BREAKWATER WALL – PLANT AND MACHINERY?

[Mr. M. GOVINDARAJAN]

Breakwaters are structures constructed near the coasts as part of coastal management or to protect an anchorage from the effects of both weather and long shore drift.  Breakwaters reduce the intensity of wave action in inshore waters and thereby provide safe harborage. Breakwaters may also be small structures designed to protect a gently sloping beach to reduce coastal erosion; they are placed 100–300 feet (30–90 m) offshore in relatively shallow water.  Natural harbors are formed by such barriers as headlands or reefs. Artificial harbors can be created with the help of breakwaters.   Breakwaters are subject to damage and overtopping in severe storms.

The issue to be discussed in this article as to whether the breakwater all for the purposes of GST laws may be treated as plant and machinery with reference to decided case law.

In re ‘Konkan LNG Private Limited’ – 2019 (7) TMI 617 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA the applicant is having a LNG regasification plant at Dhabol, Maharashtra.  The applicant is engaged in the regasification of the LNG therein.  The LNG is the raw material which reaches their plant through a jetty where it is unloaded from various cargoes.  Adjacent to the jetty, there is existing break water all.  This break water wall is in an incomplete state of construction.   The break water all acts as a safety wall by preventing high waves and tides to touch the jetty and cargo/ships of LNG and thus prevents damages to the ships to high waves and water current.

 The existing breakwater wall being incomplete, it requires reconstruction in order to keep the jetty and cargo safe during the LNG unloading process.  The berthing of cargo of LNG is only permitted when the height of the waves is less than 0.5 meters due to the incomplete construction.  Therefore the berthing of ships is not possible at any or all times of the day.

The applicant decides to construct the break water wall.  For this purpose the applicant is to float tender and the said work will be allotted to contractors.  The services of the contractor is covered under the services of ‘works contract’ as defined in section 2(119) of the Central Goods and Services Tax Act, 2017.  Such contractors will issue invoice on the applicant charging GST.  Therefore the applicant sought for an advance ruling as to whether the applicant is eligible to take the input tax credit in terms of section 16 read with section 17 of the GST paid/to be paid to the various contractors/vendors to whom the applicant has paid such GST.

The applicant contended the following before the Authority for Advance Ruling-

• The breakwater wall is very much integral part of the existing jetty itself and will be used for the furtherance of business.
• The services received by them by way of construction of breakwater wall are for the purpose of the construction of the plant and machinery.

The Authority for Advance Ruling observed that the contractor  is to install the ‘acropods’ upon the core structure of the rocks and the lay 1.5 to 3.0 MT secondary armor layer of rocks.  Such acropods are forming a part of plant and machinery according to the applicant.  This is a kind of apparatus used for a specific purpose for the construction of the breakwater.

The Authority for Advance Ruling further observed that the applicant provides the service of regasification of LNG to the Ratnagiri Gas and Power Private Limited for which LNG is supplied to them by transportation in ships which are berthed at the captive jetty.  The LNG is transferred to the applicant’s unit for re-gasification.  At present the ships are allowed only at certain times when the intensity of the waves is less than a certain limit.  After the construction of breakwater there would be no time restriction on ships entering the jetty.

The main issue involved in this ruling is whether the breakwater is to be considered as ‘plant and machinery’.   The applicant agreed that the breakwater wall is an immovable property.  However he contended that the breakwater is covered under the term ‘plant and machinery’ since ‘acropods’ which are used to construct the breakwater are interlocking devices fixed to the earth by foundation of the rock armor of different sizes are nothing but apparatus. 

The Authority for Advance Ruling considered the definition of ‘plant and machinery’.  Explanation to section 17(6) defines the expression ‘plant and machinery’ as apparatus, equipments 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 support but excludes-

• Land, building or any other civil structure;
• Telecommunication towers; and
• Pipelines laid outside the factory premises.

The above definition is clear that any 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 can be considered as plant and machinery.  The exclusion clause includes land, building or any other civil structure.

The Authority for Advance Ruling further observed that the breakwater is a civil structure.  The Authority for Advance Ruling found that such apparatus, equipments and machinery should be used for making outward supply of goods or services or both.  In the present case, the breakwater will be facilitating the receipt of raw material.  It is not going to be used for rendering outward supply of goods or services or both.

The Authority for Advance Ruling held that the said breakwater cannot be considered to be plant and machinery as per explanation to section 17(6) of the CGST Act.

Reference:

https://en.wikipedia.org/wiki/Breakwater_(structure)

Discussions to this article

[Ganeshan Kalyani]

Interesting topic.