2019 (11) TMI 1697 - HC - VAT and Sales Tax

Input tax credit - 'Silos' erected by the assessee along with its connected machineries, which is made up of 'steel and cement' - civil structure, thereby making the expenditure incurred for its erection not eligible for input tax credit or not - S.R.O. 324/2005 promulgated under Section 2(x) of the Kerala Value Added Tax Act, 2003 - HELD THAT - With respect to 'silos' the Tribunal had placed reliance on the decision in NOWRANGROY METALS PVT. LTD. VERSUS JOINT COMMISSIONER OF INCOME-TAX (ASSESSMENT). 2003 (6) TMI 21 - GAUHATI HIGH COURT and various other rulings, rendered in the subject of Cenvat Credit. Based on those principle, it was held that, merely for the reason that some of the machinery or parts of 'silos' are made out of steel and cement, it will not fall within the exempted group of civil structure, not eligible for input tax credit. It further observed that, the 'silos' with various machineries form an integral part of it, need to be considered as plant and the 'steel and cement' used for construction of the 'silo' and the connected machineries, by itself will loss its identity as 'steel and cement', but it gets merged as a final plant with a specific purpose. The 'silos' cannot be identified as mere 'civil structure' falling within the negative list under S.R.O. 324/2005. The 'silos' which forms integral part of the machinery has the real characteristics of a plant or machinery, mentioned in the definition contained in Section 2(x) of the K.V.A.T. Act, which makes them to fall within the category 'capital goods' for which input tax credit can be allowed. The revision petitioner/state is not in a position to establish with any substantial credence that the view taken is in any manner illegal, erroneous or improper, warranting interference by this court in exercise of the revisional jurisdiction - Tax Revision Cases deserve no merit and is dismissed.

Summary

Issues:
- Interpretation of whether 'Silos' made of steel and cement can be considered as civil structures for input tax credit eligibility under S.R.O. 324/2005 of the Kerala Value Added Tax Act, 2003.

Analysis:
1. The case involved a dispute regarding the eligibility of input tax credit claimed by the assessee for capital goods, specifically 'Silos' and connected machinery made of steel and cement. The Assessing Authority disallowed the claim based on S.R.O. 324/2005, which exempted building materials from the definition of capital goods. The Tribunal reversed the decision, stating that the items were integral parts of plant and machinery, not civil structures. The State filed revision petitions against this decision.

2. The Kerala Value Added Tax Act allows input tax credits for capital goods, defined as plant, machinery, and equipment used in business operations. S.R.O. 324/2005 excludes certain goods, including civil structures, from the definition of capital goods. The Tribunal found that the items in question did not fall within this exclusion, as they were part of machinery integral to business operations, making them eligible for input tax credit.

3. The Tribunal's decision was based on the nature of the items claimed as capital goods. While some items like air conditioners and building materials were excluded under S.R.O. 324/2005, the 'Silos' and connected machinery were deemed to be plant and machinery essential for the business activity. The Tribunal relied on legal precedents to support the view that these items did not qualify as civil structures under the tax regulations.

4. The Tribunal's analysis highlighted that the 'Silos' and connected machinery were distinct industrial plants with specific functions, not falling under the category of civil structures or immovable goods. The explanation provided by the assessee regarding the construction and purpose of the 'Silos' supported the conclusion that they were essential components of the business machinery, eligible for input tax credit.

5. The Court upheld the Tribunal's decision, stating that the 'Silos' and connected machinery did not meet the criteria to be classified as civil structures under S.R.O. 324/2005. The Court found the Tribunal's reasoning legally sound and supported by relevant case law, dismissing the State's revision petitions as lacking merit.

In conclusion, the judgment clarified that 'Silos' made of steel and cement, along with connected machinery, were not considered civil structures under the tax regulations, making them eligible for input tax credit as part of plant and machinery essential for business operations.