Applicability of GST – ITC Availment & Utilisation for Construction of Silos

Before we start we must understand the meaning of Silo – A silo is the on-site storage container that allows for the storage and distribution of different raw materials and finished products.

There is a gross doubt across cement industry whether to avail & utilise GST– ITC paid for the construction of civil portion of silos. Since Land, building or any other civil structures is specifically included in the block credit list.

Analysis of Present Scenario

1) Extract of the GST Act related to Input Tax Credit

As per section 17(5) (c) & (d) of the CGST Act 2017 listed for Blocked Input Tax Credit, input tax credit paid for the following clauses is not available. The clauses are as follows:-

(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 reconstruction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.

The explanation to Section 17 defines the meaning of “plant & machinery” as follows: “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 support but excludes—

(i) Land, building or any other civil structures;

(ii) Telecommunication towers; and

(iii) Pipelines laid outside the factory premises.

Thus, from the above clauses it is interpreted that GST – ITC is available only for the construction activity of “Plant & Machinery”.

2) Can we treat silos as plant & machinery to avail & utilise GST paid as ITC ?

Now, the question arises whether Silo can be classified as “Plant & Machinery” and GST paid on the same can be availed as Input Tax Credit?

To ascertain the same we have analysed different case studies under different act. Extract summary of two such case laws are listed below:-

a) DCIT vs M/s. Chettinad Cement Corporation – Income Tax Act

In Income Tax case between DCIT vs M/s. Chettinad Cement Corp., the department has classified silo as “Buildings” and denied additional depreciation on the same whereas the Assesse has classified the same as “Plant & Machinery” and claimed depreciation accordingly.

In this case, ITAT has clarified – The cement silos are structures specifically designed for preserving the cement from dampening and to keep the finished product intact. Any leakage of wall, the products will be got damaged and cannot be put to use and the entire production gets spoiled. Therefore, the cement silos are required specific design and construction and can be used only for the purpose of preserving the finished product of cement. Such structures cannot be used for residential purposes by human beings. Therefore, cement silos cannot fall under the category of buildings for the purpose of depreciation. As held by Hon’ble Supreme Court in 247 ITR 268, the buildings specifically designed and integral part of generating station should be considered as plants entitled for higher depreciation. Similarly, the cement silos are to be treated as integral part of the cement plant for storage and distribution of final product.

“Therefore, we are considered the opinion that the cement silos are to be treated as plant and eligible for higher rate of depreciation.”

From the above case law one thing is to be noted that “the cement silos are required specific design and construction and can be used only for the purpose of preserving the finished product of cement. Such structures cannot be used for residential purposes by human beings.” Thus, cement silos were classified as “Plant & Machinery”.

The detailed judgement can be read from the below-mentioned link-