In re Cadila Pharmaceuticals Limited (AAR Gujarat)
The Authority for Advance Ruling, Gujarat examined whether the applicant was eligible to avail input tax credit (ITC) on input services used for construction of foundation and structural support for plant and machinery installed within its factory, in terms of Section 17(5)(c) of the CGST Act, 2017.
The applicant, a manufacturer of Active Pharmaceutical Ingredients (APIs), had set up a Solvent Recovery Plant (SRP) and a Mobile Effluent Treatment Plant (METP) to enhance operational efficiency and manage solvent recovery and wastewater treatment. These plants involved installation of various equipment such as reactors, distillation columns, pumps, chillers, cooling towers, and storage tanks. These machines required specially engineered Reinforced Cement Concrete (RCC) foundations and steel structural supports to ensure stability, alignment, and safe operation due to load, vibration, and operational requirements.
The applicant engaged contractors for construction services relating to these foundations and structural supports and availed ITC on such services. The question raised was whether such ITC was admissible or restricted under Section 17(5)(c), which disallows ITC on works contract services used for construction of immovable property, except where such services are used for construction of plant and machinery.
The applicant argued that the input services were used in the course or furtherance of business under Section 16, as the SRP and METP were integral to the manufacturing process. It was further contended that the equipment installed qualifies as “plant and machinery” since it consists of apparatus and machinery used for making outward supplies. The applicant also relied on the Explanation to Section 17, which includes foundation and structural support within the scope of “plant and machinery.” It was emphasized that ITC was claimed only for structural support directly attributable to machinery and not for general civil construction.
