No Proportionate GST ITC Admissible for Supply of Steel, Cement and Installation Services Related to Gantry-Equipped Factory Construction: AAR [Read Order]

With regards to the applicability of Input Tax Credit ( ITC ) under GST ( Goods and Services Tax ) for factory construction-related activities, the Gujarat Authority for Advance Ruling (AAR) has held that no proportionate ITC is admissible for the supply of steel, cement, installation services, or capital goods used in the construction of an immovable property in the form of a gantry-equipped factory building.

The applicant, HMSU Rollers (India) Pvt. Ltd., sought clarity on whether ITC could be claimed on inputs such as steel, cement, and erection services related to a Pre-Engineered Building (PEB) that was designed to house a 10-ton crane system.

The applicant contended that the PEB structure, including gantry beams and embedded supports, qualified as "plant and machinery" under Section 17(5) of the CGST Act, as it served a functional business purpose integral to crane operations.

However, the AAR, after detailed examination of the facts and the legislative framework, held otherwise. It, after noting the recent Supreme Court judgment in Safari Retreats Pvt. Ltd., the authority clarified that input tax credit on goods or services used for the construction of immovable property is blocked under Sections 17(5)(c) and 17(5)(d) of the CGST Act, 2017, unless it qualifies as "plant and machinery" as defined under the law.

The authority pointed out that civil structures, buildings, and land are expressly excluded from the definition of plant and machinery, even if such structures support machinery like overhead cranes. The fact that the crane load was structurally supported by the PEB did not convert the PEB into plant and machinery, nor did it make the crane’s structural supports separately eligible for ITC.

Further, the authority observed that rails, electrification systems, and other embedded capital goods installed for crane operation also became part of the immovable property and hence fell under the ITC restriction.

The authority declined to accept the applicant’s argument that proportionate credit should be allowed on the weight contribution or functionality basis, noting that GST Act draws a clear distinction between movable equipment used for business and immovable civil constructions even if the latter contribute indirectly to business operations.

Thus, the bench of Kamal Shukla (SGST Member ) and P.B. Meena ( CGST Member ) ruled that No proportionate ITC is admissible for supply of thc following goods and services:

a) Steel, Cement and other consumables etc., to the extent of their actual usage in the execution of works contract service when supplied for construction of immovable property, in the form of the factory which is an Intcgratcd factory building with Gantry beam, which in tum is used for mounting across thc pre-cast concrete beams, poles over which the crane would be operated;

b) Installation and Erection Services of the PEB when supplied for construction of immovable property, in the form of the factory which is an Integrated Factory Building with Gantry Beam, which in turn is used for mounting across the pre-cast concrete beams, poles and over which the crane would be operated;

C ) Other capital goods like rails, electrification, etc. installed or erected for smooth operation of the crane.

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