Eligibility of Input Tax Credit on Structures Used for Plant and Machinery under GST
Eligibility of Input Tax Credit on Structures Used for Plant and Machinery under GST
Introduction
The issue relating to admissibility of Input Tax Credit (“ITC”) on civil structures, foundations and support systems used for installation of plant and machinery has remained one of the most litigated issues under the GST regime. Section 17(5)(c) and Section 17(5)(d) of the CGST Act create a specific restriction upon availment of ITC in respect of works contract services and construction of immovable property. However, both provisions carve out a specific exception in respect of “plant and machinery”.
The controversy generally arises because substantial industrial projects necessarily require heavy RCC foundations, structural supports, elevated towers, underground pits, support platforms, vibration-resistant structures and load-bearing systems for installation and operation of sophisticated manufacturing equipment. Revenue authorities have frequently treated such structures as “civil structures” or “immovable property” and denied ITC by invoking Section 17(5).
Recent rulings on the issue
Recent rulings delivered in the cases of KEI Industries Ltd. and Polycab India Ltd. have significantly clarified the legal position and have expanded the jurisprudence in favour of taxpayers by recognizing that foundations and structural supports which are indispensable for operation of plant and machinery are themselves included within the definition of “plant and machinery”. These rulings are likely to have substantial impact upon capital-intensive industries involving manufacturing plants, refineries, power plants, cable manufacturing facilities, steel industries, chemical plants, cement plants and similar industrial infrastructure.
The ruling in the case of Polycab India Ltd. is particularly important because it undertakes an extensive analysis of the statutory definition of “plant and machinery”, the functional role of structural support systems, and the distinction between ordinary civil construction and specialized industrial support infrastructure.
Section 17(5)(c) and (d) of the CGST Act provide that ITC shall not be available in respect of works contract services or goods/services used for construction of immovable property, other than plant and machinery. The Explanation appended to Section 17 defines “plant and machinery” in the following manner:
“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.”
The statutory definition itself is extremely important because the legislature has consciously included “foundation and structural supports” within the ambit of plant and machinery. Therefore, once a particular structure is found to be functioning as foundation or structural support of machinery used for outward supply, the embargo under Section 17(5)(c) and (d) ceases to apply.
In the case of Polycab India Ltd., the applicant was engaged in establishment of a highly sophisticated Vertical Continuous Vulcanization (“VCV”) manufacturing line for manufacture of Extra High Voltage (“EHV”) cables. The VCV process involved vertically aligned manufacturing systems extending approximately 146 meters above ground level and 17 meters underground. The machinery was installed floor-wise across a specially designed RCC tower structure consisting of seventeen floors.
The applicant demonstrated before the Authority that the entire VCV manufacturing line could not function unless the concrete RCC tower was constructed in a highly specialized manner capable of bearing massive dynamic loads, seismic loads, vibration loads and precision alignment requirements. The tower was not merely a building or housing structure. Rather, it formed an inseparable and indispensable support mechanism for the functioning of the machinery itself.
The ruling records extensive technical details regarding the functioning of each floor of the VCV system and the machinery installed therein. The Authority specifically noted that the concrete tower provided the required structural integrity, stability, alignment precision and operational efficiency necessary for manufacture of EHV cables.
One of the most important observations made by the Authority is contained in paragraph 21 of the ruling, wherein it held that structural support refers to physical or foundational elements that hold, stabilize or bear operational loads of machinery and equipment. The Authority observed that the VCV tower was an “essential structural support” to the entire VCV machine line.
Thereafter, in paragraph 22, the Authority held that the exclusions relating to “land, building or any other civil structures” cannot be interpreted in a manner that nullifies the explicit inclusion of “foundation and structural support” in the statutory definition itself. The ruling specifically clarifies that “other civil structures” would mean civil structures other than foundation and structural support to plant and machinery.
This interpretation is legally significant because it harmonizes both parts of the definition instead of allowing the exclusion clause to override the inclusion clause. If every RCC structure were to be automatically treated as a civil structure, the specific legislative inclusion of “foundation and structural support” would become redundant.
The Authority further held that the moment it is established that the construction relates to foundation or structural support of plant and machinery, the matter moves outside the ambit of Section 17(5)(c) and (d), even where the construction results in an immovable structure or even where such construction is capitalized in books of accounts.
An equally important aspect of the ruling is the reliance placed upon CBIC Circular No. 219/13/2024-GST dated 26.06.2024 relating to ducts and manholes used in optical fiber cable networks. The Circular clarified that ducts and manholes constitute part of plant and machinery because they are indispensable components of the OFC network used for outward supply of telecommunication services. The Authority applied the same principle to VCV towers and held that if ducts and manholes are eligible for ITC as part of plant and machinery, there is no reason to deny ITC on concrete support towers which are essential for functioning of the manufacturing line.
The Polycab ruling also derives support from the earlier Gujarat AAAR decision in KEI Industries Ltd., wherein ITC was allowed on concrete structures used for supporting vertical cable manufacturing lines. The AAAR in KEI Industries had recognized that specialized RCC towers constructed exclusively for supporting machinery constitute structural support systems falling within the definition of plant and machinery. The Polycab ruling treats the KEI ruling as directly applicable and follows the same reasoning.
Another important jurisprudential development arising from these rulings is the adoption of the “functional test”. The Authorities repeatedly emphasized that the determination of plant and machinery cannot be based merely upon nomenclature or form of construction. Instead, the true test is whether the structure performs an operational and functional role in the manufacturing process.
The rulings rely upon classical judicial precedents including:
Scientific Engineering House Pvt. Ltd. v. CIT
Sirpur Paper Mills Ltd.
Siemens India Ltd.
Barclay Curle & Co. Ltd.
Municipal Corporation of Greater Bombay v. Indian Oil Corporation Ltd.
These judgments consistently recognize that structures specially designed for industrial operations may constitute plant where they perform operational functions rather than merely providing shelter or accommodation.
The Supreme Court judgment in Sirpur Paper Mills Ltd. assumes special significance because the Court held that machinery embedded to earth for operational efficiency does not automatically lose its character as machinery merely because it becomes immovable. This principle substantially weakens the frequent departmental argument that every immovable industrial structure automatically falls within blocked credit provisions.
The practical implications of these rulings are extremely wide. The principles laid down therein may support ITC eligibility in respect of:
Heavy RCC foundations for turbines, boilers and reactors
Specialized support structures for cranes and conveyor systems
Vibration-resistant machine platforms
Structural steel supports integral to industrial machinery
Underground pits and machine trenches
Blast furnace support structures
Chimney support systems
Elevated process structures
Industrial silos integrated with machinery
Specialized clean-room support systems
Cable galleries and process tunnels integrated with manufacturing systems
However, these rulings do not imply that ITC will become available for every industrial building or RCC construction. The key distinction continues to remain between:
Structures used “with” the business; and
Structures used “for operation of” the machinery itself.
Ordinary factory buildings, administrative buildings, warehouses, office blocks, staff facilities and general civil infrastructure may still continue to remain outside the scope of eligible ITC if they merely house the business rather than function as operational support systems for machinery.
Therefore, documentation and technical evidence become extremely important. Taxpayers seeking to avail ITC on such structures must maintain:
Engineering drawings
Technical specifications
Load calculations
Functional diagrams
Machine integration reports
Vendor certifications
Process flow documentation
Structural necessity reports
The Polycab ruling itself contains extensive technical descriptions of floor-wise machinery operation, equipment weight, load-bearing requirements and process integration. This technical evidence played a decisive role in establishing that the structure was not an ordinary civil construction but an inseparable structural support for the machinery.
From a broader interpretational perspective, these rulings represent a shift away from rigid form-based interpretation toward a functionality-based interpretation of Section 17(5). The Authorities have recognized that modern industrial plants cannot operate without specialized engineered structures and therefore such support systems cannot be artificially segregated from the machinery itself.
The rulings also reinforce the settled principle that blocked credit provisions must be interpreted strictly. Since the legislature itself specifically included “foundation and structural supports” within plant and machinery, the exclusion relating to civil structures cannot be interpreted expansively so as to defeat the statutory inclusion.
Conclusion
In conclusion, the rulings in KEI Industries and Polycab India mark a major development in GST jurisprudence relating to blocked credits. They establish that where a structure is specially designed and functionally indispensable for installation, alignment, stabilization and operation of machinery used for outward supply, such structure would qualify as “foundation and structural support” forming part of plant and machinery itself. Consequently, ITC on inputs and input services used for construction of such structures would remain admissible notwithstanding Section 17(5)(c) and (d) of the CGST Act.
These rulings are likely to become highly influential precedents in future industrial ITC disputes and may substantially reduce litigation relating to specialized industrial infrastructure and engineering support systems.
Disclaimer
The information contained in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. Each case requires specific evaluation based on facts and applicable laws. Readers are advised to seek professional advice before taking any action.