TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 917
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....on 07.10.2019 and answered the question as below: "We, Hereby, modify the ruling pronounced by the Advance Ruling Authority in so far the observation of the facts and legal provision are concerned and pass the order by holding that the Appellant is not entitled to avail the ITC of GST paid on goods and services used for construction of Tie-in Pipelines, from the FSRU to the National grid as per the provision laid out in section 17 (5) (c) and 17 (5) (d) of the CGST Act, 2017." The applicant was not satisfied with the decision passed by the AAAR and filed petition before the Hon'ble Bombay High Court (Writ Petition no. 522 of 2020) and Hon. High Court passed the Order on 21.10.2024 as below. Hon'ble High Court set aside the order dated 22.02.2019 made by the Authority for Advance Ruling ("AAR") and the order dated 07.12.2019 passed by the Appellate Authority and remanded the matter to the AAR for a fresh ruling in the light of the observations of the Hon'ble Supreme Court in the case of M/s. Safari Retreats Private Limited. The application remanded back to the Advance Ruling Authority on date 12.12.2024. With respect to the liberty given by the Hon'ble High Court to the applica....
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....ectorate (OISD) rules, Petroleum and Explosives Safety Organization (PESO) standards), which presuppose pipeline as the only means for transport of high-pressure gas over any distance. As a result, the pipeline is an inseparable and integral component for the activity being carried out by the applicant and without the pipeline, the applicant cannot carry on its business activities. The applicant states that supply of high-pressure gas using tankers would be unsafe (as gas is a highly explosive substance), highly expensive, technically and economically unviable for the project. 1.10 The Tie-in Pipeline is, therefore, not constructed to provide gas transportation service to the customers, but it connects the gas terminal to cross-country pipeline to enable further distribution of gas to the customers. 1.11 The Tie-in Pipeline would be laid under the ground and the length of the pipeline would be approximately 60 KMs. The sample photographs of FSRU and the pipeline to be constructed from FSRU to the grid are enclosed as Appendix-1. Further, the approval obtained by the applicant from various authorities such as Ministry of Environment and Forest, Maharashtra Pollution Control Board,....
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....in case where the works contract services and goods or services are used for construction of Plant and Machinery or Plant or Machinery, respectively. However, as per the explanation to Section 17, Plant and Machinery does not include a pipeline laid outside the factory premises. 1.15 It is critical to note that the term Plant and Machinery is defined in the CGST Act, however, the term Plant or Machinery as used under Section 17 (5) (d) is not defined. Accordingly, the underlying definition of Plant and Machinery and the appended explanation are not applicable for interpretation of the term Plant or Machinery and reference needs to be taken based on the dictionary meaning of such terms. 1.16 The applicant's key activity is regasification of LNG, which inter alia includes delivery in a form and manner which is consumable, usable and saleable. Hence, the provision of the gas to the nearest practical delivery point i.e. National Grid, is an integral and essential part of the economic activity being carried out by the applicant. 1.17 Therefore, the Tie-in Pipeline connecting the LNG terminal to the National Grid, which is immovable in nature, forms Plant and Machinery for the applica....
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....ment and order dated 3 October 2024. 16. The Petitioner is granted the liberty to submit additional material to the AAR within four weeks of today. The AAR must decide the matter according to the law within four months of the Petitioner filing the additional material. All parties' contentions are left open. 1.23 Accordingly, taking guidance from the Bombay High Court judgement and its finding that the earlier AAR and AAAR stands set aside, and all the contentions are left open for fresh consideration, we are submitting this additional submission for fresh consideration on merits of the case. 1.24 Under the aforesaid peculiar circumstances, we request you to issue a ruling regarding the availability of ITC of GST paid on goods and services used for construction of Tie-in Pipelines and also grant us with a personal meeting to represent our case in detail. 2. STATEMENT CONTAINING APPLICANT'S INTERPRETATION OF LAW 2.1 Applicants understanding 2.1.1 Section 16 of the CGST Act deals with the eligibility of taking ITC and the conditions to be fulfilled by the registered person. Section 16 (1) inter alia states that a registered person shall be entitled to take ITC on goods and serv....
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....y" is defined in the explanation to Section 17 as apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply but, inter alia, excludes pipelines laid outside the factory premises. While the term Plant or Machinery is not defined under CGST Act. 2.1.5 In the present case, the applicant is constructing a Tie-in Pipeline to deliver the re-gasified LNG to the cross-country pipeline/National Grid for further transportation to the customers. The said pipeline will be laid under the ground and the length of the pipeline would be approximately 60 KMs. 2.1.6 Since the pipeline in the present case is embedded in the earth, it would qualify as an immovable property and thus the construction of said pipeline amounts to a Works contract under Section 2 (119) of the CGST Act. However, the applicant is of the understanding that the Tie-in Pipeline qualifies to be a "plant and machinery" as per explanation to Section 17 of the CGST Act, or "plant or machinery" and hence the restriction under Section 17 (5) (c) and 17 (5) (d) would not be attracted in respect of construction of the said pipeline. 2.1.7 The applicant submits that....
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.... thing which is used for particular or special purpose. In the present case, the Tie-in Pipeline is used for delivery of natural gas from the terminal to the cross-country pipeline. Thus, the pipeline is used for the specific purpose of delivery. Further, as stated above, the delivery of gas up to the cross-country pipeline is an integral and essential part of the services provided by the applicant. 2.2.4 Thus, the Tie-in Pipeline is not merely a passive structure but is used for delivery of gas from the FSRU to the National Grid which in turn completes the outward supply of re-gasification services by the applicant. Accordingly, the Tie-in Pipeline will be treated as "plant and machinery" in terms of section 17 (5) (c) of CGST Act. 2.2.5 Further, in order to understand the nature of the Tie-in Pipeline being constructed by the applicant, it is pertinent to understand the various components, equipment and devices forming part of the pipeline. Pipes - These comprises of the hollow pipes laid underground from the Jaigarh Terminal to the National grid. High pressure Un-loading Arm - The high pressure unloading arm installed at the Jaigarh terminal is a special equipment for unlo....
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....erature of gas. Cathodic Protection System - This system is installed in pipeline for controlling the corrosion of pipeline. Sample contracts are attached with this application. Sample extract of the contract executed with vendor - Engineers India Limited (Page 50 and 51) is as follows: "High pressure Gas unloading arms will be used to transfer the gas from the FSRU through on-land gas pipeline connecting to Metering Station. Suitable pipeline will be provided with appropriate coating as primary anti-corrosion coating between FSRU and EPF. The EPF will thus consist of High Pressure Gas Unloading Arms, Connecting Pipeline, a Metering & Pressure/Flow Regulating Station, Utilities and Plant Control System. Utilities in the EPF will mainly consist of power generation and distribution for lighting and controls, instrument and plant air supply system (Consultant to suggest whether GOV's or instrument operated valves shall be used. In case of GOV's, the instrument and plant air system may not be required), freshwater and fire water system and drainage systems. The terminal will also have de-pressurization system with cold venting provision. Bidder is expected to develop the Suppleme....
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....s laid outside the factory premises' does not mean that what is covered within the definition of plant and machinery is only 'pipelines laid inside the factory premises'. The applicant submits that the above clause presupposes that there should be a factory premises, and in order to be excluded from the definition of plant and machinery, the pipeline should be laid outside such factory premises. 2.3.3 Therefore, the applicant submits that the pipelines laid outside some premises, which are not factory premises, will also be covered within the definition of the term "plant and machinery". 2.3.4 The applicant submits that the FSRU is not a factory premises and hence the Tie-in Pipeline laid outside FSRU will not be covered by the exclusion clause in the definition of "plant and machinery" given under Explanation to Section 17 of the CGST Act. The Factories Act, 1948 is not applicable in the present case. The definition of factory given under The Factories Act, 1948 would not be applicable in the present case. 2.3.5 Section 2(m) of The Factories Act, 1948 which defines the term 'factory' reads as under- "2. (m) "factory" means any premises including the precincts thereof- (i) ....
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...., 1948 is relied upon, the FSRU which is vessel would not qualify as a factory. 2.3.10 The Ld. AAAR earlier had accepted the applicant contention as above and considered the dictionary meaning of factory. 2.3.11 The term "factory" or "premises" is not defined under the CGST Act. Therefore, based on the judicial precedents it is pertinent to refer to some dictionary meaning of the term 'factory' and 'premises' which are extracted as under: - Dictionary meaning of the term "Factory" (i) Oxford Encyclopedic Dictionary (The new Oxford Illustrated Dictionary) Building or range of buildings with plant for manufacture of goods. (ii) Collins internet-linked dictionary of Business - Third edition A business premise used by a firm in the production of goods. (iii) The New International Webster's Comprehensive Dictionary of the English Language pl. An establishment devoted to the manufacture of something, including the building or buildings and machinery necessary to such manufacture; a manufactory. iv. Cambridge International Dictionary of English A building or set of building where large amounts of goods are made using machines. Dictionary meaning of terms 'premises' - (i) I....
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....d mean any building or other place where goods are manufactured with machines. A building is generally considered as a permanent enclosed structure with roof and walls constructed over a plot of land. Further, the perusal of the dictionary meaning of the term "premises" shows that premises means land, house or building and any land surrounding such house or building. 2.3.13 Therefore, a conjoint reading of the term "factory" and "premises" makes it abundantly clear that the phrase 'factory premises' used in clause (iii) of explanation to Section 17 (5) can only mean a factory building located on land. The said phrase has to be strictly interpreted by giving it the general meaning and cannot be stretched to cover FSRU, which is a vessel capable of navigating in oceanic waters. 2.3.14 The applicant places reliance on the decision of Tribunal in case of Sri Chaitanya Educational Committee Vs. C.C., C. E. & S.T., Guntur reported at 2016 (41) S.T.R. 241 (Tri. - Bang.). In the said case, while interpreting the definition of Commercial Training or Coaching Centre" under Section 65 (27) of Finance Act, 1994, the Tribunal held that the exclusion clause of a definition must be strictly int....
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....t to an assessee at each level of value addition and to avoid to blockage of the credit chain. Hence, the Rule of strict construction of statue would apply with great force to the GST legislation, especially to a provision which restricts the availability of ITC in the hands of the supplier. 2.3.17 The applicant submits that it is a settled law that a taxing statute has to be strictly construed and no additional meaning shall be given to the plain wordings used by the legislation. Reliance is placed on the decision of Supreme Court in case of Sales Tax Commissioner v. Modi Sugar Mills reported at AIR 1961 SC 1047 wherein the Supreme court observed as under- "In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions'. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed it Cannot imply anything which is not expressed it cannot import provisions in the statutes so as to supply any assumed deficiency.". 2.3.18 Similar view was given in the decision of Supreme Court in case of A.V. ....
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.... G.S.T.L. 250 (Bom.). The relevant portion of the said decision is extracted as under - "14. The aforesaid definition of "sale price" is capable of same interpretation of the expression "sale price" considered by the Apex Court in the judgment in Hindustan Sugar Mill's case, cited supra. The first part says that 'sale price' means the amount of valuable consideration paid or payable to a dealer for any sale made and the only relevant question to be asked in respect of it is, what is the amount payable by the purchaser to the dealer as consideration for sale and not as to what is the net consideration retainable by the dealer. The latter part of the definition of 'sale price' in the present case also contains a clause of exclusion of the amount of the cost of insurance for transit or of installation when such cost is separately charged. It will, therefore, have to be held that the exclusion clause does not operate as an exception to the first part of the definition and it merely enact an exclusion out of the inclusion clause and takes out something which would otherwise be within the inclusive clause. It has to be held that the exclusion clause can be availed of by the assessee on....
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....e we have commented upon the Tie-in Pipeline to be in the nature of plant and machinery, it is prudent to evaluate whether the same fits into the category of plant or machinery as mentioned under section 17 (5) (d) of CGST Act. 2.4.2 As discussed above, the term plant or machinery is not defined under CGST Act, accordingly reference is warranted to the dictionary meaning of such terms. The same has been upheld by the Hon'ble Supreme Court in case of Safari Retreats [2024 INSC 756]. Refer to para 41 of the said judgement below: 41. It is also necessary to bear in mind the philosophy of the GST regime, which is discussed in the case of Mohit Minerals. This Court held that the philosophy of the GST is to incorporate a consumption and destination-based test. The emphasis is on taxing supplies of goods and services. If we apply the well-settled principles on the interpretation of taxing statutes, as discussed in the earlier part of this judgment, there is no scope to give any meaning to clause (c) of Section 17 (5) other than its plain and natural meaning. The expression "plant and machinery" has been specifically defined in the explanation of Section 17. Works contract service has b....
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....n organization 2.4.7 Based on the above definitions, we wish to highlight that the dictionary meaning to the term 'plant' defines 'plant' to include land and building provided it is used for carrying out trade. 24.8 Furthermore, in para 52 of the judgement, the Supreme Court has held that whether a building is a 'plant' or not, is a question of fact to be determined based on the functionality test. If it is found based on facts, that the building has been so planned and constructed as to serve the assessee's special technical requirements, it will qualify to be treated as a 'plant'. Further the court held that to give a plain interpretation to clause (d) of Section 17 (5), the word 'plant' will have to be interpreted by taking recourse to the functionality test. In order to ascertain whether the building qualifies as a 'plant', the Hon'ble Supreme Court while giving the aforementioned guidance, remanded the matter to this extent to the High Court as the same is a factual question. 2.4.9 The Hon'ble Supreme Court has specifically laid down the recourse of the functionality test to determine whether the building is constructed for special technical requirement of the assessee. In ....
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....aid laws presuppose that pipelines are the only means for transport of high-pressure gas over any distance. As a result, the applicant has constructed the pipeline for supply of the high-pressure gas which would be unsafe if transported otherwise. PNGRB vide its letter dated 18th May 2015, has authorized H-Energy Gateway Private Limited currently name changed to Western Concessions Private Limited under Regulation 21 (1) (d) (i) of the PNGRB (Authorizing Entities to Lay, Build, Operate or Expand Natural Gas Pipelines) Regulations, 2008 to lay the 60 km Tie-in Pipeline connectivity from Jaigarh LNG terminal to Dabhol. 2.4.10 In light of the above-mentioned functions, the pipelines form an inseparable and integral component for the activity being carried out by the applicant and without the pipeline, the applicant cannot carry on its business activities and hence the pipelines serves to the special technical requirement of the applicant in delivering the gas to the customers. 2.4.11 The Learned Tribunal in Reliance Gas Transportation Infrastructure Ltd. Versus C.S.T., Mumbai-II 2016 (45) S.T.R. 286 (Tri. - Mumbai) has also affirmed this position in the context of the cenvat credit ....
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....were specially designed for rearing/breeding of the prawns, they have to be treated as tools of the business of the assessee and were considered as "plant". 2.4.14 Also, the Hon'ble Supreme Court's decision in CIT v. Karnataka Power Corporation [2001] 247 ITR 268 held that where the building has been so planned and constructed as to serve an assessee's special technical requirements, it will qualify to be treated as a "plant" for the purposes of investment allowance. Accordingly, the assessee's generating station building which is an integral part of its generating system was considered as "plant". The above decisions has also been referred in case of Safari Retreats. 2.4.15 Accordingly, the pipeline constructed would fall under the ambit of plant and the restriction placed under Section 17 (5) (d) on goods and services used for construction should not be applicable in light of the functionality test as captured above. The applicant would be eligible for input tax credit on such construction of Tie-in-Pipeline. Summary of the submissions as enumerated above for ease of reference :- * The applicants are eligible to avail ITC of GST paid on goods and services used for construct....
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....n view of the provisions in section 17 (5) (c) and 17 (5) (d). 4. HEARING Applicant has submitted a letter regarding intimation of matter remanded back for fresh consideration along with order passed by Hon'ble High Court of Bombay on 21/10/2024 and made additional submission on 26.02.2025. In this case, Advance Ruling Authority had passed order on 22/02/2019. Being aggrieved, applicant had filed appeal with the appellate authority for advance ruling and AAAR order had passed on 07/12/2019 confirmed the order passed by the Advance Ruling Authority. Then, applicant filed Writ Petition with Hon'ble High Court of Bombay (No. 522 of 2020). Hon'ble High Court of Bombay has passed the order on 21/10/2024 and set-aside the order dated 22/02/2019 made by authority for advance ruling and the order dated 07/12/2019 made by the appellate authority and remanded the matter to the Advance Ruling Authority for a fresh ruling in the light of observations made by the Hon'ble Supreme Court in its judgment and order dt. 03/10/2024 in the case M/s. Safari Retreat. Hon'ble High Court also granted the petitioner liberty to submit additional material to the advance ruling authority within 4 weeks from....
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....th and qualifies to be immovable property. It is further submitted that, this pipeline also qualifies to be 'plant and machinery'. It is further argued that, as FSRU is not 'factory premises', the said pipeline cannot be said to be pipeline laid outside the factory premises. Applicant has taken view that FSRU is a floating structure in water and hence cannot be treated as factory. 5.2 Clause (c) and (d) of sub-section (5) of Section 17 of CGST Act, 2017 is produced as under: "17. (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 "....
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....thstanding anything to the contrary, contained in any judgement, decree or order of any court, tribunal or other authority, any reference to "plant or machinery" shall be construed and shall always be deemed to have been construed as a reference to "plant and machinery"." Notes on clauses to the Bill in respect of Clause 119 reads as under: - Clause 119 of the Bill seeks to amend clause (d) of sub section (5) of Section 17 of the Central Goods and Services Act, so as to substitute the expression "Plant or Machinery" with the expression "Plant and Machinery" to remove any ambiguity in interpretation for the purpose of availment of input tax credit in such cases. It further seeks to insert an explanation to clarify that the said amendment is made notwithstanding anything to the contrary contained in any judgement, decree or order of any Court or any other authority. This amendment shall take effect retrospectively from 1st day of July, 2017. Now the finance Act 2025 (no 7 of 2025) received the assent of the President on the 29th March, 2025 and is published in the Gazette of India dated 29th March 2025. In this Gazette, Chapter IV, Indirect Taxes, Central Goods & Services Tax, Se....
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....mission has proceeded to argue that the said pipeline is 'plant and machinery'. 5.5 Now, let's discuss if the said pipelines are covered by the clause 'pipelines laid outside the factory premises' as mentioned in explanation to section 17 regarding 'plant and machinery'. (1) The Applicant, vide their above submission in the form of compilation of the dictionaries meaning of the term 'premises', has laid stress upon the argument that FSRU, a structure not being located on the land, will not be considered as building, and hence will not come under the meaning of factory as provided under various dictionaries. They have also underlined the meaning of the premises as provided under various dictionaries, highlighting that premises will cover the portion of land only, which are in nature of appurtenances to building, real estate etc. The applicant also argued, that the definition contained in Factories Act, 1948 should not be relied upon but only the dictionary meanings should be taken into consideration to define the term 'factory'. We do not agree with this contention of the applicant. When there is no definition of factory available in the GST Act, a definition given in some other ....
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....tory" - An establishment devoted to the manufacture of something, including the building or buildings and machinery necessary to such manufacture; a manufactory. As per the above definition quoted by the applicant himself, it is an establishment devoted to manufacture of something. Here 'production/manufacture' of something by an establishment is the critical aspect of a factory not just the building. Thus, from the foregoing discussions, it is amply clear that the FSRU, where the re-gasification of LNG is carried out for delivery to the National Grid through the Tie-in pipeline proposed to be connecting the FSRU to the National Grid, can be rightly considered as factory premises. (2) The applicant also contends that the pipeline should be considered as the one which is 'not outside the factory' in as much as FRSU is not a factory. But as explained in the foregoing discussion we find that FRSU is a factory, and hence the pipeline laid for transporting re-gasified LNG from FRSU squarely falls within the meaning of a 'pipelines laid outside the factory premises'. To argue further, a pipeline cannot exist in vacuum without a factory. The expression "pipelines outside the facto....