ELECTRICAL GOODS ITC

[DURAI RAJ]

One of my client Running business of Granite Quarry during the FY-2020-21 purchased electrical wires and Electrical goods for a granite quarry Transfromation installation for business purposes only. The department has issued a notice under Section 17(5) of the CGST Act, 2017, regarding the claimed Input Tax Credit (ITC) that is deemed ineligible. I need clarification on which ITC is eligible and the relevant sections to support this claim. Please provide guidance on this matter.

[YAGAY andSUN]

https://www.taxtmi.com/forum/issue?id=118305

[YAGAY andSUN]

Posted On September 7th, 2018

Credit allowed on transformer and electrical cables procured for factory

2018 (9) TMI 241 - KARNATAKA HIGH COURT - M/S. BANDO (INDIA) PRIVATE LTD., VERSUS THE STATE OF KARNATAKA

[YAGAY andSUN]

This is a common area of litigation under Section 17(5) of the CGST/SGST Act, especially when it comes to input tax credit (ITC) related to infrastructure, construction, and electrical installations in mining or quarrying businesses.

Let’s break this down in a clear, section-wise legal manner, and then provide guidance on how to approach your client’s case:

✅ Background

Your client runs a Granite Quarry and during FY 2020–21, purchased:

• Electrical wires
• Electrical goods
• For use in installation of a transformer at the quarry site, exclusively for business purposes.

Now, the tax department has objected to the ITC claim, invoking Section 17(5) of the CGST Act, asserting that it is blocked credit.

⚖️ Relevant Legal Provisions

📘 Section 16(1) – Eligibility to claim ITC:

A registered person shall be entitled to take credit of input tax charged on any supply of goods or services used or intended to be used in the course or furtherance of business.

So, as per Section 16(1), prima facie ITC is allowable if the goods are for business purposes, which appears true in your case.

📘 Section 17(5) – Blocked Credits

This is where the restriction is triggered.

📌 Relevant Clauses Likely Cited by the Department:

Section 17(5)(c):

ITC shall not be available in respect of works contract services for construction of immovable property (other than plant & machinery).

Section 17(5)(d):

ITC is not allowed for goods or services received for construction of an immovable property (other than plant or machinery) on own account, even when used in the course of business.

🧠 Key Legal Interpretation – "Plant and Machinery" Exception

📘 Explanation to Section 17:

“Plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support, used for making outward supply of goods or services… and includes such foundation and structural supports but excludes:

• land, building or any other civil structure
• telecommunication towers
• pipelines laid outside the factory premises

✅ Important: Transformer, electrical installations, and associated wiring used in a quarry (business premises) have been judicially recognized as falling within the ambit of "plant and machinery", provided:

• They are directly used in the process of extraction/manufacturing
• They are not part of a civil structure

✅ Conclusion: ITC Eligibility

Item	Purpose	ITC Eligible?	Reason
Electrical Wires	Wiring for transformer in quarry	✅ Likely yes	Part of plant & machinery
Electrical Goods (e.g., panels)	Power control for business operations	✅ Likely yes	Used directly for outward supply
Transformer Installation	Powering quarry machinery	✅ Yes	Transformer = Plant & Machinery

🚨 Condition: There should be no civil structure being created (like a building or room to house the transformer). If it’s only the electrical installation with standard foundation bolts/supports — ITC is eligible.

🔖 Supporting Case Laws & Rulings:

• Advance Ruling: Bharat Oman Refineries Ltd. (MP AAR) – ITC was allowed on electrical items used in relation to plant and machinery.
• CCE v. Rajasthan Spinning & Weaving Mills (SC) – Held that electrical equipment integral to manufacturing forms part of plant & machinery.
• Karnataka AAR: Tarun Realtors Pvt. Ltd - 2019 (10) TMI 1021 - AUTHORITY FOR ADVANCE RULING, KARNATAKA. – ITC disallowed when goods were used for construction of civil structure — contrast to your case.

✅ Recommended Action:

1. Reply to Notice with:
   • Explanation that goods are part of “plant & machinery” as per Section 17(5) Explanation.
   • Clarify that no immovable civil structure is being created.
   • Submit invoices, photos/site layout, and a technical note from your client showing how the transformer and goods are integral to quarry operations.
2. Cite relevant judicial rulings to support ITC eligibility.

[Sadanand Bulbule]

Yes. ITC is eligible. The officers need to be convinced effectively, the way they understand it.

[Shilpi Jain]

These are eligible as there is no specific blocking under 17(5)

AI Summary

Granite Quarry Wins Tax Credit Battle: Electrical Equipment Deemed Essential for Direct Business Operations Under Section 17(5) A business operating a granite quarry purchased electrical goods and wires for transformer installation during fiscal year 2020-21. The tax department issued a notice under Section 17(5) challenging the Input Tax Credit (ITC) claim. Legal analysis suggests the ITC is likely eligible since the electrical equipment qualifies as plant and machinery directly used for business operations, supported by judicial precedents interpreting GST regulations.