TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1181
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....ional efficiency at the Koratty facility, the company plans to construct a fresh water storage tank with 2,000 KL capacity and a guard pond (effluent storage tank) with 7,000 KL capacity. These facilities are crucial for maintaining uninterrupted plant operations through proper water storage and effluent management. The applicant has approached the Advance Ruling Authority to determine eligibility for claiming input tax credit on GST paid for goods and services used in this construction. They maintain these structures qualify as capital assets since they form an essential part of the production plant and machinery. 4.2 The applicant's contentions regarding input tax credit for the guard pond (effluent storage tank) construction are: 4.2.1 The applicant considers the fresh water storage tank as a capital asset eligible for input tax credit upon capitalization in their books of accounts, being an integral part of the factory's plant and machinery. They refer to Section 16 of the CGST Act 2017 which permits input tax credit for capital goods used in business operations. 4.2.2 While the tank uses cement concrete in construction, the applicant argues it doesn't fall under the exclusi....
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....st the applicant. 6. Personal hearing The applicant was granted opportunity for personal hearing on 10-09-2024 and a rehearing was conducted on 20/06/2025 due to the change of Central and State members. Shri. Soman N L, Chartered Accountant represented the applicant for both the personal hearings, and reiterated the contentions made in the application. 7. Discussion and Findings. 7.1. Since the applicant is seeking a ruling on eligibility to avail Input Tax Credit (ITC) on GST paid on goods and services used for the construction of the fresh water storage tank and the effluent guard pond, the subject matter squarely falls under Section 97(2)(d). 7.2 The matter has been carefully examined along with the applicant's submissions. The core issue relates to the eligibility of input tax credit on goods and services used for constructing the water tank and effluent treatment plant, which the applicant claims are integral to their plant and machinery. It is noted that these assets have been capitalized in the company's books of accounts. 7.3 The eligibility conditions for availing input tax credit (ITC) are outlined in Section 16(1) and subsequent sub-sections, while Section 17 conta....
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....y premises." 7.6 The Explanation to Section 17(5) of the CGST Act, 2017 provides that "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, and includes such foundation and structural supports. However, the definition expressly excludes land, buildings, and other civil structures. This creates an important exception: even though something may be immovable property in the ordinary sense (being fixed to the earth), if it qualifies as "plant and machinery," input tax credit (ITC) on its construction is not blocked under clauses (c) and (d) of Section 17(5). 7.7 The legal question, therefore, turns on whether the fresh water storage tank and the effluent guard pond constructed by the applicant are to be regarded as "plant and machinery" or as excluded "civil structures." Based on the submissions, it is evident that the 2000 KL fresh water tank and the 7000 KL guard pond are integral to the core manufacturing operations of the applicant. The fresh water tank ensures uninterrupted availability of water necessary for the production process, while the guard p....
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....mined keeping in mind the business of the registered person and the role that building plays in the said business. If the construction of a building was essential for carrying out the activity of supplying services, such as renting or giving on lease or other transactions in respect of the building or a part thereof, which are covered by clauses (2) and (5) of Schedule II of the CGST Act, the building could be held to be a plant. Then, it is taken out of the exception carved out by clause (d) of Section 17(5) to sub-section (1) of Section 16. Functionality test will have to be applied to decide whether a building is a plant. Therefore, by using the functionality test, in each case, on facts, in the light of what we have held earlier, it will have to be decided whether the construction of an immovable property is a "plant" for the purposes of clause (d) of Section 17(5). 7.10 The Supreme Court emphasized that the classification of an asset must be based not merely on its form or structural characteristics, but on its functional role in the taxpayer's business. If a building or structure is essential for carrying out the taxable activity such as renting space, manufacturing goods, o....