2020 (4) TMI 795 - AAAR - GST

Input Tax Credit - bunds/ crystallizer which are constructed and used in the manufacture of salt and bromine chemicals - Zero Rated Supply or not - AAR held that Input tax credit of GST paid on goods and services used to construct the bunds is admissible to M/s. Satyesh Brinechem Private Limited, provided that the bunds are used for making zero rated supplies and fulfill the conditions which are necessary for treating the bunds as plant and machinery - challenge to AAR decision. HELD THAT - Since the salt would be exported, the same would be considered as zero rated supply and object to the provisions of section 17(5) of the CGST Act, 2017, credit of input tax may be availed for making such zero rated supplies. In view of the provisions of section 16 of the IGST Act, 2017. Sub-section (5) of section 17 of the GST Acts starts with non-obstane clause and will have overriding effect on the provisions of Section 16(1) of the GST Acts. Therefore, if the goods and/ or services are covered under sub-section (5) of Section 17 of the GST Acts, the input tax credit Shall not (sic) be available - Also, credit of input tax may be availed for making zero rated supplies in view of the provisions of sub-section (2) of section 16 of the IGST Act, 2017. However, this provision in also subject to the provision of of sub-section (5) of section 17 of the CGST Act, 2017 - thus, the input-tax credit shall not be available on goods or services covered by sub-section (5) of section 17 of the GST Acts, even if the same are indispensible in the process of manufacture. Whether the goods and services used by the applicant for construction of bunds / crystallizers are covered under sub-section (5) of section 17 of the GST Acts or otherwise? - HELD THAT - The plant and machinery would be outside the purview of clauses (c) and (d) of Section 17(5) of the CGST Act, 2017 and would be eligible for input tax credit. Whether bunds are plant and machinery ? - HELD THAT - As held by Hon ble Apex Court in the case of COLLECTOR OF C. EX., CALCUTTA VERSUS ALNOORI TOBACCO PRODUCTS 2004 (7) TMI 91 - SUPREME COURT circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases; that disposal of cases by blindly placing reliance on a decision is not proper - thus, bund / crystallizer are not covered within the definition of plant and machinery given under Section 17 of the GST Acts. Whether bunds are any other civil structure? - HELD THAT - In the present case, the natural meaning of the phrase any other civil structures , as discussed herein above, is compatible with clauses (c) and (d) of Section 17(5) and definition of plant and machinery given under Section 17 of the GST Acts. Even otherwise, the specific words land and building preceding general words any other civil structures do not constitute a genus - Therefore, the bunds constructed by mixing chemical Terrazyme, GSB Metal, Water with dugged aud laying LDPE film wherever required, can be said to be covered under any other civil structures . Thus, Bunds are not plant-and machinery within the definition of the said term under Section 17 of the GST Acts, and therefore, in view of clauses (c) and (d) of. Section 19(5) read with explanation below Section 17 of the GST Acts, Input Tax Credit in respect of works contract service or goods or services used in construction of bunds is not admissible. Ruling of AAR modified.

Issues involved:
1. Admissibility of input tax credit on bunds used in the manufacture of salt and bromine chemicals.
2. Interpretation of "bunds" as plant and machinery or immovable property.
3. Application of Section 17(5) of the CGST Act, 2017.
4. Definition and scope of "plant and machinery" under GST Acts.
5. Relevance of ejusdem generis principle in interpreting "any other civil structure."

Detailed Analysis:

1. Admissibility of input tax credit on bunds used in the manufacture of salt and bromine chemicals:
The applicant, engaged in the manufacture of salt and bromine chemicals, sought an advance ruling on whether input tax credit (ITC) is admissible for bunds used in their manufacturing process. The Gujarat Authority for Advance Ruling (GAAR) initially ruled that ITC on goods and services used to construct bunds is admissible, provided the bunds are used for making zero-rated supplies and fulfill the conditions necessary for treating them as "plant and machinery."

2. Interpretation of "bunds" as plant and machinery or immovable property:
The appellant (Deputy Commissioner, CGST) argued that the GAAR's ruling was erroneous, contending that bunds qualify as immovable property under Section 17(5) of the CGST Act, 2017, and thus ITC should not be admissible. The appellant cited the case of M/s. Konkan LNG Pvt. Ltd., where a break wall was deemed immovable property and not plant and machinery.

3. Application of Section 17(5) of the CGST Act, 2017:
Section 17(5) of the CGST Act, 2017, restricts ITC on works contract services and goods/services used for the construction of immovable property, except for plant and machinery. The applicant argued that bunds do not fall under the restrictive clauses of Section 17 and qualify as plant and machinery. However, the appellate authority found that bunds are immovable property and do not qualify as plant and machinery, thus falling under the exclusion in Section 17(5).

4. Definition and scope of "plant and machinery" under GST Acts:
The appellate authority examined the definition of "plant and machinery" under the GST Acts, which includes apparatus, equipment, and machinery fixed to earth by foundation or structural support but excludes land, buildings, and other civil structures. The authority concluded that bunds, constructed using soil, chemicals, and other materials, do not fit the definition of apparatus, equipment, or machinery and thus are not plant and machinery.

5. Relevance of ejusdem generis principle in interpreting "any other civil structure":
The applicant argued that the phrase "any other civil structure" should be interpreted ejusdem generis with land and building, implying it should be restricted to immovable property used as a place for business or manufacturing. However, the appellate authority held that "any other civil structure" refers to all civil structures other than foundation and structural supports used to fix apparatus, equipment, and machinery to earth. Thus, bunds, being civil structures, fall under the exclusion in Section 17(5).

Conclusion:
The appellate authority modified the GAAR's ruling, holding that bunds constructed by the applicant are not plant and machinery under Section 17 of the GST Acts. Consequently, ITC on works contract services or goods/services used in constructing bunds is not admissible to the applicant. The decision emphasizes the specific definitions and exclusions provided in the GST Acts and the limited applicability of the ejusdem generis principle in this context.

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