TaxTMI 
TaxTMI 
2025 (6) TMI 917
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....ing (AAAR). The AAAR decided the matter and passed the order 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. ....
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....(ex. Petroleum and Minerals Pipelines Act, PNGRB Act etc.) and Industry standards (ex. Oil Industry Safety Directorate (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 a....
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....ii. pipelines laid outside the factory premises." .. emphasis supplied 1.14 Thus, the restriction on availment of ITC under Section 17 (5) (c) and 17 (5) (d) is not applicable 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 ca....
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...."AAR") and the order dated 7 December 2019 made by the Appellate Authority and remand the matter to the AAR for a fresh ruling in the light of the observations made by the Hon'ble Supreme Court in its judgment 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 o....
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.... the factory premises." Emphasis Supplied 2.1.4 However, the above restriction on availment of input tax credit will not apply if the immovable property constructed is plant and machinery in terms of Section 17 (5) (c) or Plant or Machinery in terms of Section 17 (5) (d). The term "plant and machinery" 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 underst....
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....sisting of fixed or moving parts that works together to perform some function. - Also termed apparatus. 2.2.2 Therefore, any instrument which is understood to be an apparatus, equipment or machine in common parlance and is permanently fixed to the earth by foundation and structural support which is used for making outward supply will be treated as "plant and machinery". 2.2.3 The term equipment is defined in the dictionaries as a 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 Furthe....
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....end point of the pipeline for filtration of Gas thereby separating any debris or solid contamination. Gas Detention/ Leak Detection system - The Gas and leak detection systems are used to identify whether any leak has occurred in any part of the pipeline network. OFC cables - These are laid down alongside the pipeline for collection and transfer of data relating to the Tie-in Pipeline. Gauges & Transmitters - These instruments are installed in pipeline for measuring and transmitting parameters like pressure and temperature 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....
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....bmits that the Tie-in Pipeline qualifies as 'plant and machinery' as defined under Explanation to Section 17 (5) of the CGST Act. 2.3 The exclusion clause in the Explanation to Section 17 i.e. "Pipelines laid outside the factory premises" is not applicable in present case. 2.3.1 Clause (iii) of the explanation to Section 17 excludes 'pipelines laid outside the factory premises' from the definition of "plant and machinery". Thus, ITC would be available only in respect of the pipelines which are laid inside a factory premises. 2.3.2 The applicant understands that the exclusion clause 'pipelines 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 machine....
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....e or statutory instrument is not dealing with any cognate subject." ... emphasis supplied 2.3.8 Thus, in view of the aforesaid judgment, it is incorrect to adopt the meaning of 'factory' given in the Factories Act 1948 to interpret the term "factory premises" used in Explanation to Section 17 (5) of the CGST Act. 2.3.9 Further, even Section 2(m) of the Factories Act, 1948 defined 'factory' as any "premises" where manufacturing activity is undertaken. As already stated in the submissions made in the preceding paragraphs, 'premises' can only mean either land or buildings comprising a factory. Hence, even if the definition given in Factories Act, 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 D....
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....ired popular sense of land or buildings. Originally, it was only used in this sense by laymen, and it was never so used in well-drawn instruments, but it is now frequently found in instruments and in Acts of Parliament as meaning land or houses, e.g., the Public Health Act, 1875. Sec. 4, where 'premises' includes measures, buildings, lands, easements, tenements and hereditaments, of any tenure ... (x) Ballentine, J.A., Law Dictionary with Pronunciation, II Edition 'Premises' - as applied to land, Webster's New International Dictionary defines the word as follows: The property conveyed in a deed; hence, in general, a piece of land or real estate; sometimes, especially in fire insurance papers, a building or buildings on land; the premises insured. 2.3.12 On perusal of the aforesaid dictionary meanings, a factory would 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 b....
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....orically included in the definition, then, it cannot be excluded by stretching the meaning of exclusion clause of the definition." ... emphasis supplied 2.3.15 In the present case, the applicant has a regasification unit (FSRU) which is a floating structure in water. Therefore, the applicant submits that the OF FSRU cannot be treated as a factory premises for the purpose of exclusion clause in the explanation to section 17. Accordingly, the Tie-in Pipeline will not amount to a 'pipeline laid outside factory premises' and hence ITC should be eligible. 2.3.16 Further, the applicant submits that while construing the aforesaid explanation to Section 17 (5), Rule of Strict Interpretation should be applied. The applicant submits that the one of the principle objectives of implementation of the CGST Act was to allow seamless flow of Tax-credit 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 settle....
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....ery'. In case, where there is no factory premises, the exclusion clause (iii) of Explanation to Section 17 (5) would not come into play, and in that case the pipeline would be covered under 'plant and machinery'. 2.3.21 Further, the applicant submit that an exclusion clause of a definition can only exclude something which is already covered by the main body of the provision. Therefore, the fact that 'pipelines laid outside factory premises' is excluded from the definition of "plant and machinery" given under explanation to Section 17 (5), would itself mean that such pipelines would be otherwise covered under 'apparatus', 'equipment', or 'machinery' and hence qualify as 'plant and machinery' under explanation to Section 17 (5). 2.3.22 In this regard, reliance is placed on the decision of Commissioner of Sales Tax, Bombay Vs. Ravi Trading Company reported at 2018 (9) 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 th....
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....gement seems to be negated by the proposed retrospective amendment to section 17 (5) (d) of CGST Act wherein the term "plant or machinery" is to be replaced by the term "plant and machinery", we understand that it is still a proposal and not a law as on the date of making the additional submissions and personal hearing. Accordingly, we request your good self to decide the matter on merits of the case and the functionality test as laid down by the Supreme Court. Without prejudice to the above wherein the aspect of plant and machinery was discussed in terms of section 17 (5) (c) of CGST Act, we are discussing below the application of functionality test in light of the guidance given by Supreme Court in terms of section 17 (5) (d) of CGST Act. 2.4 Applicability of functionality test in light of the guidance laid down by the Hon'ble Supreme Court in the case of Safari Retreats judgement. 2.4.1 While 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....
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....gnate subject. It should be understood in its commercial sense. Unless defined in the statute itself, the words and expressions in a taxing statute have to be construed in the sense in which the persons dealing with them understand, that is, as per the trade understanding, commercial and technical practice and usage." 2.4.6 In general parlance, the term plant means: (i) the Merriam-Webster dictionary defines 'plant' as follows: a. the land, buildings, machinery, apparatus, and fixtures employed in carrying on a trade or an industrial business. b. a factory or workshop for the manufacture of a particular product. c. the total facilities available for production or service. d. the buildings and other physical equipment of an institution. (ii) Further, the Britannica dictionary, defines 'plant' to include the following: a. a building or factory where something is made b. the land, buildings, and equipment of an 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. ....
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....m sending conduit should be higher than the receiving conduit (as Cross-country pipelines of GAIL typically have gas at 100 barg); else the gas instead of going to other conduit will come in the sending conduit; pipeline is the only means suited to sustain and manage this high pressure. As such the pipeline is constructed as per the special technical requirements. The same is also supported by the kind off equipment installed along with the pipeline such as SCADA systems, SV stations, Pig launcher, pressure valves/regulators, etc. Refer to the detailed list in Para C.5 above and the sample agreements as per Appendix 4. • Function 3: Towards ensuring mandatory compliance with laws and regulations: A Tie-in Pipeline is necessary for the applicant to run its business in compliance with laws and regulations viz. Petroleum and Minerals Pipelines Act, PNGRB Act and industry standards like Oil Industry Safety Directorate (OISD) rules, Petroleum and Explosives Safety Organization (PESO) standards. The said 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 ....
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....nversant with the subject-matter with which the statute is dealing, would attribute to it". In the present case, Section 10 (5) enlarges the definition of the word "plant "by including in it the words which have already been mentioned before. The very fact that even books have been included shows that the meaning intended to be given to "plant" is wide. The word "includes" is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. When it is so used, those words and phrases must be construed as comprehending not only such things as they signify according to their nature and import but also those things which the interpretation clause declares that they shall include. The word "include" is also susceptible of other constructions which it is unnecessary to go into." 2.4.13 Further, the Hon'ble Supreme Court in the case of CIT v. Victory Aqua Farm Ltd. [2015] 379 ITR 335 (SC) rests the case on 'functional test' of the ponds 10 wherein it was held that as the ponds 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 a....
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....terms of section 17 (5) (d) of CGST Act. PRAYER 1. We request your good self to consider the case on merits and allow the ITC on goods and services used for construction of Tie-in-pipeline. 2. We request the authority to consider our plea of non-applicability of exclusion clause in the Explanation to Section 17 i.e. "Pipelines laid outside the factory premises" in the present case. 3. We request the authority to consider our plea of qualification of Tie-in-pipeline as plant and machinery in terms of section 17 (5) (c) of CGST Act and allow the ITC. 4. We request the authority to consider the applicability of functionality test as laid down by the Supreme Court in case of Safari Retreats in the present facts of the case and accordingly allow our plea of Tie-in-pipeline to be a plant in terms of section 17 (5) (d) of CGST Act. 3. CONTENTION - AS PER THE JURISDICTIONAL OFFICER DATED 22.01.2025. The Jurisdictional officer submitted that they stand by their submissions made of at the time of AAR in which, they had submitted that input tax credit on pipelines would not be available in view of the provisions in section 17 (5) (c) and 17 (....
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.... appeared. We heard both the sides. 5. OBSERVATIONS AND FINDINGS 5.1 We find that this case has been remanded back to the Advance Ruling Authority by the Hon'ble Bombay High Court in the light of the ruling and observations made by the Hon'ble Supreme Court in the case of Chief Commissioner of Central Goods and Service Tax & Ors. Vs. M/s. Safari Retreats Private Ltd. & Ors. (Civil Appeal No.2948 o 2023) with a direction to consider the fresh submissions made by the applicant in the light of the decision of the Hon'ble Supreme Court. The Hon'ble Bombay High Court has also directed to examine the issue on the basis of the functionality test espoused by the Hon'ble Supreme Court to consider whether the pipelines laid down by the applicant can be treated as a plant or machinery as the definition provided in explanation under Section 17 would not be applicable to clause (d) of Section 17 (5). The applicant has made further submissions vide their letter dated 26.2.2025. We have gone through the said submissions. In the submission made by the applicant, it is argued that Tie-in Pipeline connecting FSRU to the National Grid is embedded in the earth and qualifies to be immovable pr....
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....as from the FSRU to the National Grid. In this regard, two issues need to be addressed. 1. Clause (d) of section 17 (5) mentions 'plant or machinery'. Hence, based on the functionality test, if the said 'pipeline' falls under 'plant or machinery', then the explanation to section 17 which defines expression 'plant and machinery' would not be applicable. 2. Whether, the said pipeline gets covered by expression 'pipelines laid outside the factory premises'. 5.4 In regard to the provisions of Section 17 (5), we find that the Government, vide clause 119 of the Finance Bill, 2025 has proposed retrospective amendment to the clause (d) of the Section 17 (5) of the CGST Act 2017. The said clause 119 reads as under:- 119. In section 17 of the Central Goods and Services Tax Act, in sub-section (5), in clause (d), -- (i) for the words "plant or machinery" the words "plant and machinery". shall be substituted and shall be deemed to have been substituted with effect from 1st day of July, 2017. ii) the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely: -....
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....he Hon'ble Supreme Court of India in the case of Safari Retreats Pvt. Ltd., & Ors, which was based on the fact that the explanation of the words "Plant and Machinery" provided in the said Section would be applicable to the words "plant and machinery" used in clause (c) of the said section and not to clause (d) of the said section where the words used were "Plant or Machinery" would not be applicable to that extent. It was based on the said position of law that the Hon'ble Supreme Court had rejected the explanation of 'Plant and Machinery' as provided in the statute for deciding what is 'plant or machinery' and espoused the test of functionality to determine whether the Input Tax Credit would be available to the petitioner on the 'plant or machinery' installed by the petitioner. However, after the retrospective amendment to the provisions of clause (d) of the Section 17 (5), it is no longer necessary to reject the definition of 'Plant and Machinery' provided in explanation to Section 17 (5) and to look into the other aspects of functionality to determine whether the pipelines laid down by the applicant outside the factory premises for supply of gas to the customer would qualify as '....
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.... that a factory means any premises having workers who are involved in a manufacturing process. In the subject case the FSRU is a place where there are workers who are working and the process that takes place there, is one of conversion of LNG to gaseous form. From the facts of the case, we find that the re-gasification of LNG used to take place on land earlier and even at present in many places. Now, to avoid costs of transportation of gas through pipelines over long distances under the sea, the gas is liquefied and transported in ships on the seas and when it reaches the destination port, the LNG is re-gasified on the ship itself and transported through pipelines to the users on the land. The production or manufacturing process may not be taking place on land but it is taking place on the ship (FSRU) and the same has to be considered as a factory in the subject case, as the process leads to production of natural gas which is then distributed by the grid for ultimate use of the consumer. Therefore, the applicant's conclusion that there should be a 'building' to consider something as factory is not at all convincing because it is the production/manufacture of somet....
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.... and devices are used by most pipelines carrying petroleum and other products and use of these systems and devices does not in any manner alter the fact that the basic structure is the pipeline laid outside their factory premises and all these devices are part of the said pipeline system. The presence of such system may entitle them to fit in 'apparatus, equipment and machinery' but does not take them out of phrase 'pipelines laid outside the factory premises'. Hence, they would not be called as 'plant and machinery' for the purposes of section 17 (5) (c) and 17 (5) (d). The case laws cited by the applicant are not relevant to the facts of the case. The case of Reliance Gas Transportation Infrastructure Ltd., VS. CST Mumbai II was not in connection with the input tax credit under GST Act, 2017, and the definition of input services are not para-materia in both the laws. The case of CIT Vs. Taj Mahal Hotel has been given when there was no definition in the Income Tax law and therefore the court had to resort to the meaning of the word plant in the popular sense. That is not the case here as the CGST Act, 2017 provides precise definition of 'plant and machinery' for the purpose of ava....