Registered Person eligible to avail ITC on capital goods used in installation of electricity line for receiving supply of electricity whose ownership would be transferred to electricity distributor

[CA Bimal Jain]

The AAR, Gujarat in the case of IN RE: M/S ELIXIR INDUSTRIES PRIVATE LIMITED - 2024 (7) TMI 982 - AUTHORITY FOR ADVANCE RULING, GUJARAT ruled that registered person is eligible to avail Input Tax Credit (“ITC”) on capital goods i.e. wires and cables used in installation of electricity line for receiving supply of electricity used as input; whose ownership would be transferred to electricity distributor

Facts:

M/s Elixir Industries Private Limited (“the Applicant”) is a manufacturer of various products falling under chapter 56 of the Custom Tariff Act, 1975. For the manufacturing of the required goods, the applicant requires electricity for which the Applicant needs to install a 66 KV feeder bay and cable line for the supply of electricity to their switchyard from sub-station of electricity distributor.

As per the terms and conditions between the supplier of electricity and the Appellant, the Appellant is required to purchase the material required for installation of facility for supply and handover the required material to distributor for providing installation and supervision service. The said line for supply of electricity would be maintained by the electricity supplier and the same would be the property of the distributor.

Issue:

Whether the manufacturer eligible to avail ITC on capital goods i.e. wires and cables used in installation of electricity line for receiving supply of electricity whose ownership would be transferred to electricity distributor?

Held:

The AAR, Gujarat in IN RE: M/S ELIXIR INDUSTRIES PRIVATE LIMITED - 2024 (7) TMI 982 - AUTHORITY FOR ADVANCE RULING, GUJARAT held as under:

• Further Observed that, as per Section 17 of the CGST Act, the ITC would be blocked in following cases which are relevant to the issue on which ruling has been sought:

• Where the goods or services are used partly for business and partly for other purposes or exempt supply, the amount of credit shall be restricted to what is attributable for business;
• The value of exempt supply shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of schedule II, sale of building;
• ITC shall not be available in respect of section 17(5)(c) and (d) of the CGST Act.

• Noted that, the explanation provided in section 17(5)(c) and 17(5)(d) of the CGST Act, the construction would include re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property and that "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 and includes such foundation and structural supports but excludes-(i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises
• Further Noted that, the said capital goods being wires and cables are undergrounds cables which are not fixed to earth and are kept in duct which can be opened and removed as per the requirement would not fall within the purview of blocked credit as per Section 17(5)(c) and (d) of the CGST Act.
• Opined that, the provision of the CGST Act does not put bar on the availment of ITC by the Applicant if subsequently the ownership is transferred to electricity distributor or any other person. However, the same would be subject to the provisions of Section 18(6) of the CGST Act.
• Ruled that, the Appellant is eligible to avail ITC on capital goods i.e. wires and cables used in installation of electricity line for receiving supply of electricity whose ownership would be transferred to electricity distributor

Our Comments:

Section 18(6) of the CGST Act, read with Rule 40(2) of the CGST Rules, interealia states that, in case of supply capital goods or plant or machinery on which ITC has been taken, the following registered person shall pay an amount equal to the highest of the following:

• ITC on the said capital goods or plant and machinery reduced at the rate of five percentage pinots for every quarter or part thereof form the date of issuance of invoice for such goods; or
• Tax paid on the transaction value of such capital goods or plant and machinery under Section 15 of the CGST Act.

Further, in terms of Rule 44(6) of the CGST Rules, the amount of ITC for the purpose of Section 18(6) of the CGST Act relating to capital goods would be determined in the same manner as specified in clause (b) of sub-rule (1) i.e. for capital goods held in stock, the ITC involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years.

However, proviso to Section 18(6) of the CGST Act, stipulates that where refractory bricks, moulds, dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on transactions value of such goods determined under Section 15 of the CGST Act.

(Author can be reached at [email protected])