2022 (2) TMI 1044 - AAR - GST

Input tax credit - inputs/capital goods - input services - Section 16 and 17 of the CGST/ RGST/ IGST Act - capital goods and inputs constitute plant and machinery of the Applicant which are used in the business of Manufacturing PP/HDPE Woven Sacks or not - blocked input tax credit under section 17(5) of the CGST/ RGST/ IGST Act or not? - HELD THAT - Section 16 (1) of the CGST Act specifically provides that every registered person shall be entitled to take credit of the input tax charged on any supply of goods or services or both made to him, which are used or intended to be used in the course or furtherance of his business. Such entitlement is subject to fulfillment of certain conditions such as possession of invoice, receipt of goods/service, payment of tax to Government etc. as provided under Section 16(2) of the GST Act, 2017. However, the availability of credit is subject to the restrictions as stipulated under Section 17(5)(d) of the GST Act, 2017 - the restriction imposed herein is absolute in nature as it seeks to override Section 16(1) which entitles a registered taxpayer to avail credit on goods or services used or intended to be used in the course or furtherance of business. Irrespective of the fact that the goods or services are used for construction of immovable property which in turn will be used for conducting business, credit is not available; if the ownership of the property remains with the said person. In order to install/embed the said power plant at the roof top of its own building, there would be construction/erection of pillers on which the said plant is to be installed and certainly there would be lot of other civil work which support to construct the said plant. Such work can not be done without fasten and embed the part of said plant at roof top of the building - the roof top of the building is attached to earth and simultaneously plant to be fastened/embedded is attached to roof top. This results in 'permanently fastened to anything attached to the earth' as per Section 3(26) of the General Clauses Act, 1897. Further, for the purposes of clauses (c) and (d) of sub-section 5 of Section 17 of CGST Act, 2017, the expression construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. Hence, the erection, commissioning and installation of the said power plant covers in expression of 'construction'. Whether the capital goods and inputs constitute plant and machinery of the Applicant? - HELD THAT - The explanation to Section 17(5) provides 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. Solar Power Generating Plant of the applicant qualify as 'plant and machinery' as it falls under machinery - Although, construction of Solar Power Generating Plant at rooftop of the building of applicant is an immovable property, however the said Solar Power Generating Plant qualify as 'plant and machinery', hence it not covered under blocked credit as mentioned in 17(5)(d) of the CGST Act, 2017. Thus, the applicant is eligible for Input credit of Inputs, Capital goods and Services related to setting of Solar Power generator plant for captive consumption.

Summary

Issues Involved:
1. Admissibility of input tax credit of tax paid or deemed to have been paid.
2. Eligibility of input tax credit on capital goods and inputs constituting plant and machinery used in the business of manufacturing PP/HDPE Woven Sacks.

Issue-Wise Detailed Analysis:

1. Admissibility of Input Tax Credit:

The applicant, a manufacturer of PP/HDPE Woven Sacks, is installing a 620+ kW rooftop Solar Power Generating Plant for captive consumption of electricity. The applicant seeks to avail input tax credit (ITC) on the inputs and capital goods used in setting up the solar plant under Section 16 and 17 of the CGST/RGST Act, 2017.

The applicant argues that the solar plant qualifies as "Plant and Machinery" as per the Explanation to Section 17 of the CGST Act and has been capitalized under the "Plant and Machinery" head in their books of accounts. They contend that they meet the conditions of Section 16, which include possession of a tax invoice, receipt of goods/services, payment of tax to the government, and furnishing of returns.

The jurisdictional officer supports the applicant's claim, stating that the solar plant is for captive consumption in manufacturing taxable supplies, and the related credits are not blocked under Section 17(5) of the Act. However, the officer notes that the applicant has not provided documentary proof of capitalization in their books of accounts.

2. Eligibility of Input Tax Credit on Capital Goods and Inputs:

The applicant contends that the solar equipment qualifies as "Plant and Machinery" and is used in the business of manufacturing PP/HDPE Woven Sacks. They argue that the solar plant meets the criteria for ITC under Section 17 of the CGST/RGST Act, 2017, as it is used for generating electricity solely for captive use in manufacturing taxable goods.

The authority examines the relevant statutory provisions, including Section 16(1) and (2) and Section 17(5) of the CGST Act. Section 16(1) entitles a registered person to ITC on goods or services used in the course or furtherance of business, subject to conditions in Section 16(2). Section 17(5) restricts ITC on goods or services used for construction of immovable property, except for "Plant and Machinery."

The authority notes that the solar plant, being fastened to the roof of the building, constitutes construction of immovable property. However, the plant qualifies as "Plant and Machinery" under the Explanation to Section 17(5), which includes apparatus, equipment, and machinery fixed to earth by foundation or structural support, excluding land, building, and civil structures.

The authority concludes that the solar plant qualifies as "Plant and Machinery" and is not covered under blocked credit as per Section 17(5)(d). Therefore, the applicant is eligible for ITC on inputs, capital goods, and services related to setting up the solar plant for captive consumption.

Ruling:

The applicant is eligible to take input tax credit as 'inputs/capital goods' or 'input services' of the items enlisted in Annexure-B of the application in terms of Section 16 and 17 of the CGST/RGST/IGST Act. The capital goods and inputs constitute plant and machinery of the applicant used in the business of manufacturing PP/HDPE Woven Sacks and are not blocked input tax credit under Section 17(5) of the CGST/RGST/IGST Act.