Whether input tax credit is admissible in respect of bunds which are constructed and used in the manufacture of salt and bromine chemicals?

PJ/Case Law/2020-2021/3563

M/s Satyesh Brine chem Private Limited (AAR Gujarat) GUJ/GAAR/R/ 19/2019 dated 11.09.2019

Brief Facts:The applicant is engaged in the manufacture of Salt from sea water. During the procedure for generation of Salt, Bunds are required to be constructed in order to form a circuit area for discharging brine. Bunds are being prepared by sub- contractor by using material and further GST is paid by the applicant on contract as well as on materials purchased. Without “bunds/ crystallizers” activity of manufacturing salt and bromine are not possible. Further the applicant is required to export the salt manufactured as per the condition and undertaking given to the government while taking land on lease basis.

Issue: Whether input tax credit is admissible in respect of bunds which are constructed and used in the manufacture of salt and bromine chemicals?

Applicant’s Contention:

The applicant has pointed out that input tax credit is admissible as per section 16 of CGST Act 2017. It was submitted that the material used for constructing bunds as well as the services availed for construction of bunds are used in the course or furtherance of business and hence input tax credit is admissible under Section 16(1) of the GST Acts.

It is further submitted by the applicant that ‘bunds’ does not fall under the restrictive clauses of Section 17 of the Act. These are ‘Plant and Machinery’ and doesn’t fall under Clauses (c) and (d) of Section 17(5).

In order to support the above mentioned contention the applicant has produced judgement given by Honourable Supreme court in the case of Scientific Engineering House (P) Ltd. Wherein it was held that technical Know-how falls within the definition of the term ‘Plant’.

The applicant has further submitted that if functional test is being applied then bunds/crystallizers clearly qualify as Plant and Machinery as they form an integral part of the apparatus with the help of which manufacturing process is undertaken.

The following Judgements of Honourable Supreme court are also being quoted which are squarely in support of the applicant.

Jayaswal Neco Ltd. v/s Commissioner of Central Excise (held in this case that “railway track material used for handling raw material s and process goods” are capital goods)
Commissioner of Central Tax V/s Rajasthan Spinning and Weaving Mills Ltd. (Held in this case that steel plates and M.S. channels used in the fabrication of chimney for diesel generation set are “capital goods”).
State of Gujarat v/s Pipavav Defense and Offshore Engineering Company Ltd. (2017) 105 VST 60 (Guj.) wherein it was held that goods used for construction of “dry dock” and “fit out berth” which were necessary for the purpose of the ship manufacturing business of the dealer qualified as “plant and machinery” and therefore input tax credit was admissible in respect of such goods under the Gujarat Value Added Tax Act, 2003.

Judgement:Attention was drawn to the definitions of Zero rated supply, Exempt Supply and Non-taxable supply as the applicant submitted that the goods manufactured were exported subject to the condition mentioned. It has been held by the authority that as it is a Zero rated supply, ITC on inputs and input services shall be available as per section 16(2) of CGST Act 2017.
As per section 16(2) of the IGST Act, Input tax credit is available on inputs and input services to make Zero rated supplies (such supply may be an exempt supply), subject to the provisions of sub-section (5) of section 17 of CGST Act. As per Clauses (c) and (d) of Section 17(5) of the GST Acts, input tax credit is not admissible in respect of works contract services or any goods and services for construction of immovable property (other than plant and machinery). Thus, a specific exception is made with regard to “plant and machinery.

Comment:The question of qualifying as Plant and Machinery has always been an issue be it pre GST regime or post GST regime. But as of now there have so many decisions which distinguish among building, plant and machinery & other civil structures which would be of great help to the assesse.

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PJ/Case Law/2020-2021/3563

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