The Gujarat Appellate Authority for Advance Ruling (AAAR) clarified that the assets installed outside factory premises and transferred to Gujarat Energy Transmission Corporation Ltd. (GETCO) for maintenance purposes fall within the scope of plant and machinery as per the Explanation to Section 17 of the CGST Act and are therefore eligible for Input Tax Credit (ITC).
The AAAR further clarified that the exclusions under Section 17(5) for land, building, civil structures, telecommunication towers, and pipelines laid outside factory premises do not apply to these electrical transmission assets. Reference was made to the CBIC Circular No. 219/13/2024-GST dated June 26, 2024, which talks of ITC eligibility on ducts and manholes used in optical fibre cable networks, drawing a parallel to affirm ITC admissibility on the cables and electrical equipment.
The AAAR also noted that, though the capital goods were subsequently handed over to GETCO, this does not bar initial ITC, as any reversal of liability under Section 18(6) of the CGST Act arises separately. Further, the installed assets (wires & cables) are not permanently fixed to the earth, and they are kept in ducts, allowing for removal and maintenance, which supports their classification as plant and machinery rather than immovable property.
The Division Bench comprising Sunil Kumar Mall (Member, CGST) and Rajeev Topno (Member, SGST), therefore, essentially laid down that ITC is admissible on capital goods such as wires, cables, and electrical equipment used for power transmission from the grid to the factory.
The Bench clarified that installation of such capital goods outside factory premises would be inconsequential if the same were subsequently transferred to GETCO for maintenance, provided the conditions under Section 16 of the CGST Act, 2017 are met.
The Bench went on to observe that Section 17(5) of the CGST Act blocks ITC on goods used for the construction of immovable property except plant and machinery, where “plant and machinery” is defined as apparatus and machinery fixed to earth by foundation or structural support used for making outward supply of goods or services.
Since the Respondent had satisfied all the conditions under Section 16 of the CGST Act, 2017, including possession of a tax invoice, receipt of goods and services, payment of GST to the Government, and timely filing of returns, the Bench upheld the prior Advance Ruling allowing ITC to the Respondent.
Briefly, in this case, the Respondent, a 100% Export Oriented Unit (EOU) engaged in the manufacturing of non-woven spun lace products, requiring a high-tension power supply, had installed a 66 KV feeder bay and a 750-meter 66 KV underground cable line from GETCO’s substation to its factory premises under GETCO’s policy. The value of these capital goods was capitalized, and the corresponding GST was paid, seeking ITC on the same. The ownership of installed assets was transferred to GETCO by agreement for maintenance, with no consideration.
The Appellant-Department was of the view that since these assets were installed outside factory premises and ownership was with GETCO, they fall under immovable property blocked under Section 17(5)(c) and (d) of the CGST Act, hence ITC should be disallowed, and reversal under Section 18(6) was warranted. The Gujarat AAR initially allowed ITC to the Respondent, and this came to be challenged before the Gujarat AAAR.
Appearances:
CGST Superintendent Govind Bhagora, for the Appellant/ Revenue
Advocate Mukesh Soni, for the Respondent/ Taxpayer
