Input Tax Credit of Structural Support to Plant and Machinery

[CA Akash Phophalia]

Introduction

One of the core motives of implementation of GST by subsuming multiple indirect taxes was to make available seamless flow of credit to the assesses. However, section 17 of the CGST Act 2017 makes an exception to this objective. This article aims to throw light on the admissibility or non-admissibility of input tax credit of tax paid on structural support for plant and machinery.

Legal Provision

In order to understand the principles decided by AAR in Maruti Ispat and Energy Pvt Ltd 2018 (11) TMI 448 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH first lets understand the provision of law which reads as under:-

“Section 17(5) - Notwithstanding with anything contained in sub section (1) of section 16 and sub section (1) of section18, input tax credit shall not be available in respect of the following, namely:-

…………………………………………………………………………………………………………………………………………….

(c)    works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract services;

(d)   goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation. – for the purpose of clauses (c) and (d), the expression “construction” includes re –construction, renovation, additions or alteration or repairs, to the extent of capitalization, to the said immovable property;

Explanation.-  for the purposes of this chapter and chapter VI, the expression ‘plant and machinery’ means apparatus, equipment, and machinery fixed to earth by foundation or structural supports that are used for making outwards supply of goods or services or both and includes such foundation and structural supports but excludes:

1. Land, building or any other civil structures;
2. Telecommunication towers, and
3. Pipelines laid outside the factory premises.”

According to the provision cited above credit of civil structure is covered under blocked credits however, if the said civil structure is affixed as foundation or structural support to the plant and machinery then the input tax credit shall be admissible. Here, the definition of plant and machinery is also unique in including foundation and support which could be a works contract service for which credit is allowed but excludes ‘any other civil structure’. The intention appears to be put to rest the disputes in the past where foundation and structure which may include civil construction which are part of the plant and machinery would be eligible for credit.

Discussions and Findings

The assessee contended that according to the nature of industry and product they required to buy large plant and machinery and for installation and protection of plant and machinery they also required to construct the sheds. It was argued that as per explanation reproduced above explaining the meaning of plant and machinery, the civil structure for protection of plant and machinery is structural support. It was further argued that the civil and structural support created by them involves digging process and with regard to creation of foundation for specific installation of plant and machinery and is completely suitable only for the specific plant and machinery. It was further argued that the word ‘support’ used in explanation not only means support from base, but also support from all the ways, creating sheds is to protect the plant and machinery.

Conclusion

On being perusal of the facts and photographs produced by the assessee and in view of the submission and evidences produced before the authority, it was decided by the authority that the civil structure cannot be treated as structural support for plant and machinery and hence the claim of the assessee not tenable resulting in non-admissibility of credit of tax paid.

Inference

Although here is provision in law in favour of the assessee to avail of the input tax credit on structural supports to plant and machinery however, neither the law nor this decision had laid down any ratio of identification of admissible structural support. Let’s how that the department come with some clarification and detailed ratio in this regard in the favour of the assessee.

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CA Akash Phophalia

9799569294

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