Eligibility of Input Tax Credit (ITC) on Electrical Installation
Work for Factory Expansion
(Advance Ruling No.:
32/ARA/2025 / Date of Ruling: 18 August 2025 / Authority For Advance
Ruling, Tamil Nadu / Name and Address of Applicant: M/s. Shibaura
Machine India Private Limited)
Summary of
Advance Ruling
The applicant sought a
ruling on whether Input Tax Credit (ITC) can be availed on the electrical
works undertaken for the expansion of its manufacturing factory, and
the timing for availing ITC on advance component invoices raised
by the supplier under a composite contract for electrical installation.
After examining the
nature of the contract and relevant legal provisions, the Authority held that:
- The electrical installation works
form part of the immovable property.
- Such works fall under Works
Contract Services used for construction of immovable property,
which are blocked under Section 17(5)(c) and (d) of the CGST Act.
Hence, ITC is not eligible on such expenses.
As ITC itself was disallowed, the question regarding the timeline for
availing ITC on advance invoices was rendered irrelevant.
Questions
Raised in the Ruling
1. Whether
Input Tax Credit (ITC) is eligible on electrical works carried out for
expansion of factory for manufacturing activity?
2. What
should be the basis to arrive at the timeline to avail ITC on tax invoice
raised by supplier to bill “advance component” of the contract and subsequent
adjustment of advance in the service bills showing both gross and net amount?
Relevant
Sections of the GST Law
- Section 16(1)
– Eligibility and conditions for taking ITC
- Section 17(5)(c) & (d)
– Blocking of ITC in respect of works contract and construction of
immovable property
- Definition of “Plant and Machinery”
(Explanation to Section 17)
- Section 2(119)
– Definition of Works Contract
- Section 2(30)
– Definition of Composite Supply
- Schedule II, Para 6(a)
– Works Contract to be treated as supply of services
Submissions
by the Applicant
- The applicant manufactures injection
moulding machinery and constructed a new adjacent factory for
expansion.
- They entered into a contract with M/s
SMCC Construction India Ltd. for supply, installation, testing, and
commissioning of electrical works valued at ₹24.15 crore (exclusive of
GST).
- The contract covers LT Panels,
Busducts, Light Fixtures, Lightning Protection Systems, and related Civil
Works.
- Applicant argued that:
- These installations are movable
in nature, can be removed and re-installed, and therefore do
not qualify as immovable property.
- Even if considered fixed, they form
part of plant and machinery, which is excluded from the
restriction under Section 17(5).
- Cited rulings supporting ITC
eligibility such as:
- M/s Nipro India Corporation
Pvt. Ltd. (AAR Maharashtra, 2018)
- M/s Elixir Industries Pvt.
Ltd. (AAR Gujarat, 2024)
- Claimed that only civil work
portions are capitalized as “building”, while electrical works are
capitalized as Plant & Machinery.
- For advances, argued that ITC
should be claimable upon receipt of supply, even if the final invoice
is issued after the financial year limit under Section 16(4).
Discussion
and Findings by the Authority
1. Nature
of Supply:
o The
contract is a composite works contract involving supply, installation,
and commissioning of electrical works.
o These
works are integral to the building infrastructure and become immovable
property once installed.
2. Movable
vs Immovable:
o Although
some components (like panels and fixtures) can be removed, the entire
electrical system is permanently fastened to the walls, ceilings, or
structures attached to the earth.
o The
contract itself refers to the completed work as “Permanent Work”—confirming
its immovable nature.
3. Plant
and Machinery Consideration:
o The
definition of plant and machinery requires that it be apparatus or equipment
fixed to earth by foundation or structural support and used for making
outward supplies.
o The
authority observed that electrical installations merely facilitate
operations and are not directly used for making outward supply.
Hence, they cannot qualify as plant and machinery for ITC eligibility.
4. Works
Contract Classification:
o Since
the project involves both goods and services supplied together, it qualifies as
a works contract under Section 2(119).
o Such
works, when related to immovable property, are treated as supply of services
and are blocked under Section 17(5)(c).
5. Citations
by Applicant:
o The
AAR found the reliance on Nipro India and Elixir Industries
rulings not applicable, as later rulings (such as Embassy Industrial Park
Pvt. Ltd. (Karnataka AAR, 2019) and Varachha Co-op Bank Ltd. (Gujarat
AAAR, 2023)) have clarified that ITC on electrical installations is not
admissible.
6. Second
Question (Timing of ITC):
o Since
ITC itself is ineligible, the question of timing to avail ITC on advance
invoices does not arise.
Answer to
the Questions
1. ITC
Eligibility: Not eligible. The tax paid on
electrical installation work for factory expansion is blocked under Sections
17(5)(c) and 17(5)(d) as it constitutes construction of immovable
property and not “plant and machinery.”
2. Timeline
to Avail ITC: Not applicable, since ITC on such
works is ineligible.
Conclusion
The Tamil Nadu Authority
for Advance Ruling held that:
- The electrical installation works
for the new factory form part of the immovable property.
- Such contracts are works contract
services under Section 2(119).
- Therefore, ITC on the GST paid for
these works is not admissible under Sections 17(5)(c) and (d)
of the CGST/TNGST Acts.
- Consequently, the timeline issue
for availing ITC on advance components was not answered.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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