2021(03)LCX0235(AAR)
AAR-TAMIL NADU
M/s SHV Energy Private Limited
decided on 31/03/2021
AUTHORITY FOR ADVANCE RULING,
TAMILNADU
INTEGRATED COMMERCIAL TAXES OFFICE COMPLEX
5TH FLOOR, ROOM NO. 503, ELEPHANT GATE BRIDGE ROAD,
CHENNAI -600 003.
PROCEEDINGS OF THE AUTHORITY FOR ADVANCE RULING U/s.98 OF THE
GOODS AND SERVICES TAX ACT. 2017.
Members present are:
1. Thiru Senthilvelavan B., I.R.S.,
Additional Commissioner/Member,
Office of the Commissioner of GST & Central Excise, Chennai -34
2. Thiru Kurinji Selvaan V.S., M.Sc., (Agri.), M.B.A.,Joint Commissioner (ST)/
Member,
Office of the Authority for Advance Ruling, Tamil Nadu, Chennai-600 003.
ORDER No.11/ARA/2021 Dated: 31.03.2021
GSTIN Number, if any / User id | 33AACC8676D1Z9 | |
Legal Name of Applicant | M/s. SHV Energy Private Limited | |
Registered Address / Address provided while obtaining user id | M/s. SHV Energy Private Limited, LPG Storage Terminal, (Near Red Gate), New Harbour, Tuticorin-628 004. |
|
Details of Application | GST ARA-01 Application SI. No. 17/2020 ARA dated: 22.07.2020 | |
Concerned Officer | State: Assistant Commissioner (ST)
Sriperumbudur Assessment Circle, Centre: Chennai Outer Commissionerate |
|
Nature of activity(s) (proposed / present) in respect of which advance ruling sought for | Factory / Manufacturing | |
A | Category | Wholesale Business |
B | Description (in brief) | Main Business-Supply of LPG |
Issue/s on which advance ruling required | Admissibility of input tax credit of tax paid or deemed to have been paid. | |
Question(s) on which advance ruling is required |
1. lt Whether the
applicant is eligible for availment of input tax credit of GST paid an
goods and services for laying of transfer pipeline and the foundation
and Structural supper. for such pipeline which is intended for unloading
Propane / Butane from the Vessel Jetty to the Terminal? |
Note: Any appeal against
the Advance Ruling order shall be filed before the Tamil Nadu State Appellate
Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of
CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought
to be appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both the
Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act
are the same except for certain provisions. Therefore, unless a mention is
specifically made to such dissimilar provisions, a reference to the Central
Goods and Service Tax Act would also mean a reference to the same provisions
under the Tamil Nadu Goods and Service Tax Act.
M/s. SHV Energy Private Limited.
LPG Storage Terminal, (Near Red Gate). New Harbour, Tuticorin 628 004.
(hereinafter called the Applicant) are registered under GST with GSTIN.
33AACCS8676D1Z9. The applicant Company (hereinafter referred to as SHV) is
registered in India and the primary business comprises of supply of Liquified
Petroleum Gas (LPG) in Bulk and in cylinders to domestic/ other Business’
segments under the brand name of “SUPER GAS”. SHV also supply bulk LPG for
Industrial and Auto LPG. SHV is the subsidiary of SHV Energy N.V., a Dutch
Multinational Company in Netherlands.
They import LPG from outside India and store/ processes the same at various
terminals located in India. The terminals are in Tuticorin (Tami) Nadu).
Porbandar (Gujarat) and Mumbai (Maharashtra). SHV operates in 16 states in India
through 3 terminals. 4 Regional offices, 24 filling plants and 6 depots in
India. The applicant has sought Advance Ruling on the following questions:-
1) Whether the applicant is eligible for availment of input tax credit of GST
paid on goods and services for laying of transfer pipeline for transporting
Propane/Butane from Jetty to the Terminal.
2) Whether the applicant is eligible for availment of input tax credit of GST
paid on goods and services for construction of refrigerated storage tank at
Terminal.
3) Whether the applicant is eligible for availment of input lax credit of GST
paid on goods and services for construction of Fire Water reservoir which is a
part of firefighting system.
4) Whether the applicant is eligible for availment of input tax credit of GST
paid on goods and services procured for construction of foundation/structural
support through piling.
The Applicant has submitted the copy of application in Form GST ARA - 01 and
also submitted a copy of Challan evidencing payment of application fees of Rs.
5,000/- each under sub-rule (11 of Rule 104 of CGST rules 2017 and SGST Rules
2017.
2.1 The applicant has stated that their Tuticorin terminal is contemplating
expansion to increase the LPG capacity from 3,50,000 Metric Tons Per Annum (MTPA)
to 12.00.000 MTPA. The expansion will involve suitable augmentation of existing
facilities including Utilities and Offsite systems. The following expenditure is
proposed to be incurred by them in the process of expansion amongst others:-
1. Construction of transfer Pipeline- The existing unloading arms and
transfer Pipelines shall continue to be available for unloading LPG from ships.
As part of proposed expansion, new Propane and Butane unloading arms (one each)
designed to handle 500 MT/hr each of refrigerated Propane and Butane shall be
installed at jetty. The approximate linear length of each new pipeline shall be
4.1 km and shall be installed adjacent to the existing piping corridor. Propane
and Butane shall be received in refrigerated ship tankers with their own
refrigerated system in parcel sizes of 22.500 MT at Port jetty of Tuticorin. The
refrigerated liquid cargo shall be pumped by ship’s pumps at a rate of 500 MT/h
of Propane and Butane in each loading arm. This will be done through two marine
unloading arms of 12’ diameter and transferred to the storage tank via 16”
diameter pipelines each having a total length of about 4.0 to 4.7 kms. The above
mentioned is the process of transportation of Propane/ Butane from Jetty to the
Terminal by using transfer pipeline, as transportation through tankers is
cumbersome process
2. Construction of refrigerated atmospheric storage tank - Post expansion
of the terminal, they envisage unloading of Propane and Butane from the ship
using pipelines and storing in two refrigerated storage tanks of 15.000 MT
capacity each. The tank normal operation pressure shall be 700 mm WC at a
temperature of approximately- (-) 450 C in case of propane and (-1) 50 C in pass
of Butane these tanks are constructed for specific usage of storage of Propane
and Butane. These storage tankers cannot be used for any common storage
3. Construction of water tank which is a part of firefighting system- The
current expansion project is proposed to have firefighting system in compliance
with Oil Industry’ Safety Directorate (OISD) standards 236. Water is stored to
meet the requirement of firefighting for 4 hours duration, with pumps of
adequate capacity. Hence two tanks of capacity 4oooKL each is proposed. Further,
water stored in the tanks will be used for direct fire extinguishing, cooling
down surrounding structures & equipment as water curtain to complete cut off of
fire zones. Thus, water reservoir (tank) is integral part of firefighting system
which is connected with Hydrant lines sprinklers and water curtain.
4. Construction of foundation/structural support through piling- As their
Project site is located close to the sea. the soil is filled up with clay with a
very high ground water table (<1 m), this would mean that the load bearing
capacity (weight per sqm the soil can withstand) is very low. Since the tanks
are quite heavy, they need to increase this load bearing capacity. Once the
location of the piles has been identified, a hydraulic rig shall dig a hole up
to the required depth, once the depth has been achieved a reinforcement cage
(prefabricated) shall be placed inside the borehole and then filled up with
concrete of required grade. These piles are finished at ground level. Since the
storage tanks need an elevated base, the piles are further extended to another
1.5m above the ground level upon which a pile cap/ concrete foundation is made
joining all the piles together to form a load bearing plat form.
2.2 On their interpretation of law, they have stated the following grounds, each
of which is taken in the alternative and without prejudice to the others:
1 Eligibility of taxes paid on laying of pipelines. Reading the
provisions of section 16(1) of CGST Act 2017. Section 2(59) of CGST Act. Section
2 (19) of CGST Act, Section 17(5)(c ).(di and the Explanation to Section 17(5)
of the of CGST Act for the instant case, it could be concluded (hat in order to
avail the credit the procurement transaction has to pass the following tests:-
A Blocking of input tax credit under Section 17 (5) shall apply to pipelines
used for outward supply of goods;-
Decoding the provision at S. 17(5) and the Explanation, following inference can
be drawn:-
The provision restricts the input tax credit on immovable property other than
plant and machinery;
Plant and Machinery means any equipment fixed to earth by foundation or
structural support: and
The provision excludes the credit on pipeline laid outside the factory premise
which is used for making outward supply of goods
In the current scenario, they receive Propane and Butane through refrigerated
ship tankers with their own refrigerated systems. The refrigerated liquid cargo
shall be pumped by ship’s pumps at a rate of 500 MT/hr each of refrigerated
Propane and Butane in each loading arm. This will be done through two marine
unloading arms installed at Jetty and transfers the refrigerated Propane and
Butane to SHV’s refrigerated storage tanks at Terminal via 16” diameter transfer
pipelines each having a total length of about 4.3 kms from Jetty to the
Terminal. The above referred process of procurement of Propane and Butane from
Jetty to SHV’s terminal through transfer pipeline is the unique mode of
transportation without which the appellant cannot manufacture LPG which is their
outward supply.
The provision under Section 17 (5) restricts pipelines laid outside the factory
premise which are used for making outward supply of goods or services not inward
supply of goods or services. Hence, they believe that the transfer pipelines
laid outside the factory premise for procurement of Propane and Butane is
eligible for availing credit.
B. Transfer Pipelines are used or intended to be used in the course or
furtherance of business.
The Pipelines in question are used in the course or furtherance of business. The
main objective and purpose of laying of pipeline is for unloading of Propane/
Butane. Propane/ Butane are the key raw material the process of manufacture of
LPG. It is clear from the above that laying of pipeline constitutes an integral
and inseparable part in the manufacturing process in as much as without the
aforesaid activity of transportation of Propane/Butane for which pipelines are
used, there cannot be manufacturing of LPG.
Based on above, the applicant has submitted that pipelines are used in course of
or furtherance of business.; The pipelines constitute an integral part of the
manufacture carried out by the Applicant; credit of taxes paid by the Applicant
should be eligible to the Applicant. They have placed Reliance in this regard on
the following case laws:-
Jaypee Rewa Cement Vs Commissioner of Central Excise. M.P./2001 (133) ELT. 3 (S.C.)]
Commissioner of C Ex., Belgaum Vs Bellary Steel and Alloys Ltd. 2008 (226) E.L.T. 280 (Tn. Bang)
Central Excise and Service Tax, Ahmedabad-III 2014-TIOL-2217-CESTAT-AHM.
Further, transporting Propane/Butane from Jetty to the Terminal for manufacture of final product is to be considered as used within the factory. In the regard, they rely upon the decisions in the following cases:-
J.K Udaipur Udyog Ltd. Vs Commissioner of C. Ex., Jaipur II 2002 (147) ELT.996 (Tri. Del)
M/s Birla Corporation Ltd Vs Commissioner of Central Excise 2005-TIOL-99 SC-CX.
Commissioner v. GSPL India Transco Ltd (2016 (43) S.T.R. J23 (Guj.))
Based on above, they have
concluded that transportation of Propane/Butane is not possible without laying
of pipeline for transport. Therefore, laying of pipelines is an integral part of
applicant’s business operations and hence used in course of furtherance of the
business. Further to the above, it can be concluded that laying of pipeline for
transport of Propane/Butane from Jetty to Terminal is eligible for input tax
credit under section 16 of CGST Act. 2017 and credit should not to be restricted
under Section 17 of CGST Act. 2017
The essence of the test is to determine whether the transfer pipeline is
eligible for credit under section 16 of CGST Act. 2017 It is to be noted that
the transfer pipeline laid down from the Terminal up to the Jetty is for inward
transportation of the inputs (Propane/ Butane) and not for outward
transportation of the final product (LPG). Since the transfer pipeline is
facility integrated for transportation of Propane and Butane to the Terminal and
not for outward supply and are used for furtherance of business. It safely
infers that the credit cannot be restricted under Section 17 of CGST Act, 2017
and therefore, the applicant is eligible for input tax credit under section 16
of CGST Act, 2017.
2. Eligibility of Taxes, paid on construction of refrigerated storage tank,
of foundation and structural support, through piling:
The issue is whether inputs and input services used for construction of
refrigerated atmospheric storage tank and foundation and structural support
through piling is eligible for Input Tax Credit under CGST Act, 2017 In this
regard the Applicant has stated that the main objective and purpose of
construction of refrigerated storage tank is for storing, processing and
maintaining of Propane/Butane which is for outward transportation of finished
product i.e LPG. Storage Tank is integral pan and inseparable in the
manufacturing process. Without the aforesaid activity of storing of Propane/
Butane in refrigerated atmospheric storage tank where blenders are installed to
blend Propane and Butane in the desired portion to meet varied customer
requirements, there cannot be manufacture of LPG. Therefore, refrigerated
storage tank used for storage of Propane/ Butane are used in course of or
furtherance of business.-
Below are the major components required for construction of refrigerated storage
tanker:-
Low Temperature Carbon Steel (LTCS), Rock wool and ceramic fiber insulation
Piles, platforms and staircase
In-tank pumps, level indicator. Transmitters
Pipelines (LTCS) and sprinkle system (MS)
Further on laying of foundation
and structural support through piling, they have stated that as their Project
site is located close to the sea, the soil is filled up with clay with a very
high ground water table (<1 m). this would mean that the load bearing capacity
(weight per sqm the soil can withstand) is very low. Since the tanks are quite
heavy, they need to increase this load bearing capacity. Therefore, the
foundation by way of piling is must. The input and input services used for
laying foundation and structural support of plant and machinery, therefore is
eligible for input tax credit. The detailed explanation for the eligibility of
the input tax credit are stated in the foregoing paras.
Reading the provisions of section 16(1) of CGST Act, Section 2(59), Section
2(19) of the Act together, the essential requirement for availing the credit of
the input taxes paid in respect of the inward supplies of goods and services, is
that the said supplies shall be used or intended to be used in the
course or furtherance of the business.
Further, in view of the restrictions as per Section 17(5) of the Act, the input
tax credit on goods and services is restricted if the same is used for
construction of an immovable property unless that immovable property results in
a “plant and machinery* as defined in the Explanation. Input tax credit of goods
or service used for construction of “Plant & Machinery’ therefore is eligible.
Further, inputs and input services used for laying foundation and structural
support of Plant and Machinery is also eligible for input tax credit.
In Lite light of the aforesaid context, it is important to evaluate whether
refrigerated Storage tanks will qualify as a “plant and machinery” as defined in
the Explanation above. The definition of the term “plant and machinery” in the
Explanation to Section 17(5) has a means clause and then an exclusion clause. To
qualify something as a plant and machinery it should satisfy “the means’ clause
and should not fall under any of the exclusion mentioned in the definition.
Plant and machinery means “Apparatus, equipment or machinery fixed to earth
by foundational or structural support used for making outward supply”. There
is no specific provision in the Act which defines apparatus, equipment or
machinery. Common definition of Equipment is “a set of equipment or tools or a
machine that is used for a particular purpose’
Further, the meaning of the above term, ‘Apparatus*, from different dictionaries
as under.-
It is a collection or set of materials, instruments, appliances or machinery designed for a particular use (Mav. Web. Die). A compound instrument designed to carry out a specific function (Mc Graw Hill Die. of Sc. A- Tech. Terms).
Webster’s Encyclopedic Unabridged Dictionary of the English Language which reads as under:-
a group or aggregate, of instruments, machinery, tools, materials etc., having a particular function or intended for a Specific use.
any complex instrument or machine for a particular purpose.
any system or systematic organization of activities. functions, processes, etc., directed toward a specific, goal: the apparatus of government; espionage apparatus.
Physio. a group of structurally different organs working together in the performance of a particular function: the digestive apparatus.
Ramanatha Aiyar’s Legal
Lexicon: The word apparatus would certainly mean
the compound instrument or chain of series if instruments designed to carry out
specific function or for a particular use (Commer. Of Customs v. C NET
Communication 11) (P) Ltd., (2007) 12 SCC 72, 82-83. para 36)
Apparatus is a compound instrument designed to carry out a specific function or
for a particular use. I. C.B. (P) Ltd. a CCE.1997 (95) ELT 239 (T).
Equipment: Equipment is a thing which is used for a particular purpose.
(Collins Cobuild Dictionary, as referred in O.K Play (India/ Ltd v. CCE, (2005)
2 SCC 460. 468, para 29)
The definition of Capital Clouds under Modvat Regime and definition of Plant and
Machinery under GST is exactly same.
The Propane/Butane is stored, processed and maintained in refrigerated storage
tanks before being dispatched to the end customers as per their requirements.
Refrigerated storage tanks are constructed in a manner which can facilitate
storage of Propane/ Butane and maintain its characteristics. It is built with
certain equipment along with the concrete inputs to enable it to perform the
said functions. The refrigerated storage tanks are built for a specific purpose
of safe storage of Propane/ Butane. Therefore, refrigerated storage tanks may
qualify as an apparatus or tin equipment.
In terms of the above definition, foundation and structural support through
piles is a group of instruments, tools, materials etc., haring a particular
function or intended for a specific use for providing foundation and support to
construct tanks. Therefore, the same rightly get covered under the definition of
Plant and Machinery.-
The definition of ‘plant and machinery’ excludes;
(i) Land, building or any other civil structures
(ii) Telecommunication towers: and
(iii) Pipelines laid outside the factory premises
It is ample clear that the foundation and structural support and construction of
storage tank will not fall under the purview of “Telecommunication towers’.
Therefore, they have examined the clause (i) which provides for land, building
or other civil structure. The exclusion is for land, building or any other civil
structure. Since, foundation and structural support and storage tanks will not
fall under land and building, the term ‘any other civil structure’ must be
evaluated. In the absence of any specific definition of the term ‘civil
structure’ the meaning of the word must be understood from the two of the
previous words used in that sentence by applying the principles of Ejusdcm
Generis. Hence the phrase ‘any other civil structures” has to be read in
conjunction with land and building and therefore any civil structure in the
nature of land and building will ordinarily be a place from where the business
is being carried on and not a structure used in the process of manufacture for
making outward supply of goods/services.
The concept of input tax credit under GST is identical and wider than die
concept of Cenvat Credit Rules, 2004 prevailing in pre-GST regime. The
definition of Capital Goods in terms of Rule 2(A) of Cenvat Credit Rules, 2004
specifically included “storage tanks’ and therefore was held as eligible for
Cenvat Credit It is to be noted that any other immovable property such as
factory building/office buildings have not been included in the said definition
of Capital Goods whereas storage tank being an integral part of manufacturing
process have been brought under the definition of Capital Goods. It infers from
this that Storage tanks were not treated as Immovable property even for the
purpose of Cenvat Credit under the earlier regime. From the combined reading of
definition of Inputs. Input Service and Capital Goods, it is evident that the
intention was to restrict credit of Input and Input services used for
construction of immovable Property. The raw materials used in the manufacture of
capital goods are entitled to credit under the definition of inputs under Rule
2(k) of CCR, 2004. As storage tank is specifically included in the definition of
Capital goods, the same is not in the nature of Immovable Property and is Plant
and Machinery and Inputs and Input Services used for its fabrication was
allowed.
Without prejudice to the above, as per Explanation to Section 17(5) of CGST Act.
definition of Plant and Machinery includes machinery fixed to earth by
foundation or structural support that tire used for making outward supply of
goods or services or both and includes such foundation and structural supports.
Reading all the above provisions together, the essential elements (or availing
the credit of the input taxes paid in respect of the inward supplies of goods
and services, the said supplies shall be used or intended to be used in the
course or furtherance of the business. The equipment, plant and machinery and
the tanks need a stable base, without proper foundation and structural support
they cannot have a stable base which can take the weight of entire equipment.
Plant and Machinery and the tanks with the product in it.
They further rely on part C of Schedule II to the Companies Act. 1956. wherein
the rates of depreciation provided lor “Storage tank’ is categorized under the
head plant and machinery. Therefore, it can be said that storage tanks will
qualify as plant and machinery and meets the test of qualifying as plant and
machinery. Thus, the credit would be eligible.
They had relied on the following case laws:-
M/s. Deevya Shakti Paper Mills Pvt Ltd vs. CCE. [2017-TIOL-1134 CESTAT-HYD)
M/s Ultratech Cement Ltd [2017 TIOL-2442-CESTAT-BANG)
M/s The KCP Limited vs. CCE [2008-T1OL-2184-CESTAT BANG]
Commissioner of Income Tax v. Mahant Oil industries Put Ltd. 1992 193 ITR 020 Kam
Based on the above citation and
submissions, they have concluded that even as per Companies Act and Income Tax
Act, storage tank is construed as Plant and Machinery and therefore credit on
the same is eligible
3. Eligibility of taxes paid on construction of water tank which is a part of
firefighting system,-
The main objective and purpose of construction of water storage reservoir is to
follow the fire protection measure at Terminal. The water is stored in tankers
to meet the firefighting requirement for 4 hour duration with pumps of adequate
capacity Below are the major components required for construction of Water
reservoir:-
Mild steel with good quality paint
Piles, platforms and staircase
Level indicators. Transmitters
Connecting pipelines (MS)
Further, the water reservoirs are
constructed as part of firefighting system. Water is stored to meet the
requirement of firefighting with pumps of adequate capacity. This will be used
for direct fire extinguishing, cooling down surrounding structures & equipment
and as waler curtain to complete cut-off of fire zones. Thus, water tanks are
integral part of firefighting system which is connected to Hydrant lines
sprinklers and water curtain. The main application of water is to use as
firefighting and for other miscellaneous purpose, as minimum fire protection
measure is required to be taken at the terminal as per the Oil Industry Safety
Directorate requirement (OISD) Therefore, water tanker may qualify as an
apparatus or an equipment and falls within the definition of plant and
machinery. Basing the above submissions, it can be arrived that the inputs used
in the construction of water tank as part of firefighting systems is eligible
for availing input tax credit.
Without prejudice to the submissions made, in addition according to the Income
Tax Act, Plant includes ships, vehicles, books, scientific apparatus and
surgical equipment used for the purposes of the business or profession.
Whereas under GST. the definition of plant is restricted to apparatus, equipment
or machinery fixed to earth by foundational or structural support used for
making outward supply. However, the underlying principle of satisfaction of
functional test remains same both under GST and Income Tax. The essence of
the test to determine whether an asset can be called a plant is to ascertain
whether it can be treated as an apparatus which is used, by a businessman for
carrying on business and whether with that asset he carries on the trade as
opposed to the place in which the trade is carried on Therefore, to consider
whether the structure is Plant and Machinery it has to be determine whether the
asset is used for carrying on trade or whether it is a structure in which
business is earned on.
As discussed above, an item used for the purposes of carrying on the business
activities of the taxpayer docs not qualify as plant if the business uses it as
the premises (or part of the premises) or place from where the business is
conducted. On the basis of the above submissions, the applicant requested a
favourable ruling.
3.1 Due to the prevailing pandemic, the applicant was extended an opportunity
for hearing virtually, which was acceded to by the applicant. The authorized
representative appeared for the hearing virtually on 10.12.2020. They stated
that they modify the question raised in their application is as much as the
eligibility on the foundation made at Q.no.4 is taken up along with Q. No. 1 to
3 and these are the questions for which ruling is sought. They undertook to
furnish the shared submissions which was reiterated in hearing. Copies of Bill
of entry for import of goods, literature on die process undertaken in the
factory, copies of purchase order for the goods/services relating to the
application. Statutory requirements for fire hydrant facility. He stated that
the project of storage and processing for which the ruling is sought is yet to
be setup. The storage tank is inside die premises and the pipeline is partly
inside and outside the premises.
3.2 The applicant furnished the submissions shared during the hearing. The
applicant apart from the submissions already made has inter-alia, stated that
They crave leave of the Hon’ble Bench to reframe their question on the issues
raised in their application as follows:-
1. Whether the applicant is eligible for availment of input tax credit of GST
paid on goods and services for laying of transfer pipeline and the foundation
and structural support for such pipeline which is intended for unloading
Propane/Butane from the Vessel/Jetty to the Terminal?
2. Whether the applicant is eligible for availment of input tax credit of GST
paid on goods and services used for setting up refrigerated storage tank and
input credit of goods and services used for foundation and structural support
for such tanks?
3. Whether the applicant is eligible for availment of input tax credit of GST
paid on goods mid services for setting up of Fire Water reservoir (tank) and
input credit on goods and services used for foundation and structural support
for such reservoir?
As part of proposed expansion, new Propane and Butane unloading arms (one each)
shall be installed at jetty and new transfer pipelines shall be laid
Unlike a typical pipeline where there is an end to end node, this is a
disconnected pipeline. When ship/vessel arrives the pipeline gets connected to
both the ends to discharge the Propane/Butane. It is rather called as discharge
pipe, This is the unique mode of transportation without which they cannot
process and supply LPG
The expression ‘Pipeline’ used in the explanation to Section 17(5) should be
understood as long-distance cross-country pipelines to transport liquids mid
fluids. In their case, the approximate linear length of each new pipeline shall
be 4.3 km and shall be installed adjacent to the existing piping corridor and
hence credit is eligible
When the expression factory’ is not defined under the GST Act, a definition
given in some other Act passed by the legislature can always be relied upon.
Accordingly, they are of the considered view that Section 2(m) of the factories
Act, 1948 which defines the term factory’ should be considered which is as
under:-
(m) “factory” means any premises including the precints thereof-
(i) whereon ten or more workers are working or were working on any day of the
preceding twelve months, and in any part of which a manufacturing process is
being carried on with the aid of power, or is ordinarily so carried on. or
(ii) …..............
Dictionary meaning of the term ‘Precints’
Cambridge International Dictionary of English “area around building* Collins
English Dictionary “the surrounding region or an area”
Merriam Webster “the region immediately surrounding a place”
On perusal of aforesaid meanings, precinct would mean an area around building or
a place, factory means any premise including the precints. A conjoint reading of
die term ‘factory’ and “Precincts” makes it abundantly clear that the factory
includes the surrounding areas which is pipeline laid from jetty to Terminal.
Therefore, pipeline shall be regarded as available within the premise of the
factory and hence eligible for credit.
The expression used in the explanation to Section 17 of GST Act refers “plant
and machinery’ to mean which are used for making outward supply of goods or
services or both and hence if the pipelines are to be excluded from the meaning
of “Plant and machinery’ only such pipelines used for outward supply should be
denied credit
The pipeline cannot be regarded as laid outside the factory and on the contrary,
they are very much part of factory premises and do not fall under the exclusion
given in the explanation of “Plant and machinery”
The main objective and purpose of setting up of refrigerated storage tank is for
storing, processing and maintaining of propane / Butane. Storage Tank is
integral part and inseparable in the manufacturing process. Without the
aforesaid activity of storing Propane/Butane in refrigerated atmospheric storage
Lank where blenders are installed to blend Propane and Butane in the desired
portion to meet varied customer requirements, without which there cannot be
manufacture of LPG
The main objective and Purpose of setting up of water storage reservoir is to
follow the Tire protection measure at Terminal. Water is stored to meet the
requirement of firefighting with Pumps of adequate capacity. This will be used
for - direct fire extinguishing; cooling down surrounding structures & equipment
and as water curtain to complete cut off of fire zones. Thus waler tanks are
integral part of fighting system which is connected to Hydrant lines sprinters
and water curtain. The main application of water is to use as firefighting and
for other miscellaneous purpose, as minimum fire protection measure is required
to be taken at the terminal as per lite Oil Industry Safety Directorate
requirement (OISD) Standards-Standard 236
They are constructing all the above by laying a foundation and structural
support through piling as their project site is located close to the sea. the
soil is filled up with clay with a very high ground water table(<1 m), which
would mean that the load bearing capacity is very low. Since the tanks are quite
heavy, the applicant needs to increase this load bearing capacity. Therefore,
the foundation by way of piling is must. The input and input services used for
laying foundation and structural support of plant and machinery, therefore is
eligible for input tax credit.
3.3 The applicant has also furnished the following:
Photographs of Pipeline Exhibits. Water Tank Exhibit and Storage Tank Exhibits;
copy of Draft OISD Std 236
The decisions relied upon by them,-
Jaypee Rewa Cement Vs Commissioner of Central Excise. M.P. [2001 (133) ELT. 3 (S.C.)]
Commissioner of C. Ex., Belgaum Vs Bellary Steel and Alloys Ltd 2008 (226) E.LT. 280 (Tn. Bang)
Central Excise and Service Tax, Ahmedabad-III 2014-TIOL 2217-CESTAT-AHM
J.K. Udaipur Udyog Ltd. Vs Commissioner of C. Ex., Jaipur II 2002 (147) E.LT.996 (Tri. - Del)
M/s Birla Corporation Ltd Vs Commissioner of Central Excise 2005-TIOL-99-SC-CX
Commissioner of C.Ex., Belgaum Vs. M/s Hindalco Industries Ltd (C.E.A. No 209/2008 in High Court of Karnataka)
Commissioner of Central Excise, Salem Vs M/s. Chemplast Sanmar Ltd (T.C. No. 1380 of 2006 of High Court of Madras)
Jayaswal Neco Ltd Vs Commissioner of Central Excise. Raipur [2015 (319} E.L.T. 247 (S.C.)]
Commissioner of Central Excise, Coimbatore A Ors. Vs Jawahar Mills Ltd & Ors (C.A. 619-626 of 2000]
Process Description of LPG
processing and supply after unloading the propane and Butane with Process Flow
Diagram
Bills of Entry for Propane and Butane at Porbandar Port
Purchase Order issued by them for,-
1.2 nos of Refrigerated Storage Tanks(EPC) with PO No. 4500405026 dated
11.03.2020 on Sharp Tanks and Structurals Pvt Ltd, Mumbai
2. Mech. Elec A Instrumentation work for Bullets; Civil & Structural work for
Mounded Bullet with PO Number 4500405045 dated 11.03.2020 on Sharp Tanks and
Structurals Pvt Ltd. Mumbai
3. Agreement for Piling works for Tuticorin Terminal Expansion Project with PO
No. 4500401679 dated 10.02.2020 on Geo Foundations & Structures Private Ltd
4. Civil ft. Structural works for CCPL with PO Number 4500407286 dated
22.04.2020 on S.R. Selvaraj A Sons. Thoothukudi
5. 2 Nos Fire Water Tanks (EPC) with PO No. 4500405071 dated 11.03.2020 on Sharp
Tanks and Structurals Pvt Ltd, Mumbai
6. 6” Pipe, SMLS.LTCS for 3.643 M; 10’Pipe, WLD. LTCS for 12 M: 16’ Pipe.
WLD,LTCS for 598 M: 16” Pipe, WLD. LTCS for 6.680 M with PO No. 45000407798
dated 08.05.2020 on Maharashtra Seamless Limited, Raigad
4. The State jurisdictional officer has submitted his remarks are no follows:
Issue No. 1: ITC on pipe lines: As per item No (iii) of Explanation to Section
17 of the TNG ST Act. 2017. pipe lines outside the factory premises are excluded
from the definition of ‘Plant A Machinery’. Hence, it is opined humbly that. ITC
shall not be eligible on the pipelines for transporting propane/butane from
jetty.
Issue No.2: ITC on refrigerated storage tank at terminal: As per clause (d| to
sub section (5) of Section 17 of the TNGST Act, 2017, goods or services or both
received for construction of an immovable property (other than plant and
machinery) on his own account. ITC is not eligible even if used in the course of
furtherance of business. Further, item No (i) of Explanation to Section 17 of
the TN GST Act. 2017 rules out other civil structures’ from the ambit of plant &
machinery. Hence, it is opined humbly that. ITC shall not be eligible on the
refrigerated storage tank built in the terminal.
Issue No. 3: ITC on Eire Water reservoir: As per clause (d) to sub section (5)
of Section 17 of the TN GST Act. 2017, goods or services or both received for
construction of an immovable property {other than plant and machinery) on his
own account, ITC is not eligible even if used m the course of furtherance of
business. Further, item No (i) of Explanation to Section 17 of the TNGST Act,
2017 rules out ‘other civil structures’ from the ambit of plant or machinery.
Hence, it is opined humbly that, ITC shall not be eligible on the fire water
reservoir m their premises.
Issue No.4 ITC on construction of foundation/structural support through piling:
As per clause (d) to sub section (5) of Section 17 of the TN GST Act. 2017,
goods or services or both received for construction of an immovable property
(other than plant and machinery) on his own account, ITC is not eligible even if
used in the course of furtherance of business. Further, item No (i) of
Explanation to Section 17 of the TNGST Act, 2017 rules out ‘other civil
structures’ from the ambit of plant ft. machinery. Hence, it is opined humbly
that, ITC shall not be eligible on construction of foundation/structural support
through piling in their premises.
5. The Centre jurisdictional authority informed that there is no pending
proceedings under Section 98(1) of GST Act against the applicant.
6. We have carefully examined the Statement of facts; supporting documents filed
by the Applicant, submissions made after hearing and the comments of the
Jurisdictional Officers. The applicant has stated that they are contemplating
expansion to increase the LPG capacity from 3,50,000 Metric Tons Per Annum (MTPA)
to 12,00.000 MTPA at their Tuticorin Terminal. As part of proposed expansion,
new Propane and Butane unloading arms(one each) are to be installed at jetty and
new transfer pipelines laid; refrigerated storage tank for storing, processing
and maintaining of propane / Butane and water storage reservoir to follow the
fire protection measure at Terminal are to be set up. The applicant has sought
ruling on the following questions:-
1. Whether the applicant is eligible for availment of input tax credit of GST
paid on goods and services for laying of transfer pipeline and the foundation
and structural support for such pipeline which is intended for unloading
Propane/Butane from the Vessel/Jetty to the Terminal?
2. Whether the applicant is eligible for availment of input tax credit of GST
paid on goods and services used for setting up refrigerated storage rank and
input credit of goods and services used for foundation and structural support
for such tanks?
3. Whether the applicant is eligible for availment of input tax credit of GST
paid on goods and services for setting up of Fire Water reservoir (tank) and
input credit on goods and services used for foundation and structural support
for such reservoir?
7.1 The applicant in their submissions has furnished the Process Description of
LPG processing and Supply after unloading the propane and butane from which it
is seen that the process are as under:
LPG Unloading Propane & Butane is received in ship tankers of 22,500 MT capacity
at Port jetty of Tuticorin. Refrigerated Liquid Propane and Butane is unloaded
through two dedicated Marine unloading arms, simultaneous unloading of 500 MT/h
Propane & 500 MT/h Butane takes place through 16” new dedicated cross country
pipelines to new storage tanks ft; unloading of 250 MT/h Butane through existing
10” line to existing storage tank
Propane & Butane Storage - Propane & Butane is stored in Double walled
refrigerated storage tanks each of 15000 MT capacity at a temperature of -45’ C
in case of propane & -5” C in case of butane; Vapours generated during ship
unloading and normal boil off operation from storage tanks are compressed
through dedicated compressors, liquefied in condensers and sent to 2 Nos of
Mounded bullets of each 10O MT capacity using condensate receiver and pumps
Propane & Butane Loading - For loading of LPG to trucks. Propane & Butane are
pumped through submerged in tank pumps from respective tanks and heated to 10” C
in Air Heating System. Static Blender is used to mix heated propane and butane
in certain ratios for multiple grades of LPG. Condensate from Mounded Bullets is
also mixed in static blender to produce LPG LPG is dosed with mercapton before
loading into road tankers with mercaptan dosing unit. The blended LPG is sent to
Tanker gantry consists of new 8 no. loading bays & existing 3 no loading bays
via Tanker loading arms filled into road tankers.
7.2 The applicant was asked to furnish Bill of Entry in respect of import of
Propane and Butane by them. It is seen that the applicant has furnished the
‘Bill of Entry’ in respect of SHV Energy Pvt Ltd, Porbandar Gujarat and not
pertaining to them.
7.3 The applicant has furnished the Purchase Orders issued by them for the
various supply of Goods and Services for which their eligibility to avail the
GST element on such Pos as Input Tax Credit is sought before this authority The
details of the said POs are discussed as under.-
1. PO No. 4500405026 dated 11.03.2020 on Sharp Tanks
and Structurals Pvt Ltd. Mumbai - for 2 nos of Refrigerated Storage Tanks (EPC)
with SAC 995442 The service details under this P.O. are Completion of
Engineering, Supply of Major raw materials. Supply of Bottom Insulation.
Installation of Bottom Insulation, Supply of Outer Insulation, Installation of
outer Insulation. Pre-fabrication, Erection. Fitup, Welding and Testing,
Completion of all Nozzels & Piping. Completion of Pre-Commissioning activity,
Completion of Electrical du Instrumentation Mechanical Completion, Successful
demonstration of PG parameter- This PO is issued for undertaking the
construction service involving Engineering, supply. Installation,
Prefabrication, Erection, etc of 2 nos of refrigerated storage kinks, i.e, the
work starts with complete Engineering and covers supply, installation, pre
fabrication, erection, completion of E&L. etc and includes successful
demonstration of Performance Guarantee parameter. The supply as per this PO is a
composite supply of various goods and services and GST is calculated (a 18% on
the entire value of the works.
2. PO Number 4500405045 dated 12.03.2020 on Sharp Tanks and Structurals Pvt Ltd.
Mumbai for Mech, Elec & Instrumentation work for Bullets; Civil & Structural
work for Mounded Bullet with SAC 995442. The service, details under this PO are
-
under Mech, Elec & Instrumentation work -Completion of Engineering, Supply of Major Raw materials, Pre-Fabrication. Erection, Fitup, Completion of all nozzels & piping, Completion of Hydrotest, Painting. Completion of Pre-commissioning activity, Electrical & Instrumentation Works, Mechanical Completion, Successful demonstration of PG parameters;
under Civil A Structural work for Mounded Bullet - Excavation in ordinary soil. Backfilling in foundation pits. Transporting & Stacking the rock, Providing & filling gravel NS. Filling inside the retaining wails, providing, mixing, etc Plain CC (Grade MIO) Providing mixing RCC ground level, Providing mixing RCC upto 6m. Providing mixing RCC for walkway. Providing mixing smooth formwork, (gridivi, upto 6m) Providing pockets, blockouts in concrete, Providing & Mixing integral corrosion, Providing erecting etc SS Handrail. Corrossion resistnt steel bars. Providing erecting, etc structural steel, Supply & Fixing PVC downtake Pipe. Providing & applying hot dipped galvanizing,. Provide & Laying stone pitching, Providing A laying UPVC Sheet. Providing & laying Geotextile sheet terrain. Mobilisation of rigs, tools, tackles etc, Provide construct stone columns. Carry out load tests on singe columns, carry out vertical plate load test.
This PO is issued for Mechanical,
Electrical & Instrumentation works and Civil & Structural works for Bullets and
is also a composite supply of various goods and services and GST is calculated
(a 18%on the entire value of the works.
3. PO No. 4500401679 dated 10.02.2020 on Geo Foundations A Structures Private
Ltd - for Piling works for Tutieonn Terminal Expansion Project with SAC 995413.
The service details under this PO includes Mobilisation & Demobilisation,
Vertical Piles by boring, Empty boring for vertical pile, Supply, transport
&fixing steel in RCC. Extending piles abv cutoff level. Excavation upto 2m
depths, carting away, stacking & spreading bore. Cyclic vertical toad tests,
Pull out load tests, Routine cyclic vertical load tests. Pile’ Integrity test.
Routine lateral vertical load test, Routine pull out load test This PO is issued
for piling works and is a composite supply of goods and services and GST is
calculated @ 18% on the entire value of the works.
4. PO Number 4500407286 dated 22.04.2020 on S.R. Selvaraj & Sons. Thoothukudi -
for Civil & Structural works for CCPL with SAC 995413. The service details under
this PO are Excavation in ordinary soil, boulders/rock, supply of black fill
earth. Laying of thick layers of rock boulders, crushed stone, mixing placing
concrete, fixing wrought timber formwork concrete, cement grouting for base
plates, anchor, etc- This PO is issued for the civil A structural works as a
composite supply and GST is calculated 18% for the entire value.
5. PO No. 4500405071 doled 11.03.2020 on Sharp Tanks and Structurals Pct Ltd,
Mumbai - for 2 Nos Fire Water Tanks (EPC) with SAC 995442. The service details
under this PO are Completion of Engineering, Supply of all materials. Erection,
fitup, Welding & testing, Completion of all nozzels A piping, completion of
painting, completion of Pre-commissioning activity. Hydrotesting. Mechanical
completion- This PO is issued for undertaking the construction service involving
Engineering, supply, Installation, Prefabrication. Erection, etc of 2 nos of
Fire water Tanks, i.e, lite work starts with complete Engineering and covers
supply, installation, pre-fabrication, erection & completion. The supply as per
this PO is a composite supply of various goods and services and GST is
calculated la 18% on the entire value of the works.
6. PC) No. 45000407798 dated 08.05.2020 on Maharashtra Seamless Limited, Raigad-
for supply of 6* Pipe, SMLS, LTCS for 3,643 M; 10*Pipe, WLD. LTCS for 12 M; 16”
Pipe. WLD, LTCS for 598 M; 16” Pipe. WLD. LTCS for 6.680 M with SAC 7304 and GST
@18%.
From the above, it is seen that the,-
Refrigerated storage tanks and Fire water Tanks are got constructed/ Erected &
Installed along with the related foundation works as ‘Works Contract’
vide PO No. 4500405026 dated 11.03.2020 and PO No 4500405071 dated 11.03.2020
respectively issued on Sharp Tanks and Structurals Pvt Ltd. Mumbai;
Pipes are sourced vide PO No. 45000407798 dated 08.05.2020 issued on Maharashtra
Seamless Limited. Raigad;
Civil Structural works for laying such pipes across the jetty and the terminal
is covered under PO Number 4500407286 dated 22.04.2020 issued on S.R. Selvaraj &
Sons, Thoothukudi: and
Pile foundation works for the project is covered under PO No. 4500401679 dated
10.02.2020 issued on Geo Foundations & Structures Private Ltd.
From the above, it is further seen that the construction of Refrigerated Storage
Tanks and Fire Water Tanks are undertaken by the vendors of the applicant as
Works Contract’. The vendors as per the Purchase Orders are to undertake the
construction as an EPC and is to handover after successful demonstration of
Performance Guarantee (PG) parameter. In respect of ‘Pile foundation works’ for
the project site, it is seen that the entire work is undertaken by the vendor as
Works Contract’ as the scope of work includes the entire spectra of activity
from Mobilisation to loadtest. The civil & structural works for CCPL is again
executed as Works Contract. The applicant seeks the tax paid for the services
executed as Works Contract’ in respect of Refrigerated Storage Tanks; Fire Water
Tanks and the Pile foundation works as Input Tax Credit. Further, they also
claim that they are eligible to credit of tax paid on the supply of Pipes
(goods) sourced by them on own account and to be used for Cross Country Pipe
Linc(CCPL) proposed to be laid from the jetty to the terminal.
7.4 The contention of the applicant in general is that the above are used in the
course or furtherance of business and are ‘Plant and Machinery’ excluded by the
restrictive Section 17(5) and in particular.-
In respect of the pipelines,
They are unique mode of transportation used to bring the inputs;
constitute an integral and inseparable part in the manufacturing process;
to be considered as part of the factory:
Expression used in the explanation to Section 17 of the Act refers “Plant and machinery” to mean which are used for making outward supply of goods or services or both and hence only such pipelines used for outward supply should be denied credit
In respect of Refrigerated Storage Tanks,-
These are integral part and inseparable in the manufacturing process
Cannot be considered as a ‘civil structure’ excluded in the definition of ‘Plant and machinery’
“Storage tanks” have been specifically included in the definition of “Capital Goods” in the erstwhile Cen vat Credit Rules
In respect of Water Tanks,-
These are integral part of firefighting system;
Minimum fire protection measure is required to be taken at the terminal as per the Oil Industry Safety Directorate Requirement Standards-Standard
Cannot be considered as a ‘civil structure’ excluded in the definition of ‘Plant and Machinery’
8.1 With the above facts, before
taking up the contentions of the applicant, the Input Tax Credit provisions
relating to the present case are examined as under:-
Section 2(59) of CGST Act: ‘Input’ means any goods other than capital
goods used or intended to be used by a supplier in the course or furtherance of
business;
Section 2(19) of CGST Act: ‘capital goods’, means goods, the value of which
is capitalised in the books of account of the person claiming the input tax
credit and which are used or intended to be used in the course or furtherance of
business’.
Section 16(1) of CGST Act:
“Every registered person shall, subject to Such conditions and restrictions
as may be prescribed and in the manner specified in section 49, be 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 in the course or furtherance of his
business and the said amount shall be credited to the electronic credit ledger
of such person.”
Section 17(5) of CGST Act:
(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-
section (1) of section 18. input tax credit shall not be available in respect of
the following, namely;-
(c) Works contract Services when supplied for construction of an immovable
property (other than plant and machinery/ except where it is art input service
for further supply of works contract service;
(d) Goods or services or both received by a taxable person far construction of
an immovable property (other than plant or machinery) on his own account
including when such goods or Services or both are used in the course or
furtherance of business
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.
8.2 From the above provisions, it is evident that,-
Inputs are those which are not capitalized in the books of accounts and which
are used or intended to be used in the course or furtherance of business;
Capital goods are those which are capitalized in the books of accounts and which
are intended to be used in the course or furtherance of business;
Credit of tax paid on goods and services received is eligible as credit when
such goods or services are used in the course or furtherance of business;
Credit of tax paid on ‘Works contract service’ is available only when it is
supplied for construction of an immovable property which is ‘Plant and
Machinery’ or when such works contract service is an input service for further
supply of Works Contract Service;
Credit of tax paid on goods or services received on own account, for
construction of immovable property is available only when such immovable
property is a ‘Plant and Machinery’
Plant and Machinery,-
are apparatus, equipment, machinery fixed to earth by foundation or structural support;
are that which are used for making outward supply of goods or services;
includes such foundation and structural supports:
excludes land, building or any other civil structures;
excludes Pipelines laid outside the factory premises
8.3 Applying the above, to the
case at hand, it is seen that the applicant sources Pipes on their own account
for getting it laid and the said pipes are laid as a ‘Works Contract’ including
the foundation and structural supports; the Storage Tanks and water tanks along
with the foundation are sourced as ‘Works Contract’; the pile foundation for the
entire project site is sourced as ‘Works Contract’. It is not in dispute that
the Pipelines, storage tanks and water tanks are put in place for furtherance of
their business and thereby the tax paid on these becomes eligible credit subject
to limitations under Section 17(5) of the Act as these are constructed under
‘Works Contract” and the resultant is an immovable property. The applicability
of the limitations at Section 17(5) of the Act, to the items on which credit is
sought is taken up for consideration in the foregoing paras.
9.1 With respect to goods and services for laying of transfer pipeline and the
foundation and structural support for such pipeline, it is seen that the
applicant sources Pipes on own account and the same is laid as a “Works
Contract’ including the foundation. Section 17(5) restricts the credit on such
goods received for construction & Works Contract service received except when
such ‘goods/Works Contract’ services are availed in respect of ‘Plant and
Machinery’ and Explanation, which defines ‘Plant and Machinery’ restricts credit
on the ‘Pipelines laid outside the factory’.
9.2 We find the applicant has contended that the exclusion is applicable only to
those pipelines laid outside the factory premises which are used to make outward
supply, whereas in the case at hand the pipelines are laid for inward
transmission; and that definition of ‘factory’ as per factories act, slates that
‘factory’ means any premises including the precincts thereof, hence the factory
includes the surrounding areas, which is pipeline laid from jetty to Terminal
and therefore the pipeline shall be regarded as available within the premise of
the factory’ and eligible for credit.
9.3 We find the Explanation specifies that apparatus, equipment, and machinery
fixed to earth by foundation, used for making outward supply of goods is ‘Plant
and Machinery’ and there are specific exclusions, which include ‘Pipelines laid
outside the factory premises’ The Act clearly states what constitutes ‘Plant and
Machinery’ and in that what is excluded i.e. apparatus, equipment,
machinery-used for making outward supplies and fixed to earth by foundation or
structural support constitutes ‘Plant and Machinery’ and the ‘Pipelines laid
outside the factory premises’ are excluded from the ambit of ‘Plant and
Machinery’ for the purposes of eligible Credit. We find that the interpretation
of the applicant that ‘Pipeline laid outside the factory premises and used for
making outward supply’ are alone excluded has no merit and we do not agree with
this interpretation. The construction of this Explanation is straight in as much
as it defines what constitutes ‘Plant and Machinery’ and what is excluded. While
it says that those apparatus, equipment, machinery which are embedded to earth
used for providing outward supply are ‘Plant and Machinery’, it excludes the
pipelines laid outside the factory premises. If the intention of the statute is
to exclude only those Pipelines laid outside the factory for outward
transmission’, the explanation docs not reveal the same.
9.4 It is pertinent at this juncture to refer to the discussions of die GST
Council meetings GST council is a constitutional body and after discussions, the
council recommends the Government on the LAW, rates, etc for implementation of
GST. The draft Law was discussed by the council, the minutes of which are
available in the council’s website www.gstcouncil.gov. Reference to the said
minutes provides the intentions of the provisions as the same definitely has a
refential value, though not binding. The minuted discussions relevant to
extension of Credit to ‘Pipelines’ as discussed are extracted under:
10th GST council meeting, wherein it is minuted as follows:
9.2, SI. No. 18 (Section 16- Eligibility and condition for taking input tax
credit): The Hon’ble Minister from Kerala stated that the definition of
‘capital goods’ under Section 16(1) was too wide and needed to be looked into
again. He staled that in the VAT law there was a clear negative list of goods on
which input Tax credit was permitted. The commissioner (GST policy Wing). CBEC
explained that the Council in its 7th Meeting (held on 22-23 December, 2016) had
decided not to extend the benefit of input tax credit on pipelines and telecom
towers and the deletion of the proviso in Section 16(1) and the explanation to
Section 16(4) was carried out to give effect to this decision. Shri Rajan
Khobragade CCT Kerala stated that even after deleting the word ‘pipelines’ und
telecom towers’ in section 16, there could be an interpretation that input tax
credit on these two items could be taken. CCT, Gujarat explained that the
presently drafted definition of capital goods in the model GST law needed
re-examination as the present explanation below Section 16(4) of the model GST
Law made any apparatus, equipment or machinery fixed to earth and used for
making outward supply of goods or services eligible for input tax credit and
this could potentially cover pipelines and telecom towers. Shri P. K. Mohanty,
Consultant (GST), CBEC stated that the concern of the states was that the
definition of the term ‘plant & Machinery’ was very wide and observed that one
way to address this concern was to restrict the meaning of ‘plant & Machinery’
to certain specified chapters of the Harmonised System of Nomenclature (HSN),
namely chapters 84 (mechanical Machinery), 85 (electrical machinery) and 90
(apparatus and equipments) on which the benefit of input tax credit could be
given and by this method, input tac credit to a product like pipeline falling
under chapter 73 of HSN would not be available. The secretary stated that
another option could be to specifically exclude pipelines and telecom towers
from the definition of capital goods. CCT, Gujarat stated that even railway
tracks and road could get covered in the definition of the capital goods as they
were fixed to earth and used for supply of goods and services. The secretary
stated that railway tracks should not be excluded from the definition of capital
goods and that the major issue was the telecom towers.
9.2.1 Commissioner, GST Council stated that it was difficult to define plant &
machinery and that in most of the VAT laws of the world, the terms machinery,
equipment and apparatus were used. He explained that the difficulty in giving a
chapter wise listing of capital goods eligible for input tax credit would be
that the list would become too long. He further stated that in case input tax
credit was allowed only for goods falling under certain specified chapters of
HSN, then many goods used as plant and machinery but not falling within those
specified chapters would become ineligible for input tax credit. He therefore
suggested to use generic expression and to list out the items on which input tax
credit was not to be given. The Council agreed that the law Committee of
officers should re-examine the definition of ‘Capital goods’.
Minutes of 11th GST Council Meeting given below:
6.2 Shri Upender Gupta, Commissioner (GST policy Wings), Central Board of Excise
& Customs (CBEC) broadly explained the changes made in the CGST law between the
draft of 26th November, 2016 (which was the most recent version of the draft
laws put in public domain)and the draft of 1 March 2017 presented as an Agenda
Note for the 11th Meeting of the Council. These broad changes are recorded in
Annexure 3 and were circulated to the Council members during the meeting.
Annexure 3
Changes in Model GST Law (between 26th Nov, 2016 draft to 1st March 2017 draft)
Input Tax Credit |
1. The definition of
aggregate value of turnover has been amended in section relating to
Input Service Distributor, in order to enable distribution of GST credit
in the ratio of turnover of GST and Non-GST supplier (petroleum etc.)
for even State (Section 20). |
On a cogent reading of the above,
it is evident that the intention of the GST Law is to exclude ‘Pipelines laid
outside the factory premises’ from the definition of ‘Plant and Machinery’. In
Ute ease at hand, the applicant has slated that the pipelines approximate length
of around 4.1 Km are to be laid from jelly to the Terminal and accordingly, we
hold without any hesitation that the credit of Pipes and Pipelines laid outside
the factory’ is not available for the applicant. The decisions relied upon by
the applicant is based on the earlier laws and do not have any application while
considering the GST Provisions, in as much as the GST law has clearly defined
what is to be considered as ‘capital goods’. ‘Plant and Machinery’ and the
specific exclusions.
9.5 With respect to the claim of the applicant that as per the definition of
‘factory’ under factories act. the precincts are pan of the factory and
therefore the pipelines are part of the factory, we find that adoption of the
definition under another Act (proposed for a different purpose) is not tenable
as held by Hon’ble Supreme Court in the case of M/s. Msco. Pvt. Ltd Vs. Union of
India, 1985 AIR 76, wherein the Apex Court has held as follows:
“But while construing a word which occurs in a statute or a statutory instrument
in the absence of any definition in that very document it must be given the same
meaning which it receives in ordinary parlance or understood in the sense in
which people conversant with the subject matter of the statute or statutory
instrument understand it. It is hazardous to interpret a word in
accordance with its definition in another statute or statutory instrument and
more so when such statute or statutory instrument is not dealing with any
congate subject.”
.....emphasis supplied
Also, under GST Law. when the applicant takes registration of the place of
business including all the additional place of business, provides the details of
the premises and the applicant has not furnished any evidence or claim before
us, that the pipelines are being laid within the declared premises and therefore
we hold this contention as not substantiated.
9.6 In new of the above, we hold that the applicant is not eligible for
availment of input tax credit of GST paid on goods and services for laying of
transfer pipeline and the foundation and structural support for such pipeline
for transporting propane/Butane from jetty to the Terminal as pipelines laid
outside the factory premises as being restricted under Section 17(5) of the act
read with the Explanation thereof.
10.1 In respect of Refrigerated storage tanks, it is seen that the stone are
sourced as ‘Works contract’ and the applicant claims that the ‘Storage tanks’
are ‘Plant and Machinery’ and therefore the availment of credit on the taxes
paid on the putting up of storage tanks along with the foundation and structural
works are not restricted under Section 17(5). They have also stated that in the
earlier law. ‘Storage Tank’ was specifically mentioned under ‘Capital Goods’ and
have claimed that as per the Company’s Act and the Income Tax Act. Storage Tanks
are ‘Capital Goods’. It is not in dispute that the refrigerated storage tanks
are set up in the course or furtherance of business. The Explanation in Section
17 of the Act defines. ‘Plant and Machinery’ as an apparatus, equipment,
machinery fixed to earth by the foundation or structural support used for making
outward supply and excludes land building and civil structure. So we find that
the moot point to be decided is whether the ‘refrigerated storage tank’ falls
under the class of apparatus, equipment, machinery and the proposed foundation
or structural support claimed falls under the ‘foundation’ or ‘civil structure’
10.2 From the submissions it is seen that, the Propane/Butane is stored,
processed and maintained in refrigerated storage tanks before being dispatched
to the end customers as per their requirements. Refrigerated storage tanks are
constructed in a manner which can facilitate storage of Propane/ Butane and
maintain its characteristics. It is built with certain equipment along with the
concrete inputs to enable it to perform the said functions. Therefore, it is
clear that these tanks are used for making outward supply’.
10.3 The GST Act does not define apparatus, equipment, machinery, foundation,
civil structure Therefore, the general parlance understanding of the above terms
is to be considered.
Apparatus is the technical equipment or machinery needed for a particular
activity or purpose;
Equipment most commonly refers to a set of tools or other objects commonly used
to achieve a particular objective
Ramanatha Aiyar’s Legal Lexicon: The word apparatus would certainly mean the
compound instrument or chain of series if instruments designed to carry out
specific function or fora particular use (Commer. Of Customs v C.NET
Communication (1/ (P) Ltd.. (20071 12 SCC 72. 82-83, para 36).
Apparatus is a compound instrument designed to carry out a specific function or
for a particular use. l.CB. (P) Ltd. v. CCE, 1997 (95) ELT 239 (T).
Equipment; Equipment is a thing which is used for a particular purpose
(Collins Cobuild Dictionary, as referred in O.K. Play (India) Ltd. v. CCE.
(200S) 2 SCC 460. 468, para 29)
In the case at hand, the applicant has stated that the refrigerated storage
tanks are built for a specific purpose of safe storage of Propane/ Butane for
outward supply on blending in the required proportions. Therefore, we concur
with the claim of the applicant that the refrigerated storage tanks may qualify
as an apparatus or an equipment, as long as the applicant capitalizes these
tanks and accounts these tanks under ‘Plant and Machinery’ in their books of
accounts and not as Immovable property’.
10.4 The applicant has furnished the drawing of the representative Refrigerated
Tank with elevated base along with their application, wherein it is seen that a
pile foundation is made in the site, on which a concrete foundation is made on
which the refrigerated storage tanks are constructed/fabricated. From the
Purchase Order, issued to M/s. Sharp Tanks and Structurals Pvt Ltd Mumbai vide
PO No. 4500405026 dated 11.03.2020 (copy of which is furnished), it is seen that
the entire refrigerated storage tank along with the foundation and structural
support are covered under the scope of this PO. Therefore, we hold that the
applicant is eligible for availing credit of tax paid on the setting up of 2 nos
of the Refrigerated storage tank ordered vide Purchase Order No. 4500405026
dated 11.03.2020, in as much as such tanks stands accounted as Plant and
Machinery’ in their books of accounts and the structural support to such tanks
is as per the scope of the said Purchase Order
10.5 It is further seen from the representative diagram furnished that the
concrete foundation is made on the ‘Pile foundation’. Tile Foundation’ is a
‘civil Structure’ and cannot be attributed as a foundation or structural support
for an equipment/apparatus. From the Purchase Orders furnished, we observe that
the ‘Pile Foundation’ for the Project site is vested with ‘Geo Foundations &
Structures Private Ltd’ as a separate work. This by itself shows that the ‘Pile
foundation’ is not a structural support or foundation for the storage tanks
under consideration. The ‘Pile foundation’ as slated by the applicant is made
considering the geophysical nature of the area to strengthen the load bearing
capacity and is not a structural support for the Tanks under consideration.
These ‘Pile foundations’ clearly fall under the class of ‘Other Civil
Structures’ excluded from the ambit of ‘Plant and Machinery’’. While the
provision is by itself explicitly clear, even by applying the principle of
Ejusdem Generis, we find, the Pile foundation’ are more aligned with the ‘Land’,
which stands excluded, than the ‘structural support for an equipment’ which is
stated as ‘Plant and Machinery’ in the ‘Explanation’ to Section 17 of the GST
Act. Therefore, credit on such ‘Pile foundation’ are not available, they being
‘other civil structures’ and excluded in the explanation to ‘Plant and
Machinery’.
10.6 The case laws referred are in the context as to whether the storage tanks
are capital goods though they are fixed to earth in the context of the
provisions of the earlier law. The relied upon cases being specific
interpretations of the existed law are not of much use to the case at hand and
therefore we are not going into specifics, while we acknowledge the generally
held decision that ‘Storage tanks’ though become “immovable property’ still are
eligible for credit as ‘Plant and Machinery’, which we have held.
10.7 In view of the above, we hold that the applicant is eligible for availment
of input tax credit of GST paid on goods and services used for setting up
refrigerated storage tank including the structural support thereon as per the
Purchase Order No. 4500405026 dated 11.03.2020 subject to the condition that the
tanks are capitalized in their books of accounts as Plant and Machinery’ and not
as ‘Immovable Property’ and the applicant are not eligible to avail input credit
of goods and services used for Pile foundation’ as per the Purchase Order No.
4500401679 dated 10.02.2020.
11.1 The final issue to be decided is the eligibility of credit of tax paid on
construction of water lank to follow the fire protection measure al Terminal.
The applicant has stated that water tanks are part of fire fighting system which
are required to be maintained as per Draft OISD standard-236(copy enclosed). In
Page No. 24 of said standard. ‘Fire Water System’ is prescribed under ‘Fire
protection system for LPC Terminal’. Water Storage is stated as main component
of ‘Fire Water Systems’ Thus, we And that the water storage tanks with the
necessary tools/equipment are to be maintained in the Terminal as a ‘Fire
Protection System for LPG Terminal’ and therefore they are constructed in the
course of business. These Tanks are constructed as ‘Works Construct’ as seen
from the Purchase Order No. 4500405071 dated 11.03.2020 issued on Sharp Tanks
and Structurals Private Ltd. The important point, therefore to decide on the
eligibility to credit on the works received based on this Purchase Order is
whether the Waler Storage Tanks’ are ‘Plant and Machinery’ as per the
Explanation to Section 17 of the Act.
11.2 As brought out in para 10.3 above, an equipment/apparatus is one used for a
particular purpose. Considering this definition of equipment/apparatus and the
requirement of the applicant to maintain such a water Storage system we are
inclined to hold the Water Storage Tanks’ in the case of applicant, as ‘Plant
and Machinery’ provided, the said tanks are accounted as ‘Plant and Machinery
and not as ‘Immovable Property-Land and Building’ in their books of accounts.
11.3 Having found as above, we again see that the applicant in this instance
also, claims the credit of ‘Pile Foundation’ made upon which the Water storage
tanks are constructed with necessary’ foundation /structural support. We find
that the applicant vide the PO No. 4500405071 dated 11.03.2020 has entrusted the
entire work of construction/fabrication of the water storage tanks along with
the required structural support or foundation required for such water tank,
while the Tile foundation’ of the site is entrusted as separate work, which by
itself goes to prove that the ‘Pile foundation’ are not the foundation required
for the Waler Storage Tanks and are not part of ‘Plant and Machinery’, the fact
of which has already discussed in detail in Para 10.5 above.
11.4 In view of the above, we hold that the applicant is eligible for availment
of input tax credit of GST paid on goods and services for setting up of Fire
Water reservoir (tank) including the structural support thereon as per the
Purchase Order No 4500405071 dated 11.03.2020 subject to the condition that the
tanks are capitalized in their books of accounts as ‘Plant and Machinery’ and
not as Immovable Property” and the applicant are not eligible to avail input
credit of goods and services used for ‘Pile foundation’ and input credit on
goods and services used for such pile foundation.
12. In view of the above. We rule as under
RULING
1, The applicant is not eligible
for availment of input tax credit of GST paid on goods and services for laying
of transfer pipeline and the foundation and structural support for such pipeline
which is intended for unloading Propane/Butane from the Vessel/Jetty to the
Terminal for the reasons discussed in Para 9 above.
2. The applicant is eligible for availment of input tax credit of GST paid on
goods and services used for setting up refrigerated storage tank including the
structural support thereon as per the Purchase Order No 4500405026 dated
11.03.2020 subject to the condition that the tanks are capitalized in their
books of accounts as Plant and Machinery’ and not as ‘Immovable Property’ and
the applicant are not eligible to avail input credit of goods and services used
for ‘Pile foundation’ as per the Purchase Order No. 4500401679 dated 10.02.2020
for the reasons discussed in Para 10 above
3. The applicant is eligible for availment of input tax credit of GST paid on
goods and services for setting up of Fire Water reservoir(tank) including the
structural support thereon as per the Purchase Order No. 4500405071 dated
11.03.2020 subject to the condition that the tanks are capitalized in their
books of accounts as ‘Plant and Machinery’ and not as Immovable Property’ and
the applicant are not eligible to avail input credit of goods and services used
for ‘Pile foundation’ and input credit on goods and services used for such pile
foundation for the reasons discussed in Para 11 above
Shri Kurinji Selvaan V.S.
(Member TNGST)
Shri B. Senthilvelavan. B
(Member CGST)
To
M/s. SHV Energy Private Limited,
LPG Storage Terminal, (Near Red Gate),
New Harbour, Tuticorin-628 004.
//By RPAD/premal@supergas.com//
Copy Submitted to:
1. The Principal Chief Commissioner of GST & Central Excise, 26 / 1, Mahatma
Gandhi Road, Nungambakkam, Chennai-600034.
2. The Additional Chief Secretary/Commissioner of Commercial Taxes, IInd Floor,
Ezhilagam Chepauk, Chennai-600 005.
Copy to:
3. The Commussioner of GST & Central Excise, Chennai (outer) Commissionerate
Newry Towers, No 2054, I block, lInd Avenue, 12th Main Road, Annanagar,
Chennal-600 040..
4. Assistant Commissioner(ST) Sriperumbudur Assessment Circle, 4/1,
Varadharajapuram Chennai- 600 123.
5. Master File/ Spare-2
Equivalent .