The Authority for Advance Rulings, Gujarat in the case of M/s. KEI Industries Ltd., vide Case No. GUJ/GAAR/R/2025/06 (In Application No. Advance Ruling/SGST & CGST/2024/AR/12) dated 21.03.2025, relies on the Supreme Court judgment in Safari Retreats Pvt. Ltd., and provides it ruling that “functionality test” must be applied, i.e. if a structure/building is so integrally connected with the manufacturing or business output that it becomes a functional part of the process, it may be treated as plant. However, even if it is a plant, ITC is not allowed, if the construction is on the recipient’s own account, and the same is used by the person as a setting for business, rather than being supplied as a service.

Facts of the case: In this case, the Applicant is engaged in the manufacture and supply of Extra-High Voltage (EHV’), Medium Voltage (MV’) and Low Voltage (LV) power cables. The applicant is procuring various inputs and input services in order to construct the outer square structure with concrete columns and concrete foundation to support the erection of the VCV (Vertical Continuous Vulcanization) line. They are of the view that ITC on inputs and input services is received by them for the construction of the concrete structure, used for structural and foundational support of the VCV line is available to them in terms of sections 16 & 17 of the CGST Act, 2017.

The Applicant submitted that VCV line is machinery, used for manufacturing taxable outward supplies. It qualifies as machinery/apparatus within the meaning of the Explanation to Section 17, and is directly used for taxable outward supplies.

The concrete structure (tower) is not an independent immovable property but serves as the foundation/structural support for the VCV line. The inputs and services for building the structure are directly linked to the installation and function of the VCV line. Therefore, it falls within the inclusive scope of the Explanation to Section 17(5).

Further, the Applicant relied on Various judicial pronouncements establishing that where civil structures are integral to the functioning of plant and machinery, they are eligible for credit.

Issue: Whether the applicant is eligible to avail Input Tax Credit on inputs and input services used for construction of the concrete tower, which serves as a foundational and structural support for the VCV line, in light of Section 17(5)(c) and (d) read with the Explanation to Section 17 of the CGST Act, 2017.

Related Legal Provisions for references:

Section 17(5)(c) and (d) of the CGST Act disallow ITC on:

• Works contract service for construction of immovable property (other than plant and machinery);

• Goods/services used for construction of immovable property (other than plant and machinery) on own account.

However, Explanation to Section 17 defines plant and machinery as Apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services. It includes such supports but excludes land, building, civil structures, telecom towers, pipelines outside factory.

AAR’s Rulings : The AAR, Gujarat observed that the tower is constructed for use in its own factory, as a part of its own manufacturing process. As per Safari Retreats, if it is for own use as a setting for business, ITC is not allowed. Further, the applicant failed to prove that the concrete tower qualifies as a plant using the functionality test. The tower is not directly involved in making outward supplies; it is more akin to a civil structure or building used to house/support actual machinery.

Also, the AAR referred Circular No. 219/13/2024-GST dated 26.06.2024, which clarifies  availability of input tax credit on ducts and manholes used in network of optical fiber cables (OFCs) in terms of section 17 (5) of the CGST Act, 2017. Accordingly, Concrete tower, unlike ducts or manholes, is not directly part of the machinery or transmission system producing taxable output.

The AAR ruled that concrete VCV tower is an immovable property, Constructed on own account, not qualifying as “plant or machinery” per Section 17(5)(d) and Supreme Court ruling. Therefore, ITC is not eligible under Section 17(5)(d) of the CGST Act.