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

Issues Involved:
1. Admissibility of input tax credit (ITC) on costs incurred for civil works.
2. Admissibility of ITC on costs incurred for mechanical works.
3. Admissibility of ITC on costs incurred for electrical works.

Issue-Wise Detailed Analysis:

1. Admissibility of ITC on Costs Incurred for Civil Works:
The applicant does not contest the claim to input tax credit on costs of civil works under the Extension Project. According to Section 17(5)(c) and Section 17(5)(d) of the CGST Act, 2017, input tax credit is not available for works contract services supplied for the construction of an immovable property other than plant and machinery. The applicant acknowledges that civil works pertain to the construction of an immovable property and, therefore, ITC on such costs is inadmissible.

2. Admissibility of ITC on Costs Incurred for Mechanical Works:
The applicant argues that costs incurred for mechanical works, such as plumbing, fire protection, and air conditioning, should be admissible as they pertain to the construction of plant and machinery. The applicant refers to the definition of "plant and machinery" under Explanation II to Section 17(5) of the CGST Act, 2017, which includes apparatus, equipment, and machinery fixed to earth by foundation or structural support and used for making outward supplies. The applicant submits that these mechanical works are essential for carrying out operations for making outward supplies and should thus be considered as indirectly used for making outward supplies. The Advance Ruling Authority reviewed the applicant's detailed submissions and agreed that ITC on mechanical works is admissible, as these costs are essential for the manufacturing process and fall within the definition of plant and machinery.

3. Admissibility of ITC on Costs Incurred for Electrical Works:
Similar to mechanical works, the applicant contends that costs incurred for electrical works, such as sub-station work, DG set work, and lighting system work, should be admissible. The applicant asserts that these electrical works are indirectly used for making outward supplies and are essential for the manufacturing process. The Advance Ruling Authority examined the applicant's detailed submissions and determined that ITC on electrical works is admissible, as these costs are crucial for the manufacturing process and fall within the definition of plant and machinery.

Conclusion:
The Advance Ruling Authority concluded that ITC on costs incurred for civil works is inadmissible under Section 17(5)(c) and Section 17(5)(d) of the CGST Act, 2017, as these costs pertain to the construction of an immovable property. However, ITC on costs incurred for mechanical and electrical works is admissible, as these costs are essential for the manufacturing process and fall within the definition of plant and machinery. The detailed views and decisions of the members of the Advance Ruling Authority are provided in the relevant columns of the table under the main heading "views and decisions of members of the Advance Ruling Authority."