POWER GRID INSTALLED INSIDE THE FACTORY PREMISES & ITC

[Sadanand Bulbule]

Dear experts

In the context of retrospective amendment to Section 17(5)(d) of the CGST Act, 2017, here is my understanding on Plant & Machinery:

Section 17(5)(d) CGST Act, 2017:

“Input tax credit shall not be available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account, even when used in the course or furtherance of business.”

Definition of “Plant and Machinery” under Explanation to Section 17:

“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.

It does not include:

• Land, building or any other civil structure,

• Telecommunication towers, and

• Pipelines laid outside the factory premises.

Power Grid Inside Steel Plant:

1. Use and Function:

The internal power grid, substation, transformers, and transmission lines within factory premises are essential for the manufacturing process (i.e., making outward supplies). Without power, steel production cannot occur.

2. Fixed to Earth:

Such equipment is generally fixed to earth, with concrete foundations for heavy machinery like transformers and HT panels.

3. Wheeling Agreement:

Power received under a wheeling arrangement is a method of sourcing electricity from own generation plants like windmills etc.. installed at different & distinct places.

4. My take:

• Transformers, Electrical panels, Substations, Cables etc., installed inside the factory premises are considered as "plant and machinery" when directly connected to manufacturing. Therefore, ITC is allowed on such power grids installed inside the factory premise under Section 17(5)(d) of the CGST Act, 2017.

Experts to comment.

[KASTURI SETHI]

Dear Sir Ji,

The expression, When directly connected/related to manufacturing process qualifies the condition of when used in the course or furtherance of business.”. Hence ITC is admissible. There should not be an iota of doubt. 

[Sadanand Bulbule]

Thank you sir for your validation. Let the stakeholders derive the benefit of ITC under Section 17[5][d] of the Act.

[YAGAY andSUN]

Dear Sir,

Your understanding is largely correct and well-reasoned within the framework of Section 17(5)(d) of the CGST Act, 2017, especially in light of judicial interpretations and the retrospective clarification through amendment. Heres a concise expert-level comment:

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Your interpretation aligns with both the definition of “plant and machinery” under the CGST Act and prevailing jurisprudence. The Explanation to Section 17 clearly includes apparatus and equipment “fixed to earth by foundation or structural support” and used for outward supply, while specifically excluding civil structures, telecom towers, and pipelines outside the factory premises.

Since transformers, electrical panels, substations, and internal cabling within the factory premises are foundational to the production process and are usually installed with civil foundations, they fall within the definition of plant and machinery. Thus, ITC is admissible on such inward supplies when used in the course of manufacturing.

Additionally, the retrospective amendment to Section 17(5)(d) via the Finance Act, 2021, merely clarified the original intent — not to disallow ITC on plant and machinery, even if fixed. Therefore, your conclusion that ITC is available on internal power infrastructure within factory premises is justified and legally supported.

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Regards,

YAGAY and SUN

[Sadanand Bulbule]

Dear Yagay & Sun Sir

Your validation too has reinforced the confidence of the stakeholders to draw ITC on Plant & Machinery under Section 17[5][d] of the Act without any ambiguity. Thanks.