The term under GST that needs a wider interpretation is “Plant and Machinery”, because the scope of the same goes beyond our imagination.
Why a wider interpretation is necessary?
ITC in relation to works contract services and construction services are blocked. However, the ITC is allowed where such is for Plant and Machinery. A careful interpretation in this regard could go a long way.
Explanation to Section 17(5) provides
“plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
The terms apparatus, equipment and machinery needs to be further examined:
Apparatus:
A group of instruments, tools, etc. for a specific use
Any complex instrument or machine. A collection of equipment used for a particular purpose. Is a compound instrument designed to carry out a specific function or for a particular use. Is a kind of word which as a generality extends widely and is not confined to things which are capable of being operated so as to generate some kind of result.
The word 'apparatus' would certainly mean the compound instrument or chain of series of instruments designed to carry out specific functions or for a particular use. [Commissioner of Customs v. C-Net Communication (I) Pvt. Ltd., (2007) 216 ELT 337: (2007) 10 SCR 330: JT 2007 (11) SC 329]
Equipment:
The machines tools, or instrument etc. necessary for a particular kind of work or activity
Machinery:
In a generic sense, would include all appliances and instruments whereby energy or force is transmitted and transformed from one point to another.
Case Laws:
In CIT v. Kanodia Warehousing Corporation - MANU/UP/0711/1979 : [1980 121 ITR 996 (All)], the Division Bench of the Allahabad High Court has considered the meaning of “plant” and held that in order to find out if a building or structure or part thereof constitutes “plant”, the functional test must be applied. It must be seen whether building or structure or part thereof, constitutes an apparatus or a tool of the taxpayer or whether it is merely a space where the taxpayer carries on his business. If the building or structure or part thereof is something by means of which the business activities are carried on, it would amount to a plant but where the structure plays no part in carrying on of those activities but merely constitutes a place within which they are carried on, it cannot be regarded as a plant.
In another decision reported in CIT v. Karnataka Power Corporation MANU/SC/0585/2000 : [2001] 247 ITR 268 (SC), the Supreme Court held as follows :
“The question whether a building can be treated as plant, basically, is a question of fact and where it is found as a fact that a building has been so planned and constructed as to serve an assessee’s special technical requirements, it will qualify to be treated as a “Plant” for the purposes of investment allowance. Held accordingly, that there was a finding by the fact-finding authority that the assessee’s generating station building was so constructed as to be an integral part of its generating system. It was “plant” entitled to an investment allowance.”
The ITAT, in an appeal ITA No. 7111/Mum/2011, vide order dated 14-3-2014, made very interesting observations
The Hon’ble Supreme Court in the case of Scientific Engineering House Pvt. Ltd. v. Commissioner of Income Tax, 1986 (157) ITR 0086 S.C. relied upon certain following foreign decisions while dealing with the explanation ‘Plant’ and gave it a wide meaning under the provisions of Income Tax law in the following manner :
“The classic definition of ‘plant’ was given by Lindley, L.J. in Yarmouth v. France, [1887] 19 Q.B.D. 647, a case in which it was decided that a cart-horse was plant within the meaning of Section 1(1) of Employers’ Liability Act, 1880. The relevant passage occurring at page 658 of the Report runs thus:-
“There is no definition of plant in the Act: but, in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business, -not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business.”
Interpretation:
A careful interpretation could also provide credit for structures that seem like a civil structures but are essential part of plant and machinery. The interpretation could go on classifying things like storage tanks and factory buildings under the definition of P&M and the credit could be eligible.
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