2024 (7) TMI 289 - HC - GST

Apportionment of credit and blocked credits - ITC on the construction / reconstruction of the breakwater - breakwater was a plant and machinery or not - HELD THAT - The petitioner provides the services of regassification of LNG to Ratnagiri Gas and Power Company for which LNG is supplied to them by LNG carrier which are berthed at the captive jetty. LNG is then transferred to petitioner s unit for regassification. The breakwater has been constructed to ensure safety of the ship that are berthed at the jetty and also to allow the ship to reach the jetty and remain safe at any point of time irrespective of the severity in the weather conditions. The dictionary meaning used by respondents for the term plant indicates that it would mean and include a place where the industrial activity takes place and/or factory where certain material is produced or machinery are used to carry out certain process or production - In the present case the breakwater wall or accropode that are essential certainly do not qualify as plant and machinery. The breakwater wall can hardly be called plant or machinery . Accropode loses its identity when breakwater wall is constructed using accropode. Explanation to Section 17 also provides that plant and machinery should be used for making outward supply of goods or services. In the instant case breakwater wall is used for protecting the vessel from tides while unloading the LNG received and not for making outward supply of goods or services. Therefore even on this count petitioner does not satisfy the condition provided in the Explanation to Section 17 to be eligible for ITC. There are no infirmity in the impugned order - there is no merit in the petition - petition dismissed.

Summary

Issues:
1. Eligibility of Input Tax Credit (ITC) on the construction/reconstruction of the breakwater.
2. Interpretation of Section 17 (5) (d) of the CGST Act regarding ITC availability for construction of immovable property.

Issue 1: Eligibility of Input Tax Credit (ITC) on the construction/reconstruction of the breakwater:

The petitioner, engaged in regassification of LNG, sought advance ruling on ITC eligibility for constructing a breakwater to ensure safety during berthing and unloading of LNG carriers. Respondent No. 5 denied ITC, stating the breakwater does not qualify as "plant and machinery" under Section 17 (5) (d) of the CGST Act. Petitioner argued the breakwater should be considered "plant and machinery" as it facilitates operational efficiency. Respondent No. 6 upheld the denial, leading to the petition challenging this decision.

Issue 2: Interpretation of Section 17 (5) (d) of the CGST Act regarding ITC availability for construction of immovable property:

The key contention was whether the breakwater could be classified as "plant and machinery" for ITC purposes. Petitioner argued that the breakwater, despite being immovable, should qualify as "apparatus" under the definition of "plant and machinery." However, respondents contended that the breakwater, involving civil work and accropodes, is a civil structure, not "plant and machinery." The court analyzed Section 17 (5) (d) and the Explanation, emphasizing that "plant and machinery" must be used for making outward supplies, which the breakwater did not fulfill.

In the judgment, the court observed that the breakwater's primary function was to protect vessels during LNG unloading, not for making outward supplies. The court agreed with the respondents' interpretation that the breakwater did not meet the criteria to qualify as "plant and machinery" under the CGST Act. The court found no infirmity in the orders denying ITC eligibility and dismissed the petition.

In conclusion, the court upheld the decisions of the authorities, denying Input Tax Credit on the construction/reconstruction of the breakwater, as it did not meet the criteria to be classified as "plant and machinery" under Section 17 (5) (d) of the CGST Act.