Availability of Input Tax Credit on Factory Building

CA Manoj P Gupta

Query : A Company is setting up its Plant in Pithampur. The Construction of factory building is going on. The Input Tax Credit of Input & Input Services used in the construction of building  is not available in view of the provisions of the block credit as provided in the Sec 17(5) of CGST Act. But whether the credit of input & input services used for the construction of structure or foundation for erection /installation  plant & machinery will be available ?Whether the same can be treated as part of plant & machinery ?

Response :

Building and Plant & Machinery are capital goods. As per the provisions of GST, entire Input Tax Credit of GST paid on capital goods will be available in first year itself, as these are ‘goods’, except Input Tax Credit of Input & Input Services used in the construction of building. Thus the ITC of Palnt & Machinery is available but not of building.

But what will happen to the  input tax credit in respect of input & input services used for the construction of structure or foundation for erection /installation of  plant & machinery which are integral part of plant & machinery .Can ITC of the same be availed treating them as part of plant & machinery ? The provisions related to the same are   discussed in the below paras :

ITC is available on Capital Goods. ‘Capital Goods’ is defined in section 2(19) of CGST Act .  As per section 2(19) of CGST Act “Capital goods” means goods, the value of which is capitalised in the books of account of the person claiming the credit and which are used or intended to be used in the course or furtherance of business –

Meaning of ‘capital goods’ for the purpose of ITC has been further clarified. Accordingly, “capital goods” shall include “plant and machinery” as defined in the Explanation to section 17 of CGST Act – Explanation below Rule 45 of CGST and SGST Rules, 2017.

For the purpose of Chapter V of CGST Act (Input Tax Credit) and Chapter VI of CGST Act (Registration), expression ‘plant and machinery’ is defined as follows [Explanation to section 17 of CGST Act].

“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.

Thus for the purpose of claiming Input Tax Credit , foundation and structural support are included in the definition of Plant & Machinery and therefore the ITC can be very well claimed for the same.

Following cautions to be taken :

• Input tax credit of tax  is not allowed if depreciation is claimed on tax component.
• Where the registered taxable person has claimed depreciation on the taxcomponent of the cost of capital goods under the provisions of the Income-Tax Act, 1961, the input tax credit on the said tax component shall not be allowed – section 16(3) of CGST Act.
• Credit of input tax in respect of pipelines laid outside the factory and telecommunication towers fixed to earth by foundation or structural support including foundation and structural support are not eligible for input tax credit – Explanation to section 17 of CGST Act.

Suggestions :

• Civil work of entire factory building is normally awarded to a single contractor. The contractor raises  running bills on different stages of construction.  For claiming ITC a tax invoice is required. Hence it is advisable to take a separate tax invoice for foundationandstructural
• The vendors of plant and Machinery may be asked to provide the dimensions & details in relation to the civil work to be done in respect of foundation & structural support. This will help in justifying the claim of treating such civil work as part of plant & machinery.

Project architect’s certificate can be taken certifying the portion of civil work as foundation and structural support of plant & machinery.

(Author is associated with K K & Company Chartered Accountants, Indore)