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May 14, 2022

Only the machine foundation is eligible for the ITC.

by CA Shivam Jaiswal in GST, Income Tax

Only the machine foundation is eligible for the ITC.

Facts and Issue of the case

The applicant M/s. Vijayaneha Polymers Pvt Ltd., has constructed a factory building wherein they have hired works contractors for executing the construction in (2) different ways.

  1. Where the applicant provided material and contractor provided construction services.
  2. The contractor provided both material and services.

Such construction included foundation of machinery, rooms for chillers, boilers, generators and transformers, erecting of electrical poles, laying of internal roads, factory building, internal drainage, laboratory etc., The applicant is desirous of obtaining clarification regarding eligibility of ITC on the amounts charged by the contractor for these services. Hence the application.

Observation of the case

As seen from the facts of the case, the applicant has either purchased goods or services for construction of immovable property on his own account or engaged the works contractor for supply of construction services. The Section 17(5) of the CGST/SGST Acts states among others that input tax credit shall not be available in respect of the following:

  1. “…
  2. 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;
  3. 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 (1) and (2), the expression “construction” includes re-construction, renovation, additions of alterations or repairs, to the extent of capitalization, to the said immovable property;”

The explanation to Section 17 defines the meaning of “plant & machinery” as follows:

“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 support but excludes—

  • Land, building or any other civil structures;
  • Telecommunication towers; and
  • Pipelines laid outside the factory premises.

The above provisions when read in tandem lead to the following conclusions with respect to the facts of the present case:

  1. ITC cannot be availed on works contract services for construction of an immovable property except for erection of plant & machinery.
  2. ITC can be availed on plant & machinery as defined in the explanation to Section 17 i.e., on apparatus, equipment & machinery fixed to earth by foundation or structural support; which means plant & machinery and machine foundation are eligible for ITC.
  3. Plant & machinery will not include building or other civil structures and pipelines laid outside factory premises.
  4. ITC cannot be availed on goods or services or both received by a tax payer on his own account for construction of immovable property.

In light of the above conclusions, the applicant is eligible for ITC to the extent of machine foundation only.

Conclusion

In view of the above discussion, the questions raised by the applicant were clarified by court as under

QuestionsRuling
The   advance   ruling    is   sought   on availability of ITC on GST charged by the contractor supplying service of works contract.The applicant is eligible for ITC to the extent of machine foundation only.
In-re-Vijayneha-Polymers-Private-limited-GST-AAR-Telangana

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