ITC Allowed on Power Infrastructure Outside Factory as it is Movable Plant & Machinery.

Issue

Whether Input Tax Credit (ITC) is available on capital goods (like wires, cables, switchyards) and related services (installation) used to create power transmission infrastructure, especially when this infrastructure is installed outside the factory premises to draw electricity from a DISCOM substation.

Facts

• The applicant, Alleima India Pvt Ltd, was setting up power transmission infrastructure to draw electricity from the DISCOM’s (GETCO) substation to its factory.
• This infrastructure included capital goods like wires, cables, and electrical equipment, as well as services like installation and supervision, much of which was located outside the physical factory premises.
• The applicant’s agreement with GETCO did not transfer ownership of this infrastructure to the DISCOM; the assets remained the property of the applicant.
• The applicant sought an advance ruling on whether they could claim ITC on these expenses or if it was blocked, particularly under Section 17(5) (as construction of immovable property).

Decision

The Authority for Advance Ruling (AAR) ruled decisively in favour of the applicant:

• The AAR held that the applicant is entitled to claim ITC on these capital goods and related services, provided the basic conditions of Section 16 of the CGST Act are met.
• The bar on ITC under Section 17(5) (for immovable property) does not apply. The authority ruled that these goods (cables, wires, equipment) are movable, dismantlable, and relocatable, and therefore cannot be treated as immovable property.
• Citing a recent CBIC circular (No. 219/23/2024-GST), the AAR clarified that even the associated civil works like ducts and manholes used for this setup qualify as “plant and machinery,” not blocked civil structures.
• The AAR noted that since the applicant retains ownership of the assets (unlike in some other cases), they are fully entitled to the ITC.

Key Takeaways

• Location Doesn’t Always Matter: ITC is not restricted just because an asset is installed outside the factory premises. The primary test is whether it is used “in the course or furtherance of business” as per Section 16.
• Movable vs. Immovable is Key: Electrical infrastructure that can be dismantled and relocated without significant damage is not considered “immovable property.” This keeps it outside the ambit of the ITC block under Section 17(5).
• Ownership is a Crucial Test: The ruling highlights the importance of asset ownership. Since the applicant did not transfer the infrastructure to the DISCOM, they retained the right to claim ITC on their capital goods.
• Civil Works for Plant & Machinery are Eligible: This ruling reinforces that civil structures that are essential for the foundation or support of plant and machinery (in this case, ducts for electrical cables) are also considered part of that plant and machinery, making them eligible for ITC.