Input Tax Credit Is Ineligible for Breakwater Construction as It Is an Excluded Civil Structure

“Basic design, detail engineering and physical model test, surveys, temporary work, development of quarries, supply of material, construction of balance portion of break water and removal of temporary works as per the assessment reports, job specification, codes and recommendation of license holder and drawings assessment reports, job specification, codes and recommendation of license holder and drawings.”

Q9. What do you mean by “supply made in the course or furtherance of business”?

Ans. No definition or test as to whether the activity is in the course or furtherance of business has been specified under the MGL. However, the following business test is normally applied to arrive at a conclusion whether a supply has been made in the course or furtherance of business:

(1) Is the activity, a serious undertaking earnestly pursued?

(2) Is the activity is pursued with reasonable or recognisable continuity?

(3) Is the activity conducted in a regular manner based on sound and recognised business principles?

(4) Is the activity predominantly concerned with the making of taxable supply for consideration / profit motive?

The test may ensure that occasional supplies, even if made for consideration, will not be subjected to GST.

Section 17(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;

(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.”

(a) When the goods or services or both are received by the taxable person for the construction of plant and machinery;

(b) When the works contract service is supplied for the construction of immovable property which is an input service for further supply of works contract service.

“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.”

“52. This Court has laid down the functionality test. This Court held that whether a building is a plant is a question of fact. This Court held that if it is found on facts that a building has been so planned and constructed as to serve an assessee’s special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance. The word ‘plant’ used in a bracketed portion of Section 17(5)(d) cannot be given the restricted meaning provided in the definition of “plant and machinery”, which excludes land, buildings or any other civil structures. Therefore, in a given case, a building can also be treated as a plant, which is excluded from the purview of the exception carved out by Section 17(5)(d) as it will be covered by the expression “plant or machinery”. We have discussed the provisions of the CGST Act earlier. To give a plain interpretation to clause (d) of Section 17(5), the word “plant” will have to be interpreted by taking recourse to the functionality test.”

“The question whether a mall, warehouse or any building other than a hotel or a cinema theatre can be classified as a plant within the meaning of the expression “plant or machinery” used in Section 17(5)(d) is a factual question which has to be determined keeping in mind the business of the registered person and the role that building plays in the said business. If the construction of a building was essential for carrying out the activity of supplying services, such as renting or giving on lease or other transactions in respect of the building or a part thereof, which are covered by clauses (2) and (5) of Schedule II of the CGST Act, the building could be held to be a plant. Then, it is taken out of the exception carved out by clause (d) of Section 17(5) to sub-section (1) of Section 16. Functionality test will have to be applied to decide whether a building is a plant. Therefore, by using the functionality test, in each case, on facts, in the light of what we have held earlier, it will have to be decided whether the construction of an immovable property is a “plant” for the purposes of clause (d) of Section 17(5).”

“The Tribunal has observed that the blue print of the structure was produced before them and they were satisfied that the structure has been raised to provide support to the gigantic cranes. On the basis of this blue print, the Tribunal came to the conclusion that the structures were raised to make the plant operative which could not have functioned in its absence. It was further observed that it is not a mere structure for location of the plant but the structure which makes the plant operative and workable. There may be a structure which falls within the category of building and plant. Whether the structure is a building or a plant has to be examined on the basis of the functional test. The use of the structure makes the distinction between plant or building in which it could be categorised. In the present case, the revised return was submitted in the proceedings initiated on the basis of the directions issued under section 263 of the Incometax Act. The claim of the assessee was rejected by the Income-tax Officer and the said revised return was not accepted. The proper course for the Commissioner of Income-tax would have been to first determine as to whether the revised return was liable to be entertained or to be ignored. No such decision has been taken by the Commissioner of Income-tax and he has proceeded on the basis of the nature of the structure and held that it is plant. The only question which has been raised before us is with regard to the justification in holding the structure as plant within the meaning of section 43(3) of the Income-tax Act and the Income-tax Appellate Tribunal has mentioned that the structure was raised to make the plant operative which could not have functioned in its absence.

Therefore, we are of the view that the portions of the structure which were required to make the cranes operative and in the absence of which it was not possible to operate the cranes and the construction of such structure was specially designed for that purpose, the structure would fall within the definition of “plant”. The extra structure which is in addition to such structure could not be considered as “plant”.

“In order to keep the water at the required level for the purpose of breeding shrimps or prawns the pond is a must. The breeding of fish cannot be carried on within the ponds. As referred to by the Tribunal, water plays the role of a machine just like a timber merchant. If the timber merchant requires a sawing machine to cut and shape the log such sawing machine constitutes a plant for him. Water in the case of the assessee plays same role. Water has to be stored within the ponds. Therefore, the ponds also constitute part of the machinery in the business of the assessee. Learned counsel for the Revenue submitted that it was only a natural pond. It is not correct. According to us, the decision in CIT v. Victory Acqa Farm Ltd. [2004] 271 ITR 528 (Ker) was presumed to be covered as per the decision of the Supreme Court in CIT v. Anand Theatres [2000] 244 ITR 192. According to us, in the facts and circumstances of the case, the Tribunal was right in holding that the pond is a plant and hence, entitled to statutory depreciation.”

“15. On going through the impugned ruling, we find that the GAAR has not given a finding on whether the concrete structure, claimed by the appellant to be necessary to support and erect the VCV lines, forms a part of plant and machinery. Irrespective of the fact that whether it is a works contract or otherwise, in terms of section 17(5) (c) and (d), plant and machinery stand excluded from the apportionment of credit and blocked credits. We are also mindful of the fact that section 17(5)(d) uses plant or machinery. However, vide section 124 of the Finance Act, 2025, the word ‘or’ has been changed to ‘and’, though the same is yet to be notified.

16. On going through the layout of the VCV line which is reproduced in the impugned ruling, the process inside VCV tower undertaken at each floor and the weight of the significantly heavy components to be placed on each floor [reproduced supra], we are in agreement with the appellant’s averment that the concrete structure is essential to support and erect the VCV lines. It is more so since the appellant has stated that the concrete structure in the form of VCV tower serves as a critical foundation and support system for the manufacturing process; that it provides stable base for tower components; that it absorbs vibrations & ensures accurate positioning of extruder, cross head and other elements. Given these facts, we find that plant and machinery in terms of the second explanation, placed beneath section 17, ibid, specifically includes foundation and structural support. The exclusions from plant and machinery are also listed viz

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises. Further, ‘other civil structures’ means civil structures other than foundation and structural support to plant and machinery.

17. Thus, the moment it is held that the ITC sought is on construction of foundation and structural support relating to plant and machinery, it moves out of the ambit of section 17(5)(c) and (d) even if it is on their own account. This being the case, we find that the applicant is eligible for availing the ITC on inputs and input services used for construction of concrete tower to support and erect the VCV lines at the factory of the appellant for manufacture of EHV cables.”

Section 43(3)

“plant” includes ships, vehicles, books, scientific apparatus and surgical equipments used for the purposes of the business or profession but does not include tea bushes or livestock or buildings or furniture and fittings”

The assessee claimed development rebate not only on the value of machinery and plant but also on the value of building in which machinery was installed. The lower authorities upto ITAT decided the matter against the assessee. The Delhi High Court after examining the definition of “plant” and its scope as interpreted by the various courts propounded the following principles:-

Applying the above principles to the facts of the above case, the High Court held that

Applying the principles laid down by the Delhi High Court in the case of RC Chemical Industries (supra), the Bombay High Court held that found that dock acted like a large vice for building ships in position where they were repaired or cleaned. The High Court observed that the dry dock was not mere setting or premises where the ships were repaired. It was different from the factory which housed the machinery for the reason that in the operation of dock, the dock itself plays a part in the control of water and enabled the valves, pumps and electricity generator which are integral part of the construction to perform these functions. As the dock was not a mere shelter or home but itself played an essential part in the operation which took place in getting the ship into the dock, holding it securely and then returning it to the river. As these items were considered as integral part of the plant which could not have worked without these items, the Bombay High Court held that the Tribunal was correct in concluding that the entire expenditure incurred on Kasara Basin Wet Dock constituted a plant eligible for benefit of depreciation and development rebate under Income Tax Act, 1961.

The assessee constructed dams as a mass and coarse rubble masonry structure with lime surki mortar. No cement was used at all. After years of weathering, it was considered necessary to strengthen the dams by the Coyne method which involves anchoring high tension steel into the bedrock of the dams, which is subsequently tensioned and grouted. The inside the structure of the dams made of rubble and surkilime mortar was also consolidated and made waterproof to protect the high tensile steel cables used for anchoring the dams from corrosion. The assessee claimed that the considerable expenditure incurred on giving the dams a new stability may be treated as creation of new assets entitled to development rebate.

The ITO as well as AAC (appellate authority) rejected claim of the assessee by holding that the dams retained their essential identity and no new dams were created. In appeal, the Tribunal accepted the contention of the assessee and accepted their appeal holding that the assessee was entitled to claim development rebate on the expenditure incurred by them during the period in dispute. Challenging the order of the Tribunal, the Department filed appeal to the Bombay High Court. The High Court affirmed the order of the Tribunal favouring entitlement of the assessee to claim development rebate on the expenditure incurred on anchoring Walawhan Dam and cement grouting Shirawata Dam. The relevant portion of the High Court is reproduced below:-

“It is undoubtedly true that by incurring this expenditure no independent asset has come into existence but in order to entitle an assessee to claim development rebate creation of an independent asset is not essential. If by incurring this expenditure the existing dams have been so strengthened as to prolong their lives for a sufficiently long duration, then by incurring this expenditure a new plant can be said to have been installed so as to entitle the assessee to claim development rebate. Instead of demolishing the old dams and constructing new ones in their place, what has been done by the assessee by modern scientific technique is that huge expenditure has been incurred as a result of which the lives of the existing dams will be prolonged for a sufficiently long period. This will result in a new plant being installed within the meaning of s. 3 3 of the Act, even though by the incurring of the expenditure, the dams are not having any independent existence apart from the old dams themselves. Thus, by adopting the Coyne method of anchoring the two dams the new plant can be said to have been installed within the meaning of s. 33 of the Act, and the Tribunal was right in allowing the claim of the assessee for development rebate.”

Section 3(36) of the General Clauses Act.

“Movable property” shall mean property of every description, except immovable property;

Section 3(26) of the General Clauses Act.

“Immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.

Section 3 of the Transfer of Property Act.

“Immovable property” does not include standing timber, growing crops or grass.

Section 3 of the Transfer of Property Act

The expression “attached to the earth” means:

(a) rooted in the earth, as in the case of trees and shrubs;

(b) imbedded in the earth, as in the case of walls or buildings; or

(c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.

“11.8.1 We may summarise some of the principles applied by the Courts in the decisions referred to above to determine the nature of the property as follows:

(1) Nature of annexation: This test ascertains how firmly a property is attached to the earth. If the property is so attached that it cannot be removed or relocated without causing damage to it, it is an indication that it is immovable.

(2) Object of annexation: If the attachment is for the permanent beneficial enjoyment of the land, the property is to be classified as immovable. Conversely, if the attachment is merely to facilitate the use of the item itself, it is to be treated as movable, even if the attachment is to an immovable property.

(3) Intendment of the parties: The intention behind the attachment, whether express or implied, can be determinative of the nature of the property. If the parties intend that the property in issue is for permanent addition to the immovable property, it will be treated as immovable. If the attachment is not meant to be permanent, it indicates that it is movable.

(4) Functionality Test: If the article is fixed to the ground to enhance the operational efficacy of the article and for making it stable and wobble free, it is an indication that such fixation is for the benefit of the article, such the property is movable.

(5) Permanency Test: If the property can be dismantled and relocated without any damage, the attachment cannot be said to be permanent but temporary and it can be considered to be movable.”

(6) Marketability Test: If the property, even if attached to the earth or to an immovable property, can be removed and sold in the market, it can be said to be movable.”

The accropodes are the devices / apparatus with inter-locking capacity and helps to absorb or throw back the energy of sea water waves / tides assailing the coast in stronger manner during monsoon period. The accropodes are placed on the layer of armour rocks by crane in such a manner that the same can be removed or relocated without causing damage to the accropodes. Secondly, the object of placing accropodes is to facilitate use of the accropodes itself and hence the goods are movable even if attached to an immovable property. Thirdly, the intention of the applicant is not to make accropodes as permanent fixture or addition to the immovable property, it will not become a part and parcel of immovable property. Fourthly, the placement of accropodes satisfy the functionality test in as much as the article is fixed to the second layer of armour rocks to enhance the operational efficiency of the accropodes and hence it is for the benefit of the article itself. The functionality test is satisfied. Fifthly, the accropodes can be dismantled and relocated to another place without any damage and so the attachment cannot be said to be permanent. Sixthly, the accropodes can be removed and sold in the market and so marketability test is also satisfied. In view of satisfaction of these tests of nature and object of annexation, intent of the parties, functionality test, permanency test and marketability test, the applicant submits that accropodes are movable articles which are used in the construction of Break water project and so clauses (c) and (d) of section 17(5) of the CGST Act are no longer applicable to block the ITC on accropodes and services obtained from the contractor for the installation of accropodes.

(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;

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

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.”

(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;

(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;

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

‘Explanation 2. — For the purposes of clause (d), it is hereby clarified that notwithstanding anything to the contrary contained in any judgment, decree or order of any court, tribunal, or other authority, any reference to “plant or machinery” shall be construed and shall always be deemed to have been construed as a reference to “plant and machinery”;”.