Admissibility Of GST Credit On Foundation Expense For Plant And Machinery

Case:

VIJAYNEHA POLYMERS PRIVATE LIMITED, TSAAR Order No. 29/2021 A. R. Com/13/2021, December 09, 2021, Telangana

Facts:

1. The applicant filed an application to Authority for an advance ruling seeking a decision on the admissibility of the Input Tax Credit of works contract service. The applicant incurred expenses on the construction of a factory building. The applicant directly purchased materials and also hired contractors for the works contract. The scope of the contractor included service and materials.
2. The construction included foundation for machinery, rooms for chillers, boilers, generators, and transformers, erecting of electrical poles, laying of internal roads, factory building, internal drainage, laboratory, etc.
3. Authority for Advance Ruling had considered a reference from section 17 of the CGST Act, 2017, that deals with block credit. According to that, GST credit on works contract services related to the construction of the immovable property is inadmissible. However, it excludes plants and machinery. According to the law, plant and machinery include apparatus, equipment, and machinery fixed to earth by a foundation or a structural support. Plant and machinery are further supposed to include such foundation and structural support. Therefore, the admissibility of GST credit lies within limits given under section 17 of the CGST Act in so far it relates to plant and machinery only.

Decision of Advance Ruling Authority:

The decision given by the authority is well within the provisions under the GST Law. Hence, GST credit shall be admissible on the foundation for machinery, provided machinery is used for making outward supply of goods or services or both. It is worth noting even if the expense was incurred for the furtherance of business but could not be said to have been for the supply of goods or services or both, GST credit may be considered a block credit.