling was subsequently upheld by the Appellate Advance Ruling Authority. Interpretation and reasoning: The Court proceeded on the applicant's accepted satisfaction of Section 16 conditions and concentrated on whether exclusions in Section 17(5) apply. It analysed the nature of the items (cables, wires, switchyards, aluminium corrugated sheaths, ducts and manholes) and the character of works (underground cable laid in ducts, use of DWC/Hume pipes under roads, supervised installation). On the factual matrix, the Authority found these items to be movable/modular or to constitute plant and machinery for transmission activities rather than immovable property construction. The Authority also relied on administrative clarification (CBIC Circular No. 219/13/2024-GST) to conclude that components used in transmission networks are not barred by Section 17(5). Ratio vs. Obiter: Ratio - ITC is admissible where goods/services used for transmission of electricity from DISCOM substation to factory are not construction of immovable property and satisfy conditions in Section 16; reliance on administrative clarification and analogous advance ruling forms part of the operative reasoning. Obiter - incidental factual observations about installation methods and industry best practices. Conclusion: The applicant is eligible to avail ITC on procurement of capital goods and related services used for transmission of electricity from DISCOM to factory premises situated outside the factory, subject to fulfilment of Section 16 conditions. Issue 2 - Whether the works amount to 'works contract' or construction of immovable property attracting Section 17(5)(c)/(d) Legal framework: Section 17(5)(c) bars ITC in respect of works contract services for construction of immovable property (other than plant and machinery) and Section 17(5)(d) bars ITC for goods/services received for construction of immovable property on own account; both contain explanation that 'construction' includes reconstruction, renovation, additions or alterations to the extent of capitalization. Precedent treatment: The Authority relied on the earlier advance ruling (and its appellate affirmation) which treated similar transmission works as not falling within the excluded category under Section 17(5). Interpretation and reasoning: The Authority examined the intrinsic nature of the goods and works: cables and wires are flexible, coiled and relocatable; switchyard components are prefabricated and modular; ducts/manholes serve as part of transmission network; installations are supervised by GETCO but executed by vendor engaged by applicant. On this basis, the Authority held the works do not amount to construction of immovable property (other than plant and machinery) and are not 'works contract' in the excluded sense. The Explanation to Section 17 was considered, and items that are apparatus/equipment fixed to earth used for making outward supplies are within 'plant and machinery' and excluded from the immovable/civil-structure exclusion; further, pipelines laid outside factory premises are explicitly excluded from 'plant and machinery' but the Authority found no analogous exclusion for these transmission components. Ratio vs. Obiter: Ratio - Where installed components are movable/modular or constitute plant and machinery used for making outward supply (here transmission), they are not covered by Section 17(5)(c)/(d) exclusions. Obiter - factual characterisation of specific items as modular/movable. Conclusion: The laying of underground HT cables and associated works do not constitute works contract for construction of immovable property so as to invoke the ITC bar in Section 17(5)(c)/(d). Issue 3 - Status of ducts, manholes and network components under the Explanation to Section 17 ('plant and machinery') and effect of CBIC circular Legal framework: Explanation to Section 17 defines 'plant and machinery' as apparatus, equipment and machinery fixed to earth by foundation or structural support used for making outward supply and expressly excludes land, building or any other civil structures; telecommunication towers; and pipelines laid outside the factory premises. Precedent treatment: The Authority placed reliance on CBIC Circular No. 219/13/2024-GST which clarified that ducts and manholes used in OFC networks for telecom services are covered within 'plant and machinery' and ITC is not barred by Section 17(5). Interpretation and reasoning: The Authority reasoned by analogy: ducts and manholes are essential components of transmission networks, used for making outward supply (here transmission of electricity), and are not expressly excluded by the Explanation. Therefore, the administrative clarification that ITC is not barred for such components in OFC networks was held applicable in principle to electricity transmission components. The Authority found no principled reason to distinguish ducts/manholes/cable components used for power transmission from those used in OFC networks for purposes of ITC blockage under Section 17(5). Ratio vs. Obiter: Ratio - Ducts, manholes and similar network components serving transmission functions qualify as 'plant and machinery' for Section 17 purposes and are not subject to the ITC exclusions in Section 17(5). Obiter - reliance on the telecommunication context as persuasive analogy. Conclusion: Ducts, manholes and similar components used in the power transmission installation are to be treated as plant and machinery for purposes of Section 17 and are not barred from ITC under Section 17(5). Issue 4 - Effect of ownership, capitalization and potential transfer to DISCOM/GETCO on ITC entitlement and interplay with Section 18(6) Legal framework: Section 16 conditions govern entitlement; Section 18(6) provides for reversal of ITC in certain cases where capital assets are transferred/taken over. Precedent treatment: The Authority noted factual differences with the prior Elixir ruling where service line was explicitly to be transferred to GETCO; in that case the issue of transfer's effect was considered. Interpretation and reasoning: In the present facts, the agreement did not explicitly vest ownership with GETCO; the applicant capitalised the project cost in its books and claimed depreciation, treating the items as assets. The Authority accepted the applicant's assurance that if assets are taken over or transferred back to GETCO, reversal of ITC will be effected in accordance with Section 18(6). The Authority therefore focused on legal characterisation rather than ownership and concluded that absence of an explicit transfer clause and the applicant's capitalization support current ITC availment, subject to statutory reversals if transfer occurs. Ratio vs. Obiter: Ratio - Ownership or capitalization per se does not preclude ITC where items qualify under Sections 16 and 17; however, where assets are subsequently transferred to DISCOM/GETCO, Section 18(6) obligations to reverse ITC would apply. Obiter - factual acceptance of applicant's bookkeeping treatment influences practical outcome. Conclusion: The absence of explicit transfer of ownership to DISCOM/GETCO and capitalization by the applicant supports present ITC claim; if assets are later transferred to GETCO, the applicant must reverse ITC as per Section 18(6). Final Ruling (operative conclusion) On the facts and law considered, ITC is available on procurement of capital goods and related services in the form of wires/cables, electric equipment, supervision charges and installation services used for transmission of electricity from the DISCOM substation to the factory premises installed outside the factory, subject to satisfaction of the conditions in Section 16 and to statutory reversal obligations (Section 18(6)) in case of transfer of assets.