The main question posed to the Authority for Advance Ruling (AAR) was whether the Input Tax Credit (ITC) is eligible on electrical works carried out for the expansion of the factory for manufacturing activity
CHENNAI (India CSR): In a significant ruling that clarifies the applicability of Input Tax Credit (ITC) on industrial infrastructure, the Authority for Advance Ruling (AAR), Tamil Nadu, has decided that taxes paid on electrical installation work carried out for the expansion of a manufacturing facility are not eligible for ITC.
The ruling, issued as Advance Ruling No. 32/ARA/2025 (dated 18.05.2025), centered on an application filed by M/s. Shibaura Machine India Private Limited.
The Core Issue: Factory Expansion and Electrical Contracts
M/s. Shibaura Machine India Private Limited, engaged in the manufacture of injection moulding machinery and accessories, is expanding its business operations by constructing a new factory adjacent to its existing unit.
The company had entered into a separate contract for the “Supply, installation, testing & commissioning of Electrical Works” for this new factory. This contract included essential infrastructure components like LT Panels, Busducts, Light fixtures, and related electrical installation services, all taxable at 18% GST under SAC 995461.
The crucial question posed to the AAR was whether the ITC on these electrical works, carried out for the factory expansion, could be claimed.
Why ITC Was Denied
The Authority determined that the supply falls under the category of a ‘Works Contract’ service. Furthermore, the execution of this project leads to the creation of an immovable property.
The AAR noted that the entire electrical installation, although involving movable components like LT panels and light fixtures, becomes integrated into the building/infrastructure. It was concluded that the electrical work forms a composite supply that results in the construction of an immovable property, making it ineligible for ITC.
Key Message for Businesses
The Authority ruled that the ITC is specifically blocked under Sections 17(5)(c) and 17(5)(d) of the CGST/TNGST Acts, 2017.
These sections block ITC on:
Works contract services for construction of an immovable property (other than plant and machinery).
Goods or services received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account.
Crucially, the AAR did not consider the electrical installation, which forms part of the factory’s general infrastructure, to fall under the definition of “Plant and Machinery” for the purpose of ITC eligibility.
Secondary Query Answered
The applicant had also sought clarification on the timeline for availing ITC related to advance payments made to the supplier. However, because the main ruling concluded that the Input Tax Credit itself is blocked (negative answer), the second question concerning the timeline for availing ITC on the ‘Advance Component’ invoice does not arise.
This ruling serves as a vital reminder for manufacturers and businesses undertaking expansion projects that careful consideration must be given to how infrastructure installation services are categorized under GST law to determine ITC eligibility.
You Lear
The AAR concluded that the taxes paid under GST on the electrical installation work carried out for the factory expansion are not eligible for availment of Input Tax Credit (ITC) because it is specifically blocked under Sections 17(5)(c) and 17(5)(d) of the CGST/TNGST Acts, 2017
(India CSR)
