GST ITC Denied for Cable Manufacturer as AAR Cites ‘Own Use’ u/s 17(5)(d) [Read Order]

KEI Industries, an Ahmedabad-based power cable manufacturer collaborating with Swiss firm Brugg Kabel AG, had sought clarity on availing ITC for constructing the specialized tower. The structure features passenger lifts, material handling systems, and fire safety infrastructure to support the VCV process, a vertical cable insulation method requiring precision engineering. The company argued the concrete foundation and support formed integral parts of their manufacturing "plant and machinery," making them eligible for ITC under Section 17(5) of CGST Act.

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The AAR bench analyzed the Supreme Court's Safari Retreats (2024) judgment which established key tests for ITC eligibility on immovable property constructions. The apex court had ruled that buildings used for business operations generally don't qualify for ITC unless they meet the "functionality test" proving the structure itself functions as plant equipment rather than merely housing it.

Members Kamal Shukla and P.B. Meena observed that KEI's concrete tower, while technically sophisticated, primarily served as structural support for manufacturing equipment rather than functioning as plant machinery itself. The ruling noted: "When construction is for the taxable person's own use either for personal purpose or as a business setting the input tax chain breaks under Section 17(5)(d)."

The authority distinguished KEI's case from CBIC's 2024 circular allowing ITC for optical fiber cable ducts, clarifying that the exception applies only to components directly functioning as network apparatus. While KEI cited multiple precedents including Sirpur Paper Mills (1979) and Scientific Engineering House (1986), the bench found these income tax rulings inapplicable to GST's specific blocking clauses.

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The AAR stated that KEI failed to demonstrate the tower wasn't for "own account" use, a prerequisite under the Safari Retreats test. The structure's exclusive dedication to cable manufacturing operations meant it functioned as business premises rather than standalone plant equipment.

For KEI Industries, this means the substantial GST paid on cement, steel, and construction services for their ₹300-crore VCV tower project won't qualify for input credits. The company may need to absorb these costs or explore alternative fiscal strategies for future expansions.

In conclusion, the applicant is not eligible to avail ITC on inputs and input services used for construction of concrete tower to support and erect the VCV lines at the factory of the applicant, for manufacturing EHV cables in terms of Section 17(5)(c) and (d) of the CGST Act, 2017.

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