Disallowed ITC on inputs used for pipelines laid outside factory premises being not covered within plant and machinery

The AAR, Maharashtra in the matter of M/s Mumbai Aviation Fuel Farm Facility Pvt. Ltd. [Order No. GST-ARA-126/2019-20/B-107 dated December 1, 2022] has ruled that, pipelines laid outside factory premises are not covered within term 'plant and machinery' as per Explanation to Section 17(5)(c) and 17(5)(d) of the Central Goods and Services Tax Act, 2017 ("the CGST Act"), and therefore the inputs used for construction of such pipeline outside factory are not eligible to Input Tax Credit ("ITC").

Facts

M/s Mumbai Aviation Fuel Farm Facility Pvt. Ltd. ("the Applicant") is in the business of providing fuel infra services wherein the Automatic transmission Fluid ("ATF") of oil a joint venture company is stored in the storage tank. The Applicant is setting up a Connector Pipeline for Fuel Hydrant System and the fuel is supplied to the Airlines. The Applicant also submitted that 10 per cent of total length of Connector Pipeline falls within their premises and rest of pipeline falls in area which is outside project sites.

The Applicant contended that the Connector Pipeline Laying and other associated works form the important part of Fuel Hydrant System and without this activity, the fuelling to the airlines will not take place. Therefore, the Applicant stated that the Connector Pipelines should be considered as the ‘plant and machinery’ integral to the facility serving the aircraft fuelling needs. Therefore, the Applicant should be entitled to claim ITC on the Goods and Services Tax ("GST") paid on works done for entire Connector Pipeline.

Issue

Whether the Applicant is entitled to seek ITC on the GST paid on goods and services used for construction of Connector Hydrant Pipeline?

Held

The AAR, Maharashtra in Order No. GST-ARA-126/2019-20/B-107 held as under:

• Observed that, as per explanation to the Section 17 of the CGST Act, ‘Plant and Machinery’ does not include the Connector Pipeline laid outside the factory premises. Therefore, the ITC on goods and services used for construction of the Connector Pipeline laid outside the factory premises is not available in terms of Section 17(5)(c) and 17(5)(d) of the CGST Act.
• Noted that, the sole issue involved is related to the ITC with regard to the Connector Pipeline and the Applicant has failed to establish how it is entitled to ITC in the presence of the express legal bar to claim such ITC. Further, apart from the entitlement of ITC, with respect to the 90% of the Connector Pipeline outside their premises, there is no other issue involved.
• Held that, the Applicant will not be able to avail ITC on the inputs used for construction of Connector pipeline outside factory premises.

Relevant Provisions

Section 17(5) of the CGST Act

"Apportionment of credit and blocked credits-

(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:-

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

(aa) vessels and aircraft except when they are used––

(i) for making the following taxable supplies, namely:-

(A) further supply of such vessels or aircraft; or

(B) transportation of passengers; or

(C) imparting training on navigating such vessels; or

(D) imparting training on flying such aircraft;

(ii) for transportation of goods;

(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):

Provided that the input tax credit in respect of such services shall be available-

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

(ii) where received by a taxable person engaged-

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

(b) the following supply of goods or services or both-

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.]

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation––For the purposes of clauses (c) and (d), the expression "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

(e) goods or services or both on which tax has been paid under section 10;

(f) goods or services or both received by a non-resident taxable person except on goods imported by him;

(g) goods or services or both used for personal consumption;

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and

(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.

(6) The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed.

Explanation–– For the purposes of this Chapter and Chapter VI, the expression "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."