In Re: Nipro India Corporation Private Limited
GST
2018 (10) TMI 745 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2018 (18) G. S. T. L. 289 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 28-5-2018
GST-ARA-33/2018-19/B-41
GST
SHRI B.V. BORHADE AND SHRI PANKAJ KUMAR, MEMBER
PROCEEDINGS
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by Nipro India Corporation Private Limited, the applicant, seeking an advance ruling in respect of the following question :
“Whether on facts and circumstances of the case, the input tax credit of tax paid on costs proposed to be incurred in relation to activities mentioned in Annexure 4 can be treated as 'admissible under the
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effect from 1st July 2017, is located at Plot No. E-1, MIDC, Kesurdi, Khandala, Taluka-Khandala, Dist. Satara-412 801.
1.2 The Applicant is engaged in the manufacturing of medical equipments such as dialyzers, blood tubing sets, arterial fistulas, syringes and needles.
1.3 The Applicant runs a manufacturing facility at Shirwal, Maharashtra. Goods manufactured by the Applicant are sold within India and also exported outside India.
1.4 The Applicant proposes to undertake an extension of its manufacturing facility ('Extension Project') located at MIDC, Kesurdi, Khandala, Taluka-Khandala, Dist. – Satara. The Applicant has awarded a contract to a vendor for the execution of this Extension Project.
1.5 The list of activities and nature of costs proposed to be undertaken/ incurred under the Extension Project are provided in Annexure 4.
1.6. Based on the activities, the costs proposed to be incurred under the Extension Project can be broadly bifurcated into the following categories:
i. C
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on of admissibility of input tax credit in respect of the aforementioned activities
The Applicant prefers to present the application before this Hon'ble Authority on the following, among other grounds, each of which is taken in the alternative and without prejudice to the others.
1. Applicant's interpretation of law or facts:
1.1 According to Section 16 (1) of the CGST Act, 2017, every registered person is entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used by him in the course or furtherance of his business.
1.2 Accordingly to Section 16 (2) of the CGST Act, 2017 read with the second proviso to the section, among others, the following conditions need to be satisfied for the purpose of availing input tax credit:
i. The recipient is in possession of a tax invoice or debit note issued by a registered supplier;
ii. The recipient has received the goods or services or both;
iii. The tax charged in res
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ccount 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 re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
Explanation.-For the purposes of this Chapter and Chapter VI, the expression “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 budding or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
“(emphasis supplied)
1.4 The above provision suggests that no input tax credit would be available in respect of:
i. works contract services received for construction of an immovable propert
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chanical Works' and 'Electrical Works' is provided in Annexure 4.
1.6 The term 'plant and machinery' has been defined under Explanation II to Section 17 (5) of the CGST Act, 2017 to mean any apparatus, equipment and machinery fixed to earth by foundation or structural support and used for making outward supplies. However, 'plant and machinery excludes land, building, or any other civil structures, telecommunication towers and pipelines laid outside the factory premises. Therefore, it is evident that input tax credit of 'plant and machinery', unless specifically excluded, is available when used for making outward supplies
1.7 The Applicant submits that none of the costs mentioned in Annexure 4 fall within the scope of exclusions specified under Explanation Il to Section 17 (5) of the CGST Act, 2017. Therefore the question that merits consideration is whether these 'plant and machinery can be said to have been used for making outward supplies.
1.8 The usage of plant and machinery for
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edical purposes.
1.10. Similarly, the plumbing work is essential/ indispensable in the manufacturing facility because the products manufactured by the Applicant require purified RO water to adhere to minimum quality requirements, failing which the products manufactured will not be suitable for their required medical purposes. The manufacturing process results into discharge of hazardous waste which is required to be disposed in an environment friendly manner, failing which the Applicant would be in violation of statutory environmental regulations.
1.11. The issue of determining whether goods can be said to be used in the manufacture of goods or not has been dealt with by the Supreme Court in the case of J.K. Cotton Spinning and Weaving Mills co. Ltd. vs. Sales Tax Officer, Kanpur [1997 (91) E.L.T. 34 (S.C.)) =1964 (10) TMI 2 – SUPREME COURT OF INDIA [Enclosed as Annexure 5). In this case, the issue was regarding the eligibility of goods to be included in the registration certificate
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uld, in our judgment, fall within the expression “in the manufacture of goods.”
9. In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, by commercially inexpedient goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment.
12. …. in a factory manufacturing cotton and other textiles, certain electrical equipment in the present stage of development would be commercially necessary. For instance, without electric lighting it would be very difficult to carry on the business. Again electrical humidifiers, exhaust fans and similar electrical equipment would in the modern conditions of technological development normally be regarded as equipment necessary to effectually carry on the manufacturing process. We are not prepared to agree with the High Court that in order that “electrical equipment” should f
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fall under the definition of plant and machinery. Since the same are used for making outward supplies, the input tax credit in relation to costs incurred for such activities should be available.
Conclusion:
Basis the above submissions, in the current case, the Applicant believes that input tax credit in relation to costs incurred for 'Mechanical Works' and 'Electrical Works' should be admissible as such costs pertain to construction of plant and machinery.
Further to above submissions, we most respectfully pray that:
* Allow us to reiterate all the submissions without prejudice to one another;
* Grant a personal hearing to put forth our contentions and explain our submissions before passing any order in this regard;
* Allow us to amend, alter and add to the present application;
* Allow us to produce additional documents and other material during the time of Personal Hearing; and
* Pass such orders and directions as may be deemed proper and necessary.
03. CONTENTION – AS
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ed at Sr. No. 3 & 4 of Annexure -4 (Mechanical & Electrical Works) to the application is available to the applicant, in absence of any such restriction. The applicant has already agreed that no ITC is available in relation to civil works. As such it appears that there is no infirmity in the interpretation of the applicant.
04. HEARING
The case was taken up for Preliminary hearing on dt. 28.032018 with respect to admission or rejection of present application when Ms. Aabha S Lekhak, Sh. Kanval Ashar and Mr. Shivraj Mhaske, Advocates along with Sh. Manoj Pawar, Senior Executive appeared and made oral submissions requesting for admission of application as per their contentions made in ARA. (They were orally requested to make submissions with respect to specific contracts in execution of work in the project and were also requested to clarify in detail their eligibility of cenvat credit in respect of all sub-heading under mechanical and electrical works as given in their ARA individually
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number ('GSTIN') AADCN1920C1ZZ with effect from 1st July 2017. The Applicant is engaged in the manufacturing of medical equipment such as dialyzers, blood tubing sets, arterial fistulas, syringes and needles.
2. The Applicant runs a manufacturing facility at Shirwal, Maharashtra. Goods manufactured by the Applicant are sold within India and also exported outside India. The Applicant proposes to undertake an extension of its manufacturing facility ('Extension Project') located at MIDC, Kesurdi, Khandala, Taluka- Khandala, Dist. – Satara. The Applicant has awarded a contract to a vendor for the execution of this Extension Project. The list of activities and nature of costs proposed to be undertaken/ incurred under the Extension Project are provided in Annexure 4 by the Applicant.
3. Further factual position as stated by the applicant in his application is as under
He submitted that based on the activities, the costs proposed to be incurred under the Extension Project can be broadly b
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ed break up of activities proposed to be undertaken in the nature of 'Mechanical Works' and 'Electrical Works' is provided in Annexure 4.
In view of the above submissions and contentions of the applicant we first of all refer to the provisions under the GST Act with respect to availment of input tax credit which would be applicable to the facts of the present ease as stated and submitted by the applicant.
We find that only two sections of the GST Act being, Section 16- in respect of eligibility and conditions for taking input tax credit and Section 17 which provides for apportionment of credit and blocked credits would require reference in respect of the questions raised in the present application.
In view of Section 16 and Section 17 of the GST Act being extremely important and relevant for decision in the present case, both these Sections are reproduced as under:-
Section 16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and i
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fore or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to
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services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.
(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
(4) A banking company or a financi
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g taxable supplies, namely:-
(A) further supply of such vehicles or conveyances ; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such vehicles or conveyances;
(ii) for transportation of goods;
(b) the following supply of goods or services or both-
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
(ii) membership of a club, health and fitness centre;
(iii) rent-a-cab, life insurance and health insurance except where
(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or
(B) such inward supply of goods or services or bo
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both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person except on goods imported by him;
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.
(6) The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed.
Explanation.For the purposes of this Chapter and Chapter VI, the expression “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 f
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s prescribed.
We find that apart from conditions as laid down under Section 16 of the GST Act, Section 17 provides for restrictions and factual position and situations where ITC would not be available. The same are very clear from plain reading of Section 17 as referred and detailed above.
Thus in view of the above factual position we find that at the time of the hearing we had requested the applicant that taking into consideration the specific contracts in execution of the project, they were required to clarify in detail their eligibility of input tax credit in respect of all sub heading under mechanical and electrical works as given in their ARA individually.
We find that the applicant as per request above at the time of the Final Hearing had submitted details with respect to nature. function, use, utility and its relation to plant or machinery or to their business which would be relevant to ascertain their eligibility for ITC claims in their application. The details as submitted
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s is structural support for mechanical and electrical works used for making outward supplies.
Explanation to sub section V and VI of Section 17 of the CGST Act.
Not admissible as the civil work is not in relation to plant and machinery and is not covered in the explanation.
4
Mechanical work
Plumbing
Internal and domestic water distribution supply system
Yes
Internal and domestic water distribution supply system is used to provide drinking water and water for sanitation to the employee working on the production
Relevant extracts of the factories act 1948.
Not admissible as the goods are used construction of immovable for property which are not used for making outward supply of goods or services but are installed in order to comply with the mandatory requirements of Section 18 & 19 of the Factories Act, 1948 and Rule 49 of Maharashtra Factory Rules 1963 and therefore not eligible as per Section 17(5) of the GST Act.
5
External sewage system
Yes
The external
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s.
Explanation to sub section V and VI of Section 17 of the CGST Act.
Admissible
9
Dismantling Work
No
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Not Admissible
10
Fire Protection Work
Internal Fire Hydrant
System
Yes
Equipments or apparatus used for fire protection on the production floor.
Relevant extracts of the Factories Act, 1948 and Maharashtra Factories Rules, 1963.
Not admissible as it does not fall under the definition of P&M as given in Explanation in Section 17 of the GST Act
11
Sprinkler Works
Not admissible as it does not fall under the definition of P&M as given in Explanation in Section 17 of the GST Act
12
Extinguishers
Not admissible as it does not fall under the definition of P&M as given in Explanation in Section 17 of the GST Act
13
Fire Documentation
Not admissible as it does not fall under the definition of P&M as given in Explanati
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floor.
Explanation to sub section V and VI of Section 17 of the CGST Act.
Admissible
21
Steam Supply System
Steam is used in the production process to maintain the specific required temperature. In order to manufacture Hollow Fibres, constant supply of steam is required to maintain the specific temperature.
Explanation to sub section V and VI of Section 17 of the CGST Act.
Admissible
22
Process Chilled Water Supply System
The processed chilled water supply system is essential for supplying chilled water for production or product cooling process. In order to manufacture Hollow Fibres, constant supply of processed chilled water is required to maintain the specific temperature.
Explanation to sub section V and VI of Section 17 of the CGST Act.
Admissible
23
Purified Water Supply System
The purified water supply system is essential for supplying purified water to be used in the production process.
Expl
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CGST Act.
Admissible
27
HSD-Oil Supply System
The HSD-Oil supply system is used to supply fuel for the boiler for steam generation. Steam is used in the production process to maintain the specific required temperature. In order to manufacture Hollow Fibres, constant supply of steam is required to maintain the specific temperature.
Explanation to sub section V and VI of Section 17 of the CGST Act.
Admissible
28
Electrical Works
Sub-Station Work
Yes
The sub-station is used for electricity supply for production / utilities for production.
Explanation to sub section V and VI of Section 17 of the CGST Act.
Admissible except for civil construction work if any.
29
DG Set Power Supply System
The DG set power supply system is used for electricity back up for production / utilities for production
Explanation to sub section V and VI of Section 17 of the CGST Act.
Admissible except for civil construction work if any.
30
&n
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are an essential facility.
Relevant extracts of the Maharashtra Factories Rules. 1963.
Admissible except for civil construction work if any.
34
Telephone System
Intercom and external communication systems is a basic necessity to facilitate communication within and outside the factory premises.
Relevant extracts of the Maharashtra Factories Rules. 1963.
Admissible except for civil construction work if any.
35
LAN System
LAN connectivity of computers on production floor with main server used for configuring commands for operation of machines.
Explanation to sub section V and VI of Section 17 of the CGST Act.
Admissible except for civil construction work if any.
36
Fire Alarm System
Fire alarm system for production floor.
Relevant extracts of the Maharashtra Factories Rules. 1963.
Admissible except for civil construction work if any.
37
Public Address System
Public address s
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