ITC is not available on goods and services purchased for the construction of LNG jetties.
Facts and Issue of the case
M/s. Swan LNG Pvt. Ltd., Ahmedabad has entered into a Concession Agreement dated 18th October, 2017 with the Gujarat Maritime Board and Government of Gujarat for development, construction, operation and maintenance of Liquefied Natural Gas (‘LNG’) Port with a Floating Storage and Regasification Unit (‘FSRU’) facility near Jafrabad, Gujarat, on Build, Own, Operate and Transfer basis. As a part of developing the LNG Port and FSRU facility, the appellant is developing an Import Terminal for FSRU near the village Bhankodar, near Jafrabad, Gujarat. After development of the said Import Terminal, the appellant intends to provide LNG re- gasification service to prospective customers.
It was the claim of the appellant before GAAR that LNG Jetty being constructed by them is ‘foundation’ of the ‘plant and machinery’ to be installed on it for making outward supply; therefore, such foundation is included in the expression “plant and machinery”, as defined in the Explanation to Section 17 of the CGST Act, 2017.
Observation of the court
M/s. Swan LNG Pvt. Ltd. has filed an appeal with us against the aforesaid Ruling under the provisions of Section 100 of the CGST and GGST Act, 2017. The appellant has quoted the text of Section 16(1) and contended that it entitles every registered person to take input tax credit (‘ITC’) of tax charged on supply of goods or services or both, which are used or intended to be used in course or furtherance of business. They have also quoted the provisions of Section 17(5)(c) & (d), under which restrictions on availment of input tax credit have been prescribed. The appellant further submitted that as per the Explanation to Rule 17(5), any foundation built for installation of plant and machinery on it, also get covered under the expression “plant and machinery”; and accordingly the restriction on availing input tax credit as prescribed under Section 17(5)(c) and 17(5)(d) should not be applicable to such foundation. Thus, the appellant contended that ITC of LNG jetties, which are actually foundation to the plant and machinery, should be available.
The appellant submitted that the Authority for Advance Ruling had compared such foundation jetty to foundations of building; and pointed out that a foundation is a structure which is located below the ground on which a civil structure and similarly in their case held that the jetty is the civil structure like a building built on a foundation. The appellant submitted that the Ld. Authority for Advance Ruling has erred in comparing the foundation of building to the appellants case because a building is a civil structure which has purposes different than that of a jetty; that a building may be used as commercial/residential premise however, the jetty in appellant’s case has been built predominantly for installation of plant and machineries.
The appellant has entered into an EPC contract with M/s. Afcons Infrastructure Ltd. This EPC contract is for designing and construction of Jetty 1, Jetty 2 and Tug Berth. The appellant has entered into another EPC Contract with M/s. Black & Veach Pvt. Ltd. for Topside and Onshore facilities for this project. The appellant submitted that the plant and machinery for conversion of LNG into RLNG (Re- gasified LNG) were not capable of being used without they being commissioned and installed on the foundation and supporting structure in the nature of LNG jetties. They further submitted that the plant and machinery could not function and the desired result could not be achieved without installing and commissioning such plant and machinery by fixing them to earth by foundation and structural supports in the nature of LNG jetties.
The appellant has submitted a Certificate Ref. No. BB/SLPL/H-24/20/INST dated 04.09.2020 issued by Shri Bhaskar G. Bhatt, Chartered Engineer. After visiting and inspecting the project site situated near Village Bhankodar, Distt. Amreli, Gujarat, he certified that the LNG Jetties proposed to be built by the Company at that site are covered and fall within the expression as “Foundation” as well as structural support to equipment, appartus, plant & machinery, to be installed on the Jetties.
In light of the submissions, the appellant claimed that input tax credit of GST on inputs, input services as well as capital goods procured for the purpose of building the LNG Jetties should be available since LNG jetty is a foundation for plant & machinery.
The appellant has submitted a copy of their EPC Contract dated 29.09.2018 with M/s. Afcons Infrastructure Ltd. which is relevant to the present appeal. The appellant has given the work of construction of jetties on EPC Contract basis to M/s. Afcons. In other words, the work of Engineering, Procurement, Construction and Commissioning is being done by M/s. Afcons. Under this situation, it appears that the material and services for construction are to be purchased/procured by M/s. Afcons and input tax credit on them, if admissible, would to available to M/s. Afcons, not to the appellant. The appellant is getting Works Contract service from M/s. Afcons, which is covered under clause (c) of Sub-section (5) of Section 17.
The appellant seeks a ruling as to whether LNG Jetties being built by them were in nature of ‘plant and machinery’ being foundation for equipment, apparatus, machinery for re-gasification to be installed thereon. We find that as per Explanation provided under Section 17 of the CGST Act, 2017 ‘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. Here the section 17 of CGST Act, 2017 provides for allowing input tax credit in respect of goods or services both received by a taxable person for construction of plant and machinery fixed to earth by foundation or structural supports that are used for making outward supply of goods or services or both. The input tax credit on construction of foundation is allowed if the same is used for fixing on it the plant and machinery and further the said plant and machinery should be used for making outward supply of goods or services or both. The foundation or structural support needs to be exclusively for fixing the plant and machinery on it.
Input tax credit on construction of foundation cannot be decided in isolation without deciding as to whether items to be fixed on it falls within the definition of plant and machinery and further the same would be used for making outward supply of goods or services or both. The appellant is not before us seeking ruling on allowing input tax credit on any plant and machinery including its foundation that will be used for making outward supply of goods or services or both. The appellant has sought that the entire LNG Jetties that is being constructed to be treated as foundation for plant machineries that will be installed on it and to allow the input tax credit on inputs, input services and capital goods to be used in the construction of said LNG Jetties. LNG Jetties are nothing but civil structures and civil structures are excluded from the definition of foundation and structural supports. The foundation that is allowed in the definition of plant and machinery is that which fixes the plant and machinery to the earth making it immovable. If certain portion of LNG jetties is used for directly fixing plant and machineries then it will not make jetties foundation for plant and machineries but they are only in the nature of civil structures. The appellant has also not produced any evidence to substantiate their claim that LNG jetties which according to them are foundation of plant and machineries will be used for outward supply of goods or services or both.
Therefore input tax credit on inputs, input services and capital goods for the purpose of building these LNG Jetties are not admissible.In-re-Swan-LNG-Pvt.-Ltd.-GST-AAR-Gujarat