ITC ON EFFLUENT TREATMENT PLANT

[Vinaykumar Jhawar]

WE ARE CONSTRUCTING EFFLUENT TREATMENT PLANT FOR TREATMENT OF WASTE WATER BEFORE DISCHARGING IT. IT WILL BE TYPICAL CIVIL STRUCTURE WITH SOME MACHINE FITTED IN IT. CAN I CLAIM ITC ON THE STEEL AND CEMENT INVOICES USED FOR THE SAME.

[Ganeshan Kalyani]

Sec.17(5) (c) provides as "works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business."

The above two clauses in the blocked credit section excludes plant or machinery, which means that the goods or services or both or works contract service availed for construction of plant and machinery is eligible for credit.

Effluent treatment plant is not merely a civil structure but it does the process of treating the effluent into non-hazardous which can be used for other purposes within factory like using in toilets, gardening etc.or dispose it into water body.

So, in my view, credit is eligible.

[DR.MARIAPPAN GOVINDARAJAN]

As you told if it is a typical civil structure no ITC is eligible.

[Rajagopalan Ranganathan]

Sir,

The name "effluent treatment plant" itself suggest that it is a plant. and the same is used in furtherance of business for the reason the law required construction of such plant in factories producing/manufacturing certain type of goods. Hence ITC of gst paid on such plant is available.

[KASTURI SETHI]

Civil structure is fitted with machine. It is an integral part of factory. ITC is admissible. Very well explained by Sh.Ganeshan Kalyani Ji and Sh.Rangnathan Sir. No need to explain further.

[Alkesh Jani]

Dear Experts,

The explanation given after Section 17(6) of CGST Act, 2017, the said explanation is reproduced below for your ready reference

“Explanation.––For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.”

How the above explanation will not be applicable in the instant case?

Thanks

[KASTURI SETHI]

Dear Alkesh Jani Ji, Have you gone through legal definition of 'plant' ?

[Roshan Singh]

Applicable Provisions of the Act:

As per clause (c) of sub section (5) of section 17 of CGST Act 2017, works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

As per clause (d) of sub section (5) of section 17 of CGST Act 2017, goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalizations, to the said immovable property;

Explanation.–– For the purposes of Chapter V i.e Input Tax Credit , the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

Analysis:

Since Effluent Treatment Plant as whole considered as plant including civil structure wherein Machine is fitted with in it (You can Google the image of Effluent Treatment Plant for better understanding). Accordingly Effluent treatment plant shall be out of the ambit of Section 17(5)(c) and (d).

Now clause (i) of explanation to chapter V excludes any other civil structures for admissibility of ITC. Here mentioned civil structures would be which is constructed other than the effluent treatment plant, it may be structures like for operator of plant or otherwise therefore Cement and Steel used to construct the effluent treatment plant shall not form part of any other civil structures of clause (i) of Explanation to Chapter V.

Consequently, Steel and Cement used for such structure form part of the expression of Plant and Machinery as explained in "Explanation - for the purposes of Chapter V"

Assumption: Effluent treatment plant shall be used further to make outward supplies of water.

Conclusion:

ITC on the cement and steel used for the construction of Effluent Treatment Plant shall be admissible as per above mentioned provisions and explanations of CGST Act, 2017.

[Alkesh Jani]

Dear Kasturiji Sir,

No. Please be kind enough to provide the same for larger public interest including me.

[Alkesh Jani]

Dear Experts,

The views taken by Sh.Roshanji is without considering the language used in explanation, and interpreting without considering “Any other civil structure”. The definition of “Plant and machinery” as given in the explanation that only foundation and structure support which is fixed to earth can be considered as integral part of “Plant and Machinery” and any other than that is to be excluded.

If the views are accepted than each factory’s civil structure which is integral part of plant and machinery, then for cold storage, warehousing etc. service ITC of civil structure or say cement and steel would be available.

In the above scenario, let us agree to advice the querist to opt for Advance Ruling, as sufficient ground are provided and also with a request to share the outcome, if opting for the same.

Thanks

[Roshan Singh]

Dear Alkesh Jani,

If you go through the 2nd para of my analysis part, i have mentioned that any other civil structure may be like, for operator of plant or otherwise.

Now so far as "foundation and structure support which is fixed ot earth" is concerned cement and steel used to construct the structure where in machinery is fitted, without that effluent plant can not come into existence or can not be operated, therefore it is very well part of the plant and machinery.

You should have a look how effluent plant looks like so that you can relate with question asked by our colleague.

Akhilesh jani ji regarding your 2nd para explanation, you have formed your own view and the same was not meant at all.

I won't recommend anyone to opt for advance ruling for such queries.

Thanks for giving your observation!!

Have a good day😊

[KASTURI SETHI]

Dear Roshan Singh Ji,

You are possessing old head on young shoulders. Both of your replies are full of logic, reasoning and legal force. Your analysis is par excellence. Your reply is self explanatory. So I did not feel the need to post legal definition of 'PLANT'. Effluent Treatment Plant is an integral part of a manufacturing unit. Hence no question of denial of ITC.

[KASTURI SETHI]

It is better to apply your own mind and take decision rather than opting for Advance Ruling Authority. Querist should muster courage.

[Vinaykumar Jhawar]

THANK YOU SIR FOR GIVING THE VALUABLE ADVICE. WILL GO FOR ADVANCE RULING. ONLY FEAR IS THAT MAJOR ADVANCE RULING GOES AGAINST TAXABLE PERSON.

[KASTURI SETHI]

Dear Querist,

I am very eager to know the result of application to be filed with AAR. Pl. post here as and when decision is taken by the jurisdictional AAR.

[Kashish Gupta]

Dear Vinaykumar Ji,

As per Section 2(19) of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), “Capital Goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

Further, Section 17(5)(c) &(d) of CGST Act, 2017 states that-

“(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.”

Explanation. - For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.

The term “Plant and Machinery” has been described in the Explanation to Section 17(5) as follows-

“Explanation. - For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes -

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.”

The expression “other civil structure” means civil structure for Plant & Machinery and it has been excluded from said expression. Therefore, ITC is not allowed on civil structure for P&M. But said Civil Structure should be in the nature of an immovable property as this expression has been used with the words “land, building”.

There are numerous excise judgments which says that if civil structure has been created only for ensuring wobble free movement of Plant & Machinery, it is not an immovable property. So, if it is only for wobble free movement, ITC is available because it is not an immovable property. It is only a foundation and structural support.

[KASTURI SETHI]

Such comprehensive and crystal clear reply by Sh.Kashish Gupta CA is par excellence and I am sure this reply will force the querist to rethink on opting for AAR. Now the assessees avoid going to AAR, especially keeping in view of some 'unbelievable' and 'unseasonable ' decision by AARs.

[Alkesh Jani]

Dear Experts,

First of all let me thank all the experts for sharing their valuable knowledge. The reason why it was advised to the querist for Advance Ruling is that if ITC is taken and in future department may object the ITC, it would be along with interest and penalty, contesting SCN to higher appellate (as on now no Tribunal is constituted), will be time consuming would be something like ITC+Interest+Penalty (if any)+time+ legal expense, while if opting for Advance Ruling will be Fees+legal expense+ time frame.

If the AAR may deny ITC at this stage, then surely for future and if allowed by AAR free from many time-consuming activities. The decisions given by AAR is without prejudice and based on legality.

Secondly, there will be various supplies including goods and services for setting up effluent plant from various supplier (may be composite supply), therefore, which services are used for foundation or support, is required to be identify. Moreover, the said plant is within the factory or outside is to be decided and as per the assumption of Sh. Roshanji, that the output of the said plant is for supplying goods or services, is to be ascertain. Foundation and structure are definitely immovable property, any civil structure other than foundation or structure support, would be excludes from the definition of “Plant and Machinery”.

I requested for the definition of ‘Plant’ because the termed used is “Plant and Machinery”. As you all experts are aware that in Excise “confiscation and penalty” decisions are available that if no confiscation no penalty can be imposed”.

Once again, I thank all Experts for commenting on my views and sharing their valuable knowledge.

[DR.MARIAPPAN GOVINDARAJAN]

A very elongated discussion among professionals. Healthy situation.

[SHARAD ANADA]

Refer Satyesh Brinechem Pvt. Ltd Gujart AAAR = 2020 (4) TMI 795 - APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT

[Vinaykumar Jhawar]

Thank You Sharad Anandji, the AAR decision will help us further.

AI Summary

Plant and machinery classification determines ITC eligibility on structural inputs; ETP may qualify if integral to plant and business use.
Availability of ITC on cement and steel for an Effluent Treatment Plant depends on whether the ETP and its civil works qualify as plant and machinery (including foundations and structural supports) used to make outward supplies. If so, inputs forming part of that plant are eligible for ITC; if the civil works constitute separate immovable property or "other civil structures," ITC is excluded. Key operative issues are classification of foundations versus other civil structures, capitalisation, identification of component supplies, and factual predicates that may justify an Advance Ruling.