In re KEI Industries Ltd (GST AAAR Gujarat)
Gujarat Appellate Authority for Advance Ruling (AAAR) has overturned a decision of the Gujarat Advance Ruling Authority (GAAR) and permitted KEI Industries Ltd. to avail input tax credit (ITC) on inputs and services used for constructing a vertical continuous vulcanization (VCV) tower at its factory for manufacturing extra high voltage (EHV) cables.
The dispute centred on whether the concrete VCV tower, which houses heavy machinery and facilitates the cable manufacturing process, could be classified as part of “plant and machinery” under section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017, thereby qualifying for ITC.
Manufacturing Process and Structure
The VCV process involves multiple floors with specialised equipment such as gravity feed rooms, extruders, heating tubes, accumulators, cooling systems, and pressure vessels. Each floor houses heavy components, some weighing over 26 tonnes, requiring a robust concrete structure for support, stability, and vibration absorption.
The appellant argued that the concrete tower is integral to the VCV manufacturing line, acting as structural support for plant and machinery. The construction was executed through a works contract awarded to Suraj Buildcon.
Legal Provisions Examined
Section 17(5) of the CGST Act blocks ITC on works contracts and construction of immovable property, except where such property qualifies as plant and machinery. The explanation to section 17(5) defines “plant and machinery” as apparatus, equipment, and machinery fixed to the earth by foundation or structural support, including such foundations and supports, but excluding land, buildings, civil structures, telecommunication towers, and pipelines laid outside factory premises.
The appellant maintained that since the tower is not a building or general civil structure but rather a foundation and structural support for the VCV line, it falls within the definition of plant and machinery.
