Power Beyond the Boundary Wall: Gujarat AAR Opens ITC Gate for External Electricity Lines
When a factory expands, the first practical question is often not "Where's the machinery?" but "Where's the power coming from?" High-tension electricity lines, underground cables, ducts, manholes and switchyard equipment are now standard features in large industrial projects. For years, however, there has been a persistent GST doubt:
If this entire power-transmission infrastructure lies outside the factory wall, is input tax credit (ITC) blocked as ‘immovable property' or can it still qualify as ‘plant and machinery'?
In Alleima India Pvt Ltd – GUJ/GAAR/R/2025/44 (2025(10)LCX0384(AAR)), the Gujarat Authority for Advance Ruling (GAAR) has given a clear, taxpayer-friendly answer. ITC is admissible on capital goods and related services used for laying the electricity transmission infrastructure outside the factory, subject of course to the usual Section 16 conditions.
Read together with CBIC Circular No. 219/13/2024-GST (26.06.2024) on ducts and manholes and the Gujarat AAAR ruling in Elixir Industries Pvt Ltd – GUJ/GAAAR/APPEAL/2025/16 (22.09.2025), we now have a fairly coherent line of authority: location outside the factory does not, by itself, kill ITC – the real tests are movability and whether the asset is "plant and machinery" used in business.
1. The Alleima story in brief
Business context. Alleima India Pvt Ltd runs a manufacturing facility at Mehsana, Gujarat. On expanding its plant, it needed a 4500 KVA, 66 KV high-tension connection from the grid, supplied via Gujarat Energy Transmission Corporation (GETCO). The grid substation, however, sat almost 2.8 km away from the factory switchyard.
To draw power, Alleima had to:
lay 2.7865 km of underground HT cable from the GETCO substation to its own switchyard;
install associated switchyard and electrical equipment;
create the necessary ducts, manholes and related enabling civil infrastructure; and
incur installation, supervision and other project-related services.
GETCO gave two choices: either GETCO would execute the work through its vendors, or the applicant could execute the work itself using an approved vendor under GETCO's supervision. Alleima chose the second route and appointed an approved vendor, bearing all costs and then capitalising the entire project as fixed assets in its books.
The GST question. Alleima approached the GAAR to ask:
Whether ITC is available on capital goods (cables, wires, electrical equipment) and related services (installation, supervision etc.) used to transmit electricity from the DISCOM substation to the factory, when the infrastructure is physically located outside the factory premises, as per GETCO's rules, in light of Sections 16 and 17(5) of the CGST Act?
2. Legal backdrop – why was there doubt?
The controversy arises from the interplay of:
1. Section 16, CGST Act – eligibility for ITC
○ ITC is allowed on input tax charged on goods/services used in the course or furtherance of business, subject to conditions such as possession of tax invoice, receipt of goods/services, tax actually paid to the Government and filing of returns.
2. Section 17(5)(c) & (d) – ‘blocked credits' on immovable property Broadly, ITC is barred in respect of:
○ works contract services when supplied for construction of an immovable property (other than plant and machinery), and
○ goods or services used for construction of an immovable property (other than plant and machinery) on one's own account, to the extent capitalised.
3. Explanation to Section 17 – definition of "plant and machinery"
○ "Plant and machinery" covers apparatus, equipment and machinery fixed to earth by foundation or structural support, used for making outward supplies, and includes their foundations and structural supports.
○ It specifically excludes:
■ land,
■ buildings and other civil structures,
■ telecom towers, and
■ pipelines laid outside the factory premises.
The tax department has often argued that large, fixed-to-earth infrastructure situated outside the factory resembles immovable property or pipelines outside the factory – both within the exclusion zone of Section 17(5). The result: repeated disputes over ITC on power lines, utility corridors and other external infrastructure.
3. CBIC's OFC circular – the doctrinal pivot
In Circular No. 219/13/2024-GST (26.06.2024), CBIC addressed a similar issue for telecom operators: Are ducts and manholes used in optical fibre cable (OFC) networks hit by Section 17(5)?
The Board reasoned that:
ducts and manholes form an integral part of the OFC network, enabling transmission of telecommunication signals;
they are apparatus/equipment forming part of "plant and machinery"; and
they are not land, building, civil structures, telecom towers or pipelines outside a factory.
Thus, ITC on such ducts and manholes is not blocked under Section 17(5).
Though the circular deals with telecom, its logic is more general: if an asset is:
functionally part of plant and machinery used for outward supplies,
not one of the specifically excluded categories in the Explanation,
then credit cannot be denied simply because it is fixed to earth or lies outside the factory.
This is the doctrinal springboard that taxpayers began citing for other networks – including electricity transmission lines.
4. What exactly did the Gujarat AAR hold in Alleima?
(a) Movability and "plant and machinery"
GAAR examined the nature of the goods:
HT underground cables (single-core, aluminium corrugated sheath),
switchyard equipment,
wires and associated gear.
On facts, the Authority found that these items:
can be disconnected, dismantled, recovered and reused;
are not permanently embedded in a way that they lose their identity; and
thus do not amount to "immovable property" in the sense used in Section 17(5)(c)/(d).
Instead, they are equipment forming part of the electricity transmission system required to bring power to the factory, and therefore fall within the inclusive concept of "plant and machinery" under the Explanation.
(b) Ducts, manholes and similar enabling infrastructure
The applicant had also capitalised ducts, manholes and other network infrastructure created along the 2.7865 km route. GAAR drew a parallel with the CBIC OFC circular, noting that ducts and manholes there were recognised as plant and machinery and not expressly excluded under Section 17.
Following the same principle, the Authority held that such enabling infrastructure for the power-transmission network also forms part of plant and machinery, and hence ITC is not barred on this count.
(c) Satisfaction of Section 16 conditions
The ruling also records that Alleima:
capitalised the assets in its books of account;
possessed valid tax invoices for all supplies;
claimed depreciation only on the value net of GST, not on the tax component; and
used the entire infrastructure in the course of its manufacturing business, i.e., to receive power for production.
Once both legs were satisfied-
1. the assets are "plant and machinery" (hence not blocked), and
2. Section 16 conditions stand complied with-
GAAR answered the question in a straightforward manner: Yes, ITC is admissible on capital goods and related services used to lay and operate the electricity transmission infrastructure, though physically outside the factory premises.
(d) Possible future transfer to GETCO – Section 18(6)
An interesting nuance was the potential future transfer of these assets to GETCO (for example, for operational or maintenance reasons). GAAR clarified:
ITC is rightly available at the time of acquisition, since the assets are used in business and owned/capitalised by the applicant;
if later the assets are transferred or disposed of (e.g., ownership passes to GETCO), Section 18(6) will apply – requiring reversal/payment of tax on the transaction, as applicable.
In other words, future transfer affects continuation of credit, not initial eligibility.
5. Alignment with Elixir Industries – an emerging trend
The Alleima ruling does not stand in isolation. It closely tracks the earlier Elixir Industries litigation from Gujarat:
In Elixir Industries Pvt Ltd – GUJ/GAAR/R/2024/18 [2024(07)LCX0049(AAR)], GAAR had allowed ITC on cables, wires and electrical equipment used to bring power from grid to factory, treating them as plant and machinery even though the line lay outside the factory boundary.
The department appealed, but the Gujarat Appellate Authority for Advance Ruling (AAAR) in GUJ/GAAAR/APPEAL/2025/16 (22.09.2025)upheld the ruling, agreeing that such assets are movable and form part of plant and machinery, so Section 17(5) does not bar ITC.
Alleima's facts are larger in scale (longer cable length, higher power demand), but conceptually the same. With:
CBIC's Circular on ducts and manholes,
Elixir AAAR affirming credit on electricity-transmission infrastructure, and
now Alleima GAAR [2025(10)LCX0384(AAR)] reiterating the same principle,
a clear interpretative pattern is visible: business-critical networks (telecom or electricity) installed outside the factory, but forming part of operational plant and machinery, are not hit by the immovable-property ITC blockade.
6. What does this mean for industry?
(A) Key takeaways
1. Factory gate is not an ITC border.
Merely because the asset lies beyond the factory compound does not make it ineligible for ITC. The critical questions are:
○ Is it part of plant and machinery?
○ Is it used in the course of business?
2. Transmission infrastructure ≠ excluded pipelines.
The Explanation to Section 17 excludes "pipelines laid outside the factory premises", but the rulings treat underground electricity cables and associated equipment as distinct from such pipelines – they are more akin to functional plant required to bring electricity to the manufacturing facility.
3. Movability matters, but not in a hyper-technical way.
If equipment retains its identity and can be dismantled/relocated with reasonable effort, authorities are inclined to treat it as movable plant and machinery, even if fixed to earth by supports.
4. Circulars can strongly influence interpretation.
CBIC's view on ducts and manholes in OFC networks has clearly shaped judicial thinking in the electricity context as well. For taxpayers, this shows the value of aligning arguments with Board circulars where possible.
5. Future transfer triggers 18(6), not outright denial.
Transferring the infrastructure to a DISCOM or transmission utility later will not retrospectively taint the original credit; it simply calls for appropriate reversal/tax payment at the time of transfer.
(B) Practical compliance checklist
Taxpayers planning or having similar infrastructure projects should:
Draft contracts carefully
Ensure agreements with DISCOM/GETCO clearly record:
○ who procures the equipment,
○ who owns it initially, and
○ under what conditions (if any) it will transfer to the utility.
Capitalise correctly in the fixed asset register
○ Record cables, switchyard equipment, ducts, manholes and related items as plant and machinery / enabling assets.
○ Maintain component-wise details (length, capacity, location, etc.) to support factual assertions of movability and business use.
Watch depreciation treatment
○ Depreciation must be claimed only on the value before GST, not on the tax component, to avoid the bar in Section 16(3).
Maintain robust documentation
○ Work orders, supervision reports from GETCO, commissioning certificates, and layout drawings of the power line will help defend the business nexus and character of the assets.
Plan for eventual transfer
○ If there is a contractual requirement to hand over the line to the utility after commissioning, plan Section 18(6) reversals upfront and model the tax cost into project economics.
7. Caveats and open issues
Despite the positive trend, practitioners should keep a few caveats in mind:
1. Advance Rulings are binding only inter-parties.
AAR decisions bind only the applicant and the jurisdictional officers. Other States may follow them as persuasive precedent but are not legally compelled to.
2. Characterisation disputes can still arise.
Revenue may argue in some fact patterns that certain portions of the work-say, heavy civil foundations, buildings housing the switchyard, or purely civil structures-are separable immovable property attracting Section 17(5). Careful project segregation and invoicing can mitigate this risk.
3. Pipelines vs cables – thin line in some industries.
While electricity cables have been distinguished from the statutorily excluded "pipelines", similar logic may or may not extend to other utility networks (water, gas, compressed air) depending on how they are engineered and used. Each case will turn on facts.
4. Litigation risk not fully extinguished.
Until there is a High Court or Supreme Court pronouncement directly on point, a small litigation risk will remain. However, Alleima and Elixir, backed by the CBIC circular, provide a strong defensive toolkit.
8. Conclusion – reading the signal correctly
The Alleima India ruling is more than a narrow fact-based decision; it is another brick in a growing doctrinal wall that:
looks at functional reality (how the asset supports business operations),
respects the plant and machinery carve-out in Section 17(5), and
refuses to deny ITC merely because key infrastructure sits a few kilometres outside the factory gate.
For manufacturers setting up or upgrading high-tension connections, this is welcome clarity. If the transmission assets are movable plant and machinery, capitalised as such, used for business, and supported by proper documentation, ITC should be defensible, with reversal only if and when the asset is ultimately transferred.
In short, Alleima confirms a simple but powerful proposition:
Where the business needs power beyond the boundary wall, GST law will not cut the ITC line short-so long as the infrastructure is truly plant and machinery, and the taxpayer respects the statutory conditions.
Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.