Pranav B Prem

The Gujarat Appellate Authority for Advance Ruling (AAAR) has held that M/s. KEI Industries Ltd. is entitled to avail Input Tax Credit (ITC) on inputs and input services used for the construction of a concrete tower to support and erect Vertical Continuous Vulcanization (VCV) lines at its factory in Gujarat. The ruling overturns the earlier decision of the Gujarat Authority for Advance Ruling (GAAR), which had denied such credit.

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The appellant, a leading manufacturer and supplier of extra high voltage (EHV), medium voltage (MV), and low voltage (LV) cables, is setting up a new manufacturing plant in Gujarat in collaboration with Swiss company Brugg Kabel AG to produce EHV cables using the VCV process. For this purpose, a tall concrete tower structure was required to support the VCV lines. The appellant approached GAAR to clarify whether ITC was admissible on inputs and input services used for construction of the tower under Section 17(5)(c) and (d) of the CGST Act, 2017.

In its ruling dated 21 March 2025, GAAR denied ITC, reasoning that construction of such a tower amounted to construction of an immovable property on the company’s “own account,” which was barred by Section 17(5). It concluded that ITC on works contract services and goods or services used in such construction was ineligible, as the concrete tower did not qualify as plant and machinery.

Challenging this, the appellant argued that the concrete tower served as a structural and foundational support for the VCV lines, which themselves constituted “plant and machinery” under the Explanation to Section 17 of the Act. It was further contended that, after the Supreme Court’s ruling in Safari Retreats Pvt. Ltd. and the subsequent retrospective amendment to Section 17(5)(d) through the Finance Act, 2024, plant and machinery were specifically carved out as an exception from the bar on ITC. The company also relied on CBIC Circular No. 219/13/2024-GST, which had clarified that ITC is admissible on ducts and manholes used in Optical Fibre Cable (OFC) networks, treating them as plant and machinery.

After hearing both sides, the AAAR accepted the appellant’s position. The appellate bench of Sunil Kumar Mall (CGST Member) and Rajeev Topno (SGST Member) noted that the VCV tower was integral to the functioning of the manufacturing process and served as a foundation and structural support for the VCV lines. The Authority observed: “The moment it is held that the ITC sought is on construction of foundation and structural support relating to plant and machinery, it moves out of the ambit of section 17(5)(c) and (d) even if it is on their own account.” The AAAR also drew an analogy from the CBIC circular on ducts and manholes in OFC networks, holding that if ITC is not restricted in such cases, it cannot be denied for construction of the concrete tower that supports VCV lines for manufacturing EHV cables.

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Setting aside GAAR’s ruling, the AAAR held that M/s. KEI Industries Ltd. is eligible to avail ITC on inputs and input services used for construction of the concrete tower supporting VCV lines at its factory. The decision reaffirms that structural and foundational supports essential for plant and machinery fall within the exception carved out under Section 17(5) of the CGST Act.

Applicant’s Name: KEI Industries Ltd.