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.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.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.The AAAR noted that the GAAR had not determined whether the tower forms part of plant and machinery. After examining the layout and operational requirements of the VCV line, the AAAR agreed with the appellant that the concrete structure is essential for supporting and erecting the VCV lines, enabling accurate positioning and functioning of equipment.The authority observed that “other civil structures” in the exclusions clause refers to structures other than foundations or structural supports for plant and machinery. Since the tower serves as a structural support, ITC on its construction is not barred under section 17(5)(c) and (d).The AAAR also referred to the amendment in section 17(5)(d) through the Finance Act, 2025, which replaced “or” with “and”, though yet to be notified.The AAAR cited CBIC Circular No. 219/13/2024-GST (26 June 2024), which clarified that ducts and manholes used in optical fibre cable networks qualify as plant and machinery, allowing ITC on their construction. Drawing an analogy, the authority reasoned that if ITC is not barred for such components, it should not be barred for the VCV tower, which also serves as structural support to machinery used for outward supply of goods.While the AAAR did not rely on specific judicial precedents in its operative findings, similar reasoning has been applied in earlier rulings:These decisions underline that civil works qualifying as foundational or structural supports to plant are not excluded from credit eligibility.Setting aside the GAAR’s ruling dated 21 March 2025 (Advance Ruling No. GUJ/GAAR/R/2025/06), the AAAR held that KEI Industries is eligible to avail ITC on inputs and input services used for construction of the concrete VCV tower at its factory.The ruling affirms that foundations and structural supports for machinery are within the ambit of “plant and machinery” and not covered by the bar on ITC under section 17(5)(c) and (d).Read also : No ITC on Concrete Tower Construction for VCV Lines: AAR Gujarat