GST: No ITC on Goods and Services used for Pipeline laid Outside Factory Premises, says AAAR [Read Order]

Fraudulent ITC - Input Tax Credit - Branch Eligible - GST Paid - AAAR - Taxscan

In a recent case the Maharashtra Appellate Authority for Advance Ruling held that the tie-in-pipeline laid outside the factory premise will not be construed as “plant and machinery” and hence the appellant will not be entitled to avail the ITC paid on goods and services used for the construction of tie-in-pipeline as per the provisions laid out in section 17(5)(c) and 17(5)(d) of the CGST Act 2017.

The Appeal has been filed by Western Concessions Private Limited against the Advance ruling number GST-ARA-94/2018-19/B-22 dated 22-02-2019

In the present case the appellants are constructing a tie-in-pipeline to deliver the regasified LNG to the cross country pipeline/National grid for further transportation to the customers. And the issue in the case is whether the said pipeline qualify to be the machinery for the purpose of availing ITC of GST paid on goods and services used for the construction of tie pipelines from the FSRU to the National grid as per the provisions laid out in section 17(5)(c) and 17(5)(d) of the CGST Act 2017.

The case heard by the authority of advance ruling and relied on the decision on Porritts and Spencer (Asia) Ltd. Vs State of Haryana 1979 AIR 300 and held that the FSRU is a factory and that tie-in- pipeline under question is laid outside the factory premises. The said pipeline does not qualify to be machinery for the purpose of claiming ITC. So the appellant was not eligible to avail ITC of the GST paid on goods and services used for the construction of the tie -in-pipeline for delivery of regasified LNG from FSRU to the National grid. Hence the restriction on availing of ITC under section 17(5)(c) and 17(5)(d) of the CGST Act 2017 rightly applicable in present case

The appellant submitted that by virtue of section 16(1) of CGST a registered person shall be entitled to take ITC on goods and services used or intended to be used in the course or furtherance of his business. The appellant’s activity is regasification of LNG for delivery in a form and manner which is consumable, usable, and saleable. So the provision of gas to the National grid is the integral part of the activity and the tie-in-pipeline used for this purpose is forms plant and machinery and the regasification activity to be undertaken in the FSRU, which is not a factory perse.

The appellant submitted in the light of two decisions of supreme court cases of Sales Tax Commissioner V Modi sugar mills AIR 1961 SC 1047 and A.V Fernandez V State of Kerala AIR 1957 SC 657 that the exclusion on clause “pipeline laid outside the factory premises” has to be strictly interpreted .The pipe lines laid outside the factory premises not that only pipeline laid inside a factory would be covered under “plant and machinery” and eligible for availing ITC.

In the view of above discussions the Appellate authority modify the ruling held by the Authority of Advance Ruling and held that it has been established that the premises of the FSRU can be considered as factory premise, then there is no doubt that the tie -in- pipeline, to be laid by the appellant which will join the FSRU to National grid will be considered as pipeline laid outside the factory premise. As a result the tie-in-pipeline under question will not be construed as plant and machinery and hence the appellant will not be entitled to avail the ITC of GST paid on goods and services used for the construction of tie-in-pipeline from FSRU to the National grid as per the provisions laid out in section 17(5)(c) and 17(5)(d) of the CGST Act 2017.

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