The Gujarat Appellate Authority of Advance Ruling (AAAR), comprised of Seema Arora and Milind Torawane, ruled that LNG jetties are not in the nature of "plant and machinery," but rather serve as the foundation for the installation of re-gasification equipment, apparatus, and machinery.The input tax credit on inputs, input services, and capital goods for the purpose of building these LNG jetties is not admissible.
The appellant has entered into a concession agreement with the Gujarat Maritime Board and the Government of Gujarat. The appellant undertook the development, construction, operation, and maintenance of a Liquefied Natural Gas (LNG) port with a Floating Storage and Regasification Unit (FSRU) facility near Jafrabad, Gujarat, on a Build, Own, Operate, and Transfer basis. As a part of developing the LNG Port and FSRU facility, the appellant is developing an import terminal for FSRU near the village of Bhankodar, near Jafrabad, Gujarat. After the development of the Import Terminal, the appellant intends to provide LNG re-gasification service to prospective customers.
The appellant sought the advance ruling on the issue whether the LNG jetties proposed to be built by the applicant can be to be covered within expression 'plant and machinery' as foundation to equipment, apparatus, machinery to be installed on it.
The AAR ruled that the LNG jetties proposed to be built by the applicant are not covered within the expression 'plant and machinery' as foundation to equipment, apparatus, machinery to be installed on it in terms of Section 17 of the CGST Act, 2017 read with GGST Act, 2017.
"The applicant cannot avail the 'input tax credit' of GST paid on inputs, input services as well as capital goods procured for the purpose of building the LNG jetties in terms of Section 16 read with Section 17 of the CGST Act, 2017 read with the GGST Act, 2017," the AAR said.
The appellant filed an appeal against the AAR ruling under the provisions of Section 100 of the CGST and GGST Act, 2017. The appellant has quoted the text of Section 16(1) and contended that it entitles every registered person to take an input tax credit (ITC) of tax charged on the supply of goods or services or both, which are used or intended to be used in the course or furtherance of business.
The appellant cited Section 17(5)(c) and (d), which set forth limitations on the use of input tax credits.As per the Explanation to Rule 17(5), any foundation built for the installation of plant and machinery on it also gets covered under the expression "plant and machinery". As a result, the limitations on claiming input tax credits set forth in Sections 17(5)(c) and 17(5)(d) should not apply to foundations.Thus, the appellant contended that ITC of LNG jetties, which are actually foundations for the plant and machinery, should be available.
The AAAR found that allowing an input tax credit on the construction of a foundation cannot be decided in isolation without deciding as to whether items to be fixed on it fall within the definition of plant and machinery. The appellant has sought that the entire LNG jetties that are being constructed be treated as foundations for plant machinery that will be installed on it and to allow the input tax credit on inputs, input services, and capital goods to be used in the construction of said LNG jetties.
"We find that LNG jetties are nothing but civil structures, and civil structures are excluded from the definition of foundation and structural support. The foundation that is allowed in the definition of plant and machinery is that which fixes the plant and machinery to the earth, making it immovable. If a certain portion of LNG jetties is used for directly fixing plants and machinery, then it will not make jetties foundations for plants and machinery but they are only in the nature of civil structures," the AAAR while upholding the ruling of the AAR said.
Appellant's Name: M/s. Swan LNG Pvt. Ltd.
Advance Ruling: GUJ/GAAAR/APPEAL/2022/06