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.

AI Summary

Input tax credit on plant and machinery is permitted for internal power infrastructure used in manufacturing.
Transformers, substations, electrical panels and internal cabling fixed to earth within factory premises and directly serving the manufacturing process qualify as plant and machinery and therefore permit input tax credit. The retrospective amendment clarifies that fixed equipment integral to production is not excluded from ITC, while external civil structures, pipelines and telecom towers remain excluded.