ELECTRICAL GOODS ITC, Goods and Services Tax - GST

[DURAI RAJ]

One of my client Running business of Granite Quarry during the FY-2020-21 purchased electrical wires and Electrical goods for a granite quarry Transfromation installation for business purposes only. The department has issued a notice under Section 17(5) of the SGST Act, 2017, regarding the claimed Input Tax Credit (ITC) that is deemed ineligible. I need clarification on which ITC is eligible and the relevant sections to support this claim. Please provide guidance on this matter.

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[YAGAY andSUN]

https://www.taxmanagementindia.com/web/View_discussions_detail.asp?ID=118305

[YAGAY andSUN]

Posted On September 7th, 2018

Credit allowed on transformer and electrical cables procured for factory

2018 ACR 367

High Court Karnataka

M/S. BANDO (INDIA) PRIVATE LTD., VERSUS THE STATE OF KARNATAKA (High Court) DR. VINEET KOTHARI AND MRS. S. SUJATHA JJ.

No.- STA NO. 138/2016 dated 3rd August 2018

Note – Equipments and items purchased by the Assessee namely Electrical Goods like 3150 KVA Transformer, High Tension Cable supply and erection, Low Tension cable supply and erection, UPS would be eligible for Input Tax Credit as these are used to facilitate power connection for plant for manufacturing activity. Represented By: Mr. Shankare Gowda. M.N, Advocate For Appellant Mr. Vikram. A. Huilgol, HCGP for Respondents. JUDGEMENT Per: Dr. VINEET KOTHARI, J. The Assessee M/s. Bando (India) Private Limited has led this appeal under Section 66 (1) of the KVAT Act, 2003 against the order passed by the Authority for Clarication and Advance Rulings under Section 60 of the KVAT Act, 2003, on 23.02.2016. 2. The issue involved before the learned Advance Rulings Authority was that whether the Assessee was entitled to Input Tax Credit on the purchases of Electrical Goods like 3150 KVA Transformer, High Tension Cable supply and erection, Low Tension cable supply and erection, UPS and UPS Electrical, Civil and Erection under Schedule 5 to the Act r/w Section 11 of the Act. 3. The Authority in its impugned order dated 23.02.2016 held against the Assessee that the Asses see was not entitled to the Input Tax Credit on these items, as they were not used for manufacture or sale of goods. The relevant portion of the order of the said Authority is quote d below for ready reference: 4/26/25, 9:26 PM Credit allowed on transformer and electrical cables procured for factory |  CETH 1) 3150 KVA transformer HSN – 85042200 2) High Tension cable supply and erection 3) Low Tension cable supply and erection 4) UPS HSN – 85044010 5) UPS Electrical, Civil and Erection HSN – 85044010 “3. Sri. G. Praveen Kumar, CA and PA holder has appeared before this authority and was heard. The application and connected documents have been examined and following observations are made: (1) The applicant is a registered dealer under the provisions of the KVAT Act, 2003 and is engaged in manufacturing of power transmission belts, conveyor belts, industrial belts, automotive belts, printer & scanner belt etc. During the course of business, he has obtained new power connection for his plant from BESCOM and to set up the same, he has incurred expenditure on purchase of electrical purchases cum ttings & installation items such as electrical transformer, HT cabling & LT cabling, paneling work etc. The applicant is seeking clarication as to whether he is eligible for availing input tax credit on these purchases & details are furnished as under: (2) The applicant is seeking clarication on eligibility of input tax credit on purchase of these goods as well as civil works / erection. Basically, it is clear that the dealer cannot claim ITC on erection / civil works. Coming to the purchase of electrical goods, as per Section 11(a)(3) of the KVAT Act, 2003 read with entry 3 of the 5th schedule, input tax credit is not allowable for electrical goods. Entry 3 of the 5th schedule, which restricts the input tax availment, reads as under; “All electrical or electronic goods and appliances including air conditioners, air coolers, telephones, fax machines, duplicating machines, photocopiers and scanners, parts and accessories thereof, other than those for use in the manufacture, processing, packing or storing of goods for sale and those for use in computing, issuing tax invoice or sale bills, security and storing information” (3) In the instant case, the applicant has purchased electrical goods which are not directly used for manufacture or sale, whereas the said purchases are used for setting up his new BESCOM connection for power supply. In view of this, as restricted under the aforesaid provisions, the applicant is not entitled to avail input tax credit benets on such purchases. 4. In view of the above, this authority hereby claries that the applicant is not entitled to claim input tax credit on the transactions of purchase of electrical goods viz., 3150 KVA transformer, HT cable, LT cable, UPS electrical and related civil / erection work.” 5. Learned counsels at the bar have brought to our notice a decision rendered by the Division Bench of this Court (in which, one of us Hon’ble Justice Mrs. S. Sujatha was a Member of the Bench) which dealt with a similar controversy in the case of Hindustan Unilever Limited, Bangalore vs. State of Karnataka (2016) 85 Kar.L.J.515 decided on 26.02.2016,in which the Division Bench of this Court held that even the electrical and electronic goods or in puts used for generation of electricity or steam, provided such electricity or steam is used within the factory 4/26/25, 9:26 PM Credit allowed on transformer and electrical cables procured for factory for manufacturing activity of the nal product, the same would be covered and the Assessee would be entitled to Input Tax Credit with regard to tax paid on such electrical and electronic goods also. The relevant portion of the said judgment is quoted below for ready reference. “28. We may have to rst consider the provisions of Section 11[a][2] of the KVAT Act which reads as under: “11. Input tax restrictions:- (a) Input tax shall not be deducted in calculating the net tax payable, in respect of: (1) …. (2) tax paid on goods specied in the Fifth Schedule subject to such conditions as may be specied, purchased and put to use for purposes other than for:- (i) resale; or (ii) manufacture or any other process of other goods for sale.” 29. Further, Fifth Schedule and more particularly, items specied at Sl. No.3 showing description of the goods reads as under: “3. All electrical or electronic goods and appliances including air conditioners, air coolers, telephones, fax machines, duplicating machines, photocopiers and scanners, parts and accessories thereof, other than those for use in the manufacture, processing, packing or storing of goods for sale and those for use in computing, issuing tax invoice or sale bills, security and storing information.” 30. If the aforesaid provisions of the Act and the items specied of goods are considered, all electrical and electronic goods including air conditioners, air coolers, telephones, fax machines etc., used would fall in the category of the goods for which the input tax credit would be inadmissible for the purpose of input tax credit unless the goods are for resale or for manufacturing of any other goods for sale. To put it in other words, if the goods specied in Fifth Schedule are purchased and put to use for the purpose of resale or for manufacture or for the process of other goods for sale, the input tax credit would be available. So far as Fifth Schedule is concerned, the electrical or electronic goods so narrated and referred to hereinabove should have the nexus to the manufacturing process if they are purchased and put to use for the purpose of or in furtherance to the manufacturing process . 31. We may usefully refer to the decision of the Apex Court in the case of ‘MARUTI SUZUKI LIMITED Vs. COMMISSIONER OF CENTRAL EXCISE, DELHI-III’ reported in [(2009) 9 SCC 193]and more particularly, the observations made at paragraph-45 which reads as under: “45. To sum up, we hold that the denition of “input” brings within its fold, inputs used for generation of electricity or steam, provided such electricity or steam is used within the factory of production for manufacture of nal products or for any other purpose.” 32. It is true that it was a case before the Apex Court pertaining to CENVAT credit, but in our view, the principles would remain the same and can reasonably be applied even in the case of input tax credit. Therefore any input used for generation of electricity or steam, provided such electricity or s team is used within the factory for the manufacturing activity of the nal product, the same would stand covered.” 33. Apparently, the learned Advance Rulings Authority did not have the benet of the aforesaid judgment of Division Bench of this Court which was delivered on 26.02.2016 just three days after the impugned order dated 23.02.2016 was passed by the aforesaid Authority. The said aforesaid view of the Division Bench is obviously binding on the said Authority and covers the controversy in hand. 4/26/25, 9:26 PM Credit allowed on transformer and electrical cables procured for factory . Accordingly, we allow the present appeal of the Assessee and set aside the order passed by the learned Advance Rulings Authority on 23.02.2016 and hold that the equipments and items purchased by the Assessee namely Electrical Goods in question would be eligible for Input Tax Credit against the output tax liability of the Assessee. No costs. 4/26/25, 9:26 PM Credit allowed on transformer and electrical cables procured for factory .

[YAGAY andSUN]

This is a common area of litigation under Section 17(5) of the CGST/SGST Act, especially when it comes to input tax credit (ITC) related to infrastructure, construction, and electrical installations in mining or quarrying businesses.

Let’s break this down in a clear, section-wise legal manner, and then provide guidance on how to approach your client’s case:

✅ Background

Your client runs a Granite Quarry and during FY 2020–21, purchased:

• Electrical wires
• Electrical goods
• For use in installation of a transformer at the quarry site, exclusively for business purposes.

Now, the tax department has objected to the ITC claim, invoking Section 17(5) of the SGST Act, asserting that it is blocked credit.

⚖️ Relevant Legal Provisions

📘 Section 16(1) – Eligibility to claim ITC:

A registered person shall be entitled to take credit of input tax charged on any supply of goods or services used or intended to be used in the course or furtherance of business.

So, as per Section 16(1), prima facie ITC is allowable if the goods are for business purposes, which appears true in your case.

📘 Section 17(5) – Blocked Credits

This is where the restriction is triggered.

📌 Relevant Clauses Likely Cited by the Department:

Section 17(5)(c):

ITC shall not be available in respect of works contract services for construction of immovable property (other than plant & machinery).

Section 17(5)(d):

ITC is not allowed for goods or services received for construction of an immovable property (other than plant or machinery) on own account, even when used in the course of business.

🧠 Key Legal Interpretation – "Plant and Machinery" Exception

📘 Explanation to Section 17:

“Plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support, used for making outward supply of goods or services… and includes such foundation and structural supports but excludes:

• land, building or any other civil structure
• telecommunication towers
• pipelines laid outside the factory premises

✅ Important: Transformer, electrical installations, and associated wiring used in a quarry (business premises) have been judicially recognized as falling within the ambit of "plant and machinery", provided:

• They are directly used in the process of extraction/manufacturing
• They are not part of a civil structure

✅ Conclusion: ITC Eligibility

Item	Purpose	ITC Eligible?	Reason
Electrical Wires	Wiring for transformer in quarry	✅ Likely yes	Part of plant & machinery
Electrical Goods (e.g., panels)	Power control for business operations	✅ Likely yes	Used directly for outward supply
Transformer Installation	Powering quarry machinery	✅ Yes	Transformer = Plant & Machinery

🚨 Condition: There should be no civil structure being created (like a building or room to house the transformer). If it’s only the electrical installation with standard foundation bolts/supports — ITC is eligible.

🔖 Supporting Case Laws & Rulings:

• Advance Ruling: Bharat Oman Refineries Ltd. (MP AAR) – ITC was allowed on electrical items used in relation to plant and machinery.
• CCE v. Rajasthan Spinning & Weaving Mills (SC) – Held that electrical equipment integral to manufacturing forms part of plant & machinery.
• Karnataka AAR: Tarun Realtors Pvt. Ltd. – ITC disallowed when goods were used for construction of civil structure — contrast to your case. https://gst.kar.nic.in/Documents/General/AAR103arunRealtorsPrivateLtd.pdf

✅ Recommended Action:

1. Reply to Notice with:
   • Explanation that goods are part of “plant & machinery” as per Section 17(5) Explanation.
   • Clarify that no immovable civil structure is being created.
   • Submit invoices, photos/site layout, and a technical note from your client showing how the transformer and goods are integral to quarry operations.
2. Cite relevant judicial rulings to support ITC eligibility.