2018 (10) TMI 745 - AAR - GST

Input tax credit - input services - cost of civil works incurred under Extension project - Mechanical Works - Electrical Works - Applicant submits that input tax credit in relation to Mechanical Works and Electrical Works should be admissible as such costs pertain to construction of plant and machinery. Whether on facts and circumstances of the case the input tax credit of tax paid on costs proposed to be incurred in relation to Mechanical Works and Electrical Works under the Extension Project can be treated as admissible under the Central Goods and Services Tax Act 2017? Held that - Most of the services were held to be admissible. The credit on following services denied Structural work external finishing work internal finishing work M and E related civil work - M and E related civil works - Plumbing - Gardening water supply system - dismantling work - Fire protection work - sprinkler works - Extinguishers - fire documentation - relocation work - process waste water supply system (pipelines outside factory premises and civil work even inside factory) - works related to civil construction - demolition work. Ruling - CENVAT credit on most services allowed except those mentioned above.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core issue presented and considered in this legal judgment was whether the input tax credit (ITC) of tax paid on costs proposed to be incurred in relation to certain activities under an Extension Project could be treated as admissible under the Central Goods and Services Tax Act, 2017 (CGST Act, 2017). Specifically, the question was whether ITC is available for costs related to Mechanical Works and Electrical Works, as opposed to Civil Works, which the applicant conceded were not eligible for ITC.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The relevant legal framework involves Section 16 and Section 17 of the CGST Act, 2017. Section 16 outlines the eligibility and conditions for taking input tax credit, while Section 17 provides for apportionment of credit and blocked credits. Notably, Section 17(5) restricts ITC for works contract services and goods/services received for construction of immovable property, except for plant and machinery.

Court's Interpretation and Reasoning:

The Tribunal examined whether the costs for Mechanical Works and Electrical Works fell under the definition of "plant and machinery" as per the explanation provided in Section 17(5) of the CGST Act. The Tribunal noted that plant and machinery include apparatus, equipment, and machinery fixed to earth by foundation or structural support used for making outward supplies, excluding land, building, or any other civil structures.

Key Evidence and Findings:

The applicant provided a detailed breakdown of activities under Mechanical Works and Electrical Works, which included plumbing, fire protection, air conditioning, sub-station work, DG set work, and lighting systems. The Tribunal assessed these activities to determine their direct or indirect nexus with the production process and their classification as plant and machinery.

Application of Law to Facts:

The Tribunal applied the definitions and exclusions under Section 17(5) to the facts presented. It considered whether each activity was essential for making outward supplies and whether it constituted plant and machinery. The Tribunal also evaluated the necessity of these activities in the manufacturing process and their compliance with statutory requirements.

Treatment of Competing Arguments:

The applicant argued that Mechanical Works and Electrical Works were indirectly used for making outward supplies and were essential for operations. The Tribunal balanced these arguments against the statutory exclusions under the CGST Act, particularly focusing on whether these works were part of constructing an immovable property or plant and machinery.

Conclusions:

The Tribunal concluded that ITC was admissible for activities that were directly related to plant and machinery used in the production process. However, it denied ITC for activities related to civil structures or those not directly contributing to the manufacturing process.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

The Tribunal stated, "Every registered person subject to such conditions and restrictions as may be prescribed would be entitled to take credit of input tax charged on supply of goods or services or both to him which are used or intended to be used in course or furtherance of business."

Core Principles Established:

The judgment established that ITC is available for costs related to plant and machinery directly used in the manufacturing process, while ITC is not available for costs associated with civil works or structures not directly contributing to production.

Final Determinations on Each Issue:

The Tribunal provided a detailed table listing various activities under Mechanical and Electrical Works, specifying whether ITC was admissible or not. Activities such as air conditioning equipment, ventilation systems, and certain utility works were deemed admissible, while civil works and fire protection systems were not.