Blocked Credit: ITC on Cross-Country Natural Gas Pipelines

The Legal Issue

The central dispute was whether a cross-country natural gas pipeline qualifies as “Plant and Machinery” (which is eligible for Input Tax Credit) or if it falls under the category of “immovable property” and “pipelines laid outside the factory,” which are specifically excluded from ITC under Section 17(5) of the CGST Act.

Facts of the Case

The Business: The appellant operates a massive network of over 16,000 km of natural gas pipelines across India. They are service providers for the transmission of gas and do not engage in manufacturing.
The Claim: Given the high cost of laying these underground pipelines, the appellant sought to claim ITC on the procurement of pipes, fittings, and the works contract services for laying them.
The Revenue’s Stand: The AAR and later the AAAR (Appellate Authority for Advance Ruling) contended that these pipelines do not qualify for credit because they are permanently attached to the earth and are located “outside the factory.”

The Decision

The AAAR Odisha ruled in favour of the Revenue, denying the Input Tax Credit based on several key legal interpretations:

Immovable Property Status: The cross-country pipeline is fixed to the earth (buried underground) and is intended for permanent use. Therefore, it constitutes an immovable property. Under Section 17(5)(c) and (d), ITC is barred for works contract services used for the construction of immovable property.
The “Outside the Factory” Exclusion: The Explanation to Section 17 specifically excludes “pipelines laid outside the factory premises” from the definition of “Plant and Machinery.” Since these pipes transport gas across thousands of kilometers away from any single plant or factory, they fall squarely into this blocked category.
Restrictive Definition of “Plant and Machinery”: The Authority noted that for an item to be “Plant and Machinery” under GST, it must be an apparatus, equipment, or machinery fixed to the earth by a foundation or structural support. In contrast, these pipelines are simply laid in trenches underneath the earth without a specific structural foundation.
Absence of “Machinery”: The Court observed that the term is “Plant and Machinery.” A pipeline on its own is a conduit for transport; it lacks the active mechanical elements required to meet the specific definition of machinery as intended by the legislature.

Key Takeaways

Location is Critical: Under GST law, a pipeline inside a factory used for a production process may qualify for ITC as part of “Plant and Machinery.” However, once that pipeline crosses the factory gate to transport goods to end-users, it becomes “blocked credit.”
Definition of Plant & Machinery: Taxpayers cannot use the common dictionary meaning of “Plant.” Under GST, it has a restricted meaning requiring an element of “machinery” and specific “foundational support.”
Works Contract Trap: If you are building any structure that becomes part of the land (immovable), Section 17(5)(c) will likely block your ITC unless it falls under the very narrow exceptions for specific plant and machinery.
Strategic Planning: For infrastructure companies (Gas, Water, Power), this ruling reaffirms that the massive GST paid on civil construction and cross-country piping remains a cost of the project rather than a refundable credit, impacting project feasibility and pricing.

AUTHORITY FOR ADVANCE RULING, ODISHA

Gail (India) Ltd., In re^*

P. R. LAKRA and Ms. Yamini Sarangi, Member

Order No. 04/Odisha-AAAR/Appeal/2025-26

JANUARY 15, 2026

S.C. Kamra, Adv., R.C. Patra, Dy. G.M. and R.K. Sahoo, Chief G.M. for the Petitioner.

JUDGMENT

BRIEF FACTS OF THE CASE:

1.0. The present appeal has been filed, under Section u/s. 98(4) of the Central Goods and Service tax Act, 2017 and Orissa Goods & Services Tax Act 2017 [hereinafter referred to as the CGST Act and OGST Act] by M/s. Gail (India) Limited having Principal Place of Business at Flat No 612, Utkal Signature, Pahala, Bhubaneswar, Khordha, Odisha, 752101, against the Advance Ruling ORDER No. 6/ODISHA-AAR/2025-26 dated 23.07.2025 pronounced by the Odisha Authority for Advance Ruling (AAR). The date of receipt of the physical appeal application is 21.08.2025. The Appeal application was filed in the time limit as per the provisions of Section 100 (2) of the CGST Act, 2017.

1.1. The Appellant M/s. GAIL (India) Limited, having GSTIN No. 21AAACG1209J1Z8 is a Private Limited Company is a Maharatna Public Sector undertaking of Govt. of India, is engaged in transmission of natural gas. The Appellant Company owns and operates a network of approx. 16421 km of natural gas pipeline across the country and command about 66% market share in gas transmission and over 54% share in gas trading in India. The Appellant Company gets authorization from Petroleum & Natural Gas Regulatory Board (PNGRB) for laying cross-country pipeline. For completing the said task, the Appellant Company engages different contractor/supplier for procuring pipes, pipe fittings and services for laying of underground pipeline.

1.2 Section 17(5)(d) of the CGST Act, 2017 provides restrictive provisions for Input Tax Credit (ITC), which states ITC is not available on goods or services or both received by a taxable person for construction of immovable property (other than plant & machinery). Further, plant & machinery is defined as apparatus, equipment and machinery fixed to earth by foundation or structural support that are used for making outward supply but excludes “Pipelines laid outside the factory premises”. The Appellant are service provider transmitting natural gas in the pipelines and as it is not carrying any manufacturing activity, the Appellant has not taken ITC on procurement of pipes and accessories as there is no clarity from the Govt. on the expression “pipelines laid outside the factory premises”.

1.3 Since a huge investment is being made by the Appellant in laying cross-country pipeline for transmission of natural gas, the Appellant sought Advance Ruling as to admissibility of ITC on procurement of pipes, its fittings and on laying underground pipelines by the contractor to whom contracts were awarded by the Appellant.

1.4 The AAR issued ruling in the instant case vide Order No. 06/ODISHA-AAR/2025-26 dated 23.07.2025 where it was ruled that laying of cross-country pipelines meant for supply of natural gas does not fall under the definition of plant and machinery and hence ITC on such pipe lines are in-admissible in view of the exclusion clause as per Section 17(5)(d) of the CGST Act, 2017.

1.5 Being aggrieved with the impugned order, the Appellant has preferred the present appeal before this Authority.

2.0 Submissions of the Appellant:

2.1 As per Section 16 of the CGST Act, 2017, every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both which are used or intended to be used in the course or furtherance of business. The term ‘business’ is defined in Section 2(17) of the Act in an inclusive manner but the expression ‘in the course or furtherance of business’ has not been explained in GST law.

2.2 Further, as per provisions of Section 17(5)(c)/(d), ITC is not available to the taxpayer. Clause (c) applies when works contract services are provided for construction of immovable property whereas Clause (d) seeks to exclude goods or services or both received by a taxable person to construct immovable property on his own account. Both the clauses are with an exception of plant and machinery. So, goods, service or both qualifying as plant and machinery of immovable nature is not covered by the blocked ITC provisions of Section 17(5). An immovable property can still qualify for ITC benefit in case the property can be considered as “plant and machinery” in the popular sense.

2.3 However, as per explanation mentioned in Section 17 of the Act, Plant & Machinery’ excludes pipelines laid outside the factory premises. The Appellant submitted that the explanation does not exclude pipeline in every case from the ambit of plant and machinery. The pipeline installed inside the factory premises of manufacturer and also pipeline installed by a service provider engaged in transportation of natural gas by pipeline or other conduit, are not excluded from the ambit of plant and machinery. It is only those pipeline which are laid outside the factory premises of a registered person/manufacturer running the factory, are excluded from the ambit of ‘plant and machinery’. However, the term factory’ has not been mentioned under the GST Laws. The Appellant cited “factory” as per the provisions of Factories Act, 1948, Central Excise Act, 1944, Industries (Development and Regulation) Act, 1951 etc.

2.4 The Appellant submits that a factory denotes any premises including its precincts/open area wherein a manufacturing process is carried on and brining into existence of a new product or article having a distinctive name, character or use. The Appellant cited the Supreme Court case of Union of India v. Delhi Cloth & General Mills Co. Ltd. (SC) and South Bihar Sugar Mills Ltd. v. Union of India (SC). The Appellant further submitted that as service provider, the Appellant are maintaining administrative office and laid cross-country pipeline for transmission of natural gas to the customers. The Appellant are not engaged in processing or manufacturing of the natural gas. Therefore, the Appellant does not have any factory premises as such. In the absence of any factory premises, the Appellant submitted that exclusion clause (iii) of the Explanation below Section 17(6) of CGST Act, 2017, is not applicable at all. Even going by the trade parlance, the pipelines laid, whether below or above the surface of the earth, are no longer considered by trade community as a land, building or other civil structure. The pipelines are taken by the trade as “apparatus, equipment or tool” used for the purpose of carrying out business activities of the taxpayer. As apparatus and equipment are specifically included in the definition of plant and machinery, the cross-country pipelines laid by the Appellant for the purpose of transmission of natural gas as principal economic activity of the Appellant are excluded from the clause (c) and (d) of Section 17 (5) of the Act ibid, as plant and machinery. In support, the Appellant cited Maharashtra Authority of Advance Ruling in the case of H-Energy Gateway (P.) Ltd., In re (AAR – MAHARASHTRA)

2.5 The Appellant furthermore submitted that the pipeline laid below the surface of the earth is movable goods. The pipelines are laid underground for carrying natural gas with a pre-designated pressure. Merely because the pipeline is laid below the ground surface for safety purposes, the pipelines do not become immovable property. At many times, the Appellant is forced to change to route of pipelines due to construction activity undertaken by the Govt. or local authorities impacting the route of the underground pipeline already laid by the Appellant in the past. For the expressions “moveable property” and “immovable property”, the Appellant cited provisions of General Clauses Act, Transfer of Property Act. Further, the Appellant cited the case of Bharti Airtel Ltd. v. CCE (SC), Pune passed by Hon’ble Supreme Court and stated that the tests emphasized by the Supreme Court are duly satisfied by the Appellant w.r.t. underground pipelines laid by the Appellant for transmission of natural gas from one place to another. In case of detoriation of corrosion protection level, the remedial measures including replacement of apparatus used for desire level of external corrosion protection is undertaken to maintain safety & integrity of pipeline system. Thus, pipeline system are not rooted to earth nor embedded to earth. The pipeline so laid below the earth can be removed or relocated without causing damage to it. This is indication that the pipeline is movable property. The intention of Appellant in laying pipeline is not to make permanent addition to the land or any other immovable property and for that reason, the pipelines are no longer be treated as “immovable property”. The functionality test in the case of pipeline is also satisfied for the reason that pipeline is laid below the ground to enhance operational efficiency of the pipeline and for making it accident free. The pipeline so laid do not satisfy permanency test as the pipeline laid can be removed as it is without damaging the same and can be re-used or sold out as tradable commodity and therefore it passed marketability test as well. Thus various tests pointed out by the Supreme Court in M/s. Bharti Airtel Ltd. (supra) Pune for determining movable or immovable property, are satisfied in the case of pipeline and thus fall outside the ambit of restricted clauses (c) and (d) of Section 17(5) ibid. Therefore, the benefit of ITC is available to the Appellant.

3.0 Personal Hearing:

The Appellant was called for personal hearing on 26.09.2025 through virtual mode. The hearing was conducted on 26.09.2025 and represented by Shri S.C. Kamra, Advocate, Shri R.C. Patra, Dy. General Manager (F & A) and Shri R.K. Sahoo, Chief General Manager (F & A) Taxation. During the course of hearing, Shri Kamra, drew attention to the earlier submissions made in the application and inter-alia stated the following:

•

M/s. GAIL (India) Ltd. is engaged in the business of transmission of natural gas across the country under the regulatory framework established by Petroleum and Natural Gas Regulatory Board (PNGRB).

•

The appellant got authorization from PNGRB for laying of Mumbai-Nagpur-Jharsuguda Natural Gas Pipeline (MNJPL).

•

For laying of underground pipelines, the appellant awarded contracts to various service providers through tender process and is paying dues to the providers along with applicable IGST/CGST/SGST, as applicable.

•

They have sought ruling on whether ITC can be availed by them that were paid as IGST/CGST/SGST.

•

The AAR ruled that ITC is not admissible in respect of taxes paid on procurement of goods and services received by the appellant for construction of underground pipelines.

•

Shri Kamra cited the provisions of Section 17(5) of CGST Act, 2017 and quoted as per Section 17(5) (c) of the Act that, ITC is not available in respect of works contract services when supplied for construction of an immovable property (other than Plant & Machinery).

•

Further, he quoted the meaning of “Plant & Machinery” as defined in explanation to Section 17 of the Act and read out as below:

For the purposes of this Chapter and Chapter VI, the expression “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.

•

Shri Kamra stated that pipelines are parts of Plant & Machinery but ITC is not available in respect of pipes laid outside factory.

•

Factory is not defined in GST law. However, the same is defined in other laws such as Factories Act, 1948, Central Excise Act, 1944, Industries (Development & Regulation) Act, 1951 etc.

•

Factory is said to be where manufacturing is done by the way of transformation of product to a new one. The appellant is not into manufacturing rather into distribution of gas.

•

Shri Kamra cited different case laws that are already available in his submissions.

•

Further, Shri Kamra cited the provisions of Section 16 which allows ITC where goods/services are used in the course of or for furtherance of business. The appellant’s business is transmission of gas and without pipeline, the appellant cannot transmit gas to other place. Therefore, ITC should be available to them.

The Member (Central) asked Shri Kamra that how GAIL is supplying gas from the initial point to the consumer and whether there is any intervention in between to which Shri R.C. Patra, Dy. G.M (F & A) stated that they will provide a detailed submission on this.

Shri Kamra referred to the judgement of the Hon’ble Supreme Court in the case of Chief Commissioner of Central GST v. Safari Retreats (P.) Ltd. (SC)/[2024] 90 GSTL 3 (SC)/[2024] 106 GST 250 (SC) and stated that as per functionality test, no transmission of gas is possible without pipeline and hence is squarely applicable to this case. The Member (State) requested to restrict the discussion to the instant case only.

4.0 ADDITIONAL SUBMISSIONS BY THE APPELLANT:

4.1 The Appellant submitted that Mumbai-Nagpur-Jharsuguda Pipeline (MNJPL) is part of National Gas Grid (NGG) pass through 04 States of the Country. It will originate from Thane (Maharashtra) and connect to Jharsuguda (Odisha). Also, spurline will extend from Nagpur (Mahashtra) to Jabalpur (Madhya Pradesh). The gas source of this pipeline is DUPL (Dahej-Uran/Dabhol-Panvel) at Dispatch terminal, Mhaskal-2 and JHBDPL at RT Jharsuguda. The design capacity of the pipeline is as per Hydraulics simulation studies under different operating scenarios. There is neither intervention nor any process undertaken on the flow of gas from the original point to the delivery point.

4.2 The Appellant also informed that the facts and the questions raised by the parties in the case of M/s. SHV Energy and M/s. NMDC are totally different from the facts of the Appellant. In both the cases the parties were engaged in the manufacturing activities and pipelines were laid outside their factory premises. On the other hand, in the case of Appellant, they are engaged in providing services by way of transmission of natural gas in pipeline. The Appellant are not engaged in any manufacturing activity and as such do not maintain any factory.

4.3 Further, the Appellant reiterated the submissions made earlier and mentioned ibid.

5.0 DISCUSSION & FINDINGS:

5.1 We have gone through the records of the case, the written submissions made by the Petitioner and submission made by the authorized representatives of the Petitioner during the personal hearing through virtual mode on 26.09.2025 and additional submissions made vide letter dated 22.10.2025.

5.2 The AAR order was communicated on 24.07.2025. The date of receipt of the physical appeal application is 21.08.2025. Therefore, the Appeal Application is filed within 30 days of communication of the AAR order, which is within the time prescribed for filing Appeal.

5.3 On going through the submissions and personal hearing, we find that, the issue before us is to decide on the following aspects:

a. Whether ITC under section 16 is available to the Appellant on procurement of Pipelines and payment made on works contract services for construction / laying of underground cross-country pipeline

b. Whether ITC is blocked/inadmissible u/s 17(5)(c) of CGST Act in respect of works contract service supplied for construction of underground pipeline.

c. Whether ITC is available in respect of goods (pipes and its components accessories or fittings) for construction of underground pipeline on his own account keeping in view that the goods are used in the course or furtherance of business of the applicant?

5.4 The issues impugned for decisions are dealt with as follows:

A. Whether cross-country pipeline for transmission of natural gas is an immovable property?

The Appellant is engaged in transmission of natural gas through pipeline. For the said purpose, the Appellant Company lays cross-country pipelines as per the authorization received from Petroleum and Natural Gas Regulatory Board. The Appellant also procures goods (pipes and pipe fittings) and/or services including works contract services for construction and laying of pipeline for providing output services of transportation of natural gas through pipeline.

The appellant took the contention that “. the pipeline laid below the surface of the earth is movable goods. The pipelines are laid underground for carrying natural gas with a pre-designated pressure. Merely because the pipeline is laid below the ground surface for safety purposes, the pipelines do not become immovable property. At many times, the Appellant is forced to change to route of pipelines due to construction activity undertaken by the Govt. or local authorities impacting the route of the underground pipeline already laid by the Appellant in the past. The pipeline so laid below the earth can be removed or relocated without causing damage to it. This is indication that the pipeline is movable property.”

The term “movable property” or “immovable property” has not been defined in the GST Laws. Thus, reference is made herein to the General Clauses Act & Transfer of Property Act.

As per the Section 3(26) the General Clauses Act, 1897, immovable property includes land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth. Further, Section 3 of Transfer of Property Act defines the expression “attached to the earth” to mean things embedded in the earth or attached to what is so embedded for the “permanent beneficial enjoyment” of that to which it is attached. As per the “Doctrine of Fixtures” based on the Latin maxim “Quicquid plantatur solo, solo cedit”, whatever is attached to the ground becomes part of its meaning thereby that chattels (movable goods) permanently annexed to land become immovable. The common test for deciding whether an article is a fixture or chattel turns on the purpose of attachment. Intention of attachment is to be seen as to whether to treat an article as chattel or as a part of freehold.

A pipeline for distribution of natural gas will be considered as immovable property for the following reasons:

• Attached to the Earth – The primary determinant is whether the item is “attached to the earth”. The pipeline is laid under the ground with the intention of permanent annexation to the land and beneficial enjoyment of land. Pipelines laid underground across cross-countries meet this criterion.

• Intention of permanence – The intent behind laying a large scale natural gas distribution network is clearly a permanent infrastructure for long-term beneficial enjoyment and use rather than a temporary fixture that can be easily dismantled easily and moved. Thus, it meets the “two-fold test” of the degree and object of annexation.

• Governing Legislation – The Petroleum & Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962 provides for acquiring the “right of user” in land for laying pipelines acknowledging their permanent nature and attachment to the land. The preamble of the said Act reads as follows:

“An Act to provide for the acquisition of right of user in land for. laying pipelines for the transport of petroleum and minerals and for matters connected therewith”

As per the said provision, the land will be used solely for the purpose of pipelines. No construction of any building, structure, excavation of any tank, well, reservoir or dam, plantation of trees are allowed in the said land where pipelines are laid underneath.

Thus, the intention of the appellant having a right of user in land is to enjoy the land as well and the pipelines having been attached to earth are coming under the purview of “Doctrine of Fixture”.

• Distinction from movable property – Items considered as movable goods can be shifted without causing damage to themselves or the land by retaining their original character (e.g. a machine temporarily fixed for the beneficial use of the machine itself). A major cross-country pipeline embedded to earth does not meet this criterion.

• Admissibility of ITC U/s. 16 vis-a-vis 17(5)(c)/ 17(5)(d) – The appellant took the averment that it is eligible to avail ITC of GST paid on goods and services used for construction of pipelines.

Section 16 of the GST Act deals with the eligibility for availing input tax credit (ITC) and the conditions to be fulfilled by the registered person for such availment. Section 16(1), inter alia, states that a registered person shall be entitled to take ITC on goods and services used or intended to be used in the course of furtherance of his business.

However, Section 17(5) of the GST Act provides that in certain cases, ITC will not be available even if the goods or services are used in the course or furtherance of business. Clause (c) of Section 17(5) restricts availability of ITC in respect of works contract service used for construction of immovable property except in case where it is an input service for further supply of works contract service. The relevant portion of the aforesaid provisions is extracted herewith as under:

“17. Apportionment of credit and blocked credits.

***

(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;”

Since the statute specifically bars availment of ITC on works contract services when supplied for construction of immovable property and the cross-country pipeline being an immovable property, the appellant is not entitled to avail ITC on works contract services provided for construction of such pipeline for transportation of natural gas.

Further, clause (d) of Section 17(5) bars entitlement to ITC in respect of goods or services used for construction of immovable property on assesse’s own account. The relevant portion of the provisions thereof is extracted herewith as follows:

“(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.”

The cross-country pipeline being an immovable property, the appellant is not entitled to avail ITC on goods or services received for construction and laying of such pipeline for transportation of natural gas.

B. Whether cross-country pipeline is “Plant & Machinery”?

The appellant took the averment that the restriction on availment of ITC U/s. 17(5)(c) and 17(5)(d) is not applicable in case where the goods or services are used for construction of plant and machinery. The term “plant & machinery” is defined in explanation to Section 17 as apparatus, equipment and machinery fixed to earth by foundation or structural support that are used for making outward supply but inter alia excludes pipelines laid outside the factory premises. The explanation to Section 17 is extracted herewith as under:

“Explanation.-For the purposes of this Chapter and Chapter VI, the expression “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.”

The term factory or factory premises has not been mentioned under the GST Act. However, Section 2(m) of The Factories Act, 1948 defines the term ‘factory’ which is reproduced as under:

“2. (m) “factory” means any premises including the precincts thereof-

(i) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or

(ii) Whereon twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is. ordinarily so carried on;

but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952)] or a mobile unit belonging to the armed forces of the Union, a railway running shed or a hotel, restaurant or eating place.”

It is clear from the above definition that a factory means any premises having workers who are involved in a manufacturing process.

In response to query raised by the Member during the personal hearing, the Appellant has submitted that there is neither any intervention nor any process undertaken on the flow of gas from the original point to the delivery point. However, the Appellant remained silent regarding the procurement of the gas. The data available in their own website (www.gailonline.com), describes that natural gas come in 4 basic forms such as:

(i) Liquefied Natural Gas (LNG) – Natural Gas which has been liquefied at – (Minus) 160 degree Centigrade. Natural Gas is liquefied to facilitate transportation in large volumes in cryogenic tankers across seas /land.

(ii) Re-gasified Liquefied Natural Gas (RLNG) – LNG Re-gasified at import terminals before transporting it to consumers through Pipelines.

(iii) Compressed Natural gas (CNG) – Natural Gas compressed to a pressure of 200-250 kg/cm2 used as fuel for transportation. CNG decreases vehicular pollution on the virtue of being cleaner fuel than liquid fuels.

(iv) Piped Natural gas (PNG) – Natural Gas distributed through a pipeline network that has safety valves to maintain the pressure, assuring safe, uninterrupted supply to the domestic sector for cooking and heating / cooling applications.

So, it is evident that the natural gas has to be re-gasified at the terminals i.e., a designated processing plant for converting the liquefied natural gas to gaseous form before being transported in gaseous form through these cross-country pipelines which are laid outside thereto. The plant at the terminals is a place where there are workers who are working and the process that takes place there, is of conversion of LNG to gaseous form and thus can be treated as factory or factory premises. In this case, the pipelines laid by the Appellant for transportation of natural gas cross-country are laid outside the factory preemies.

The pipelines laid cross-country by the Appellant on the direction of PNGRB do not form part of “plant and machinery” as these are laid outside the factory premises meant for processing the LNG, RLNG or CNG and therefore fall under the restriction clause as prescribed under Section 17(5)(c) and (d) of Act. Therefore, we are of the considered opinion that underground pipelines laid by the Appellant as per the requirement of the PNGRB, do not form part of plant and machinery as such pipelines laid outside factory premises are excluded from the definition of plant and machinery.

To sum up, a pipeline cannot exist in vacuum without a factory. The expression “pipelines outside the factory” signifies that the pipeline is to transport some product from the factory to the end user. In the instant case, the gasified natural gas is transported through the pipeline which is outside the factory. Hence, we are of the view that the said pipeline is a “pipeline outside the factory” for which the appellant cannot avail ITC by treating pipelines as “plant & machinery”.

C. Whether cross-country pipeline is covered under “apparatus, equipment, machinery”?

The appellant further contended that the pipeline would be otherwise covered under “apparatus, equipment, machinery” and hence, qualified as plant & machinery under explanation under Section 17. However, to call it an “apparatus, equipment or machinery” would be a distortion of the meaning when the appellant himself described it as a pipeline. It is relevant herewith to mention that while construing a word which occurs in a statute or a statutory instrument in the absence of any definition in that very document, it must be given the same meaning which it receives in ordinary parlance or understood in the sense in which people conversant with subject matter understand it. Thus, in common parlance, a pipeline cannot be treated as an apparatus, equipment or machinery. When a specific description is available, it is not justified to bring a pipeline within a meaning of “apparatus, equipment or machinery” by quoting convenient meanings just in order to avail ITC. The appellant incorrectly placed reliance on the rulings of the Maharashtra Authority for Advance Ruling in GST-ARA, Application No.94 dated 26.11.2018 in case of Western Concessions Private Limited (formerly known as H-Energy Gateway Private Limited) wherein ruling has been passed in favour of the Revenue. The relevant portion of the said ruling is extracted herewith:

“The second contention of the applicant is that the pipeline would be otherwise covered under ‘apparatus, equipment’, or ‘machinery since it is fitted with Valves, metering system, pressure regulating system, bends, fittings, flanges, gas leak detection system, gauges, transmitters etc. and hence qualify as ‘plant and machinery under explanation to Section 17(5). We are also not in favour of this contention because every pipeline is fitted with these equipments and the pipeline in question is no exception.”

Further, as per the observation of the Hon’ble Apex Court in case of Safari Retreats (P) Ltd.(supra), plant and machinery have a restricted meaning in the definition provided in the GST Act. When the legislature uses the expression plant and machinery, only a plant will not be covered by the definition unless there is an element of machinery. Further, plant and machinery have been defined as apparatus, equipment and machinery fixed to the earth by foundation or structural support, unlike the case of pipeline which is not laid on a foundation or structural support but simply laid underneath the earth.

5.5. As regards to the reliance placed on the judgment rendered in case of Bharti Airtel Ltd.(supra), it is relevant to mention herewith that the said judgment was rendered by taking into consideration the provisions contained under CENVAT Law. Unlike the provisions of the GST Act, wherein restrictions are provided for availing ITC U/s. 17, no such pari materia restrictions pr exclusions are provided under CENVAT Law. Thus, the appellant cannot get benefit therefrom.

5.6. So, we are of the considered opinion that cross-country pipelines laid by the appellant are immovable property. The pipelines also cannot be considered as “plant & machinery”. Thus, the appellant is not entitled to ITC on goods or services towards construction and laying of the said pipelines as per the restrictions provided in Section 17(5)(c) & (d) and the explanation appended to Section 17.

RULING

6.0 Based on the above discussions and findings, the following ruling is passed by the AAAR Odisha State as per the questions raised by M/s. GAIL (India) Ltd.:-

Whether Input Tax Credit (ITC) under Section 16 of the Central Goods and Service Tax (CGST) Act, 2017 is admissible in respect of CGST/ SGST/ IGST paid on procurement of goods (pipes) and/ or works contract services used for construction/ laying of underground cross-country pipeline which in turn is used for providing output services of transportation of natural gas through pipeline?

Ans: Negative.

Whether ITC is blocked/ inadmissible U/s. 17(5)(c) of CGST Act in respect of works contract service when supplied for construction of underground pipeline which is used for providing services of transmission of natural gas from one place to another through pipeline?

Ans: Affirmative.

Whether ITC is blocked/ inadmissible U/s. 17(5)(d) of CGST Act in respect of goods (pipes and its components accessories or fittings) and services (pipeline laying contracts) received by the applicant for construction of underground pipeline on his own account keeping in view that the goods are used in the course or furtherance of business of the applicant?

Ans: Affirmative.

Whether in view of the judicial rulings under the Central Excise Act, the mention of “pipelines laid outside the factory premises” in the Explanation (iii) given below Section 17(6) of the CGST Act is confined only to an assessee/ factory engaged in the manufacturing activity so as to deny ITC of pipelines laid outside his factory premises?

Ans: Cannot be answered as it is outside the purview of questions mentioned in Section 97(2) of CGST Act, 2017.

Whether in the facts and circumstances of the case, the applicant registered as service provider is eligible to avail ITC of goods and/ or services procured for laying of underground cross-country pipeline from one place to another for the purpose of carrying out transmission of natural gas through pipeline?

Ans: Negative.