Opinion required on GST ITC eligibility on CETP / drainage contribution and ROU charges paid to GIDC

[Yogesh Ashar]

A registered manufacturing company has received demand notes from GIDC towards CETP contribution, drainage connection / 90 MLD drainage line contribution, ROU permission charges for laying pipeline, interest / penal interest and certain refundable deposits. GST is charged separately on contribution / service components in the demand notes. The facility is required for discharge / treatment of industrial effluent and appears necessary for carrying on manufacturing operations in the industrial estate.

Kindly advise:

1. Whether ITC under Section 16 of the CGST Act, 2017 is available on GST charged by GIDC on CETP contribution / drainage connection contribution / 90 MLD drainage line contribution.
2. Whether such payment is eligible as an input service used in the course or furtherance of business, or whether it may be disputed as capital contribution towards immovable infrastructure.
3. Whether Section 17(5)(c)/(d) can restrict ITC where the demand relates to drainage infrastructure, effluent line, pipeline, CETP facility or common industrial infrastructure.
4. Whether ITC treatment will differ for:
   • CETP contribution;
   • 90 MLD drainage contribution;
   • GST on interest / penal interest;
   • ROU rent / permission fee;
   • refundable deposit / security deposit;
   • pipeline / underground line laid by the company at its own cost.
5. Whether ITC can be claimed on GIDC demand note itself, or only after proper GST tax invoice / debit note with GSTIN and reflection in GSTR-2B.
6. Kindly also provide relevant favourable / adverse case laws, advance rulings or circulars, and precautions / documentation required to defend the ITC claim during GST audit or departmental scrutiny.

[Sadanand Bulbule]

The core issue is whether the payments made towards CETP contribution, drainage connection, 90 MLD drainage line contribution, and pipeline-related charges constitute mere input services availed in the course or furtherance of business, or whether they amount to construction of immovable property attracting restriction under Section 17(5)(c)/(d) of the CGST Act.

A strong view exists that where the drainage/CETP infrastructure is owned, operated, and maintained by GIDC as common industrial utility infrastructure, and the company merely contributes towards availing such facility for statutory effluent treatment and manufacturing operations, the same should not be treated as construction of immovable property on the company's own account.

However, litigation exposure increases where the company itself undertakes construction of underground pipelines or drainage infrastructure at its own cost and capitalizes the same as immovable asset, in which case the department may invoke the restriction under Section 17(5).

The departmental observations during audit are highly speculative. So matter should be evaluated document-wise and component-wise rather than adopting a uniorm ITC position for all payments.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Well answered by Sadanand Bulbule Sir.

If the works undertaken are treated as in the course of furtherance of business, and or fall under the category of Plant & Machinery, ITC is eligible, if other conditions are satisfied u/s 16. No ITC on CETP contribution and deposits. ITC may be restricted from being treated as immovable property u/s 17(5) (c) & (d).

[Shilpi Jain]

More factual aspects required. Is this a common infrastructure where the costs are shared? Is this an asset in the books of the Company?

If a common infra then there should not be a restriction.

[Yogesh Ashar]

Dear Shilpi Mam

This is a common infrastructure cost to be shared amongst all units in the area. The agency is GIDC. We are treating the same as Intangible assets as it is akin to licence to discharge in the CETP. In future we will be billed for processing of the effluent discharged.

Thanks

AI Summary

Input tax credit on CETP and drainage charges turns on whether the facility is common infrastructure or immovable property.
Input tax credit on GST charged by GIDC for CETP contribution, drainage connection contribution, 90 MLD drainage line contribution, ROU permission charges, interest or penal interest, refundable deposits, and pipeline-related payments depends on the nature of each component and the character of the underlying facility. Where the drainage and CETP system is a common industrial infrastructure owned, operated, and maintained by GIDC for effluent treatment in the course of manufacturing business, the payments are discussed as potential input services rather than construction of immovable property on the company's own account.