No GST ITC available on Construction of Breakwater Wall for Protection, not for Outward Supply of Goods: Bombay HC [Read Order]

The Bombay High Court has held that neither the breakwater wall nor the accropodes essential for it qualify as "plant and machinery", making it ineligible to claim Goods and Services Tax ( GST ) Input Tax Credit ( ITC ) as the same is used to provide safety to ships and not to provide an output service or supply of goods.

The breakwater wall, in particular, cannot reasonably be classified as "plant or machinery." Accropodes lose their distinctiveness once integrated into a breakwater wall.

Ratnagiri Gas and Power Pvt Ltd. (RGPPL), established in July 2005 as a joint venture involving NTPC, GAIL, and the Maharashtra State Government, took over the assets of the Dabhol Power Company, formerly operated by Enron Corporation, USA, and others.

Following a demerger scheme approved by the National Company Law Appellate Tribunal, RGPPL retained the power plant, while the LNG Terminal was transferred to another entity. After the demerger, RGPPL, a subsidiary of GAIL (India) Ltd., undertakes LNG regassification operations at its plant located in Dabhol. According to RGPPL, under the GST regime, the regassification of LNG qualifies as the provision of taxable services.

Consequently, RGPPL complies with CGST and MGST regulations by fulfilling its tax liabilities and submitting required returns as per the CGST Act.

Konkan LNG Limited, a subsidiary of GAIL (India) Ltd., under the GST regime, considers LNG regassification as a taxable service, and accordingly complies with Central and Maharashtra GST obligations, filing requisite returns.

The petitioner's application before the Maharashtra Authority for Advance Ruling ( AAR ) queried whether ITC could be claimed for taxes paid on the construction of the breakwater wall, integral to their jetty.

The AAR ruled that under Section 17(5)(d) of the CGST Act, the breakwater does not qualify as "plant and machinery," thus denying ITC eligibility. This decision was upheld by the Maharashtra Appellate Authority for Advance Ruling for Goods and Services Tax ( AAAR ).

Konkan LNG argued on appeal that the breakwater qualifies as "plant and machinery," citing the exception in Section 17(5)(d) which allows ITC for goods and services used in constructing such items. The department countered that "plant" refers to locations where industrial activities or material production occurs, not civil structures like breakwater walls.

The Division Bench of Justices K. R. Shriram and Jitendra Jain observed that according to the Explanation to Section 17, "plant and machinery" must be used for outward supplies of goods or services. The breakwater wall at issue here serves to shield vessels during LNG unloading, not for generating such supplies. Consequently, the petitioner fails to meet the condition outlined in the Explanation to Section 17 necessary for claiming Input Tax Credit ( ITC ).

The High Court of Bombay upheld the rulings of the AAR and AAAR, affirming that the breakwater wall does not qualify as "plant and machinery" under GST law, thus denying ITC to Konkan LNG Limited.

To Read the full text of the Order CLICK HERE

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