GST: AAR allows ITC on VCV Tower Construction used for manufacturing activities:

The Gujarat Authority for Advance Ruling (GAAR) on 8 May ruled in favour of M/s. Polycab India Limited and held that Input Tax Credit (ITC) is admissible on the construction of specialized Vertical Continuous Vulcanization (VCV) Towers used in the manufacturing of high-voltage cables. The Authority observed that the structure was an integral part of the manufacturing process and could not be treated as a mere civil structure or building for the purpose of Section 17(5)(d) of the CGST Act.

“The VCV Tower is not merely a building but forms an essential and functional part of the manufacturing apparatus.”

Polycab India Ltd., engaged in the manufacture of wires and cables, had constructed a multi-storied VCV Tower designed specifically for the production of High Voltage (HV) and Extra High Voltage (EHV) cables. The applicant submitted that the vertical structure was necessary to prevent sagging of insulation during the vulcanization process and was specifically engineered to support the manufacturing line and heavy machinery installed within it.

The applicant sought an advance ruling on whether ITC on goods and services used in constructing the tower would be blocked under Section 17(5)(d) of the CGST Act, which restricts credit on construction of immovable property other than plant and machinery.

The Authority examined the functional role of the tower and noted that the structure was inseparably connected with the manufacturing activity. It observed that the VCV Tower was specially designed to house the production line and ensure operational efficiency of the machinery involved in cable manufacturing.

“Without the vertical structure and technical support provided by the tower, the manufacturing process itself cannot function in the intended manner.”

Relying upon the functional test and judicial precedents including the decision of the Supreme Court in Sirpur Paper Mills Ltd., the Authority held that structures erected primarily to support and enable operation of plant and machinery would qualify as part of the plant itself.

The GAAR further observed that the tower constituted “foundation and structural support” for plant and machinery, which falls within the inclusive scope of the definition provided in the Explanation to Section 17 of the CGST Act. Consequently, the restriction relating to immovable property under Section 17(5)(d) was held to be inapplicable.

Thus, the Gujarat AAR ruled that Polycab India Limited is entitled to avail ITC on goods and input services used in the construction of the VCV Tower used for manufacturing activities.

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