Can a manufacturer claim Input Tax Credit (ITC) on transmission-line assets installed outside the factory premises

Facts of the case: 

• The applicant, Alleima India Pvt. Ltd., operating a manufacturing plant in Gujarat, expanded production capacity and required enhanced power supply. 

• To meet the requirement, the company laid an underground cable line from a substation of Gujarat Energy Transmission Corporation (GETCO) to the factory premises. The infrastructure included cables, wires, ducts, switchyard/ electrical equipment, manholes, and related supervision and installation services. 

• Alleima capitalized the entire project cost (excl. GST)- reported as an asset in its books and sought to avail ITC on the procurement of these capital goods and services under the CGST Act, 2017. 

Arguments of the Appellant (Assessee): 

• The applicant argued that the cables, wires, and related electrical equipment are MOVABLE, not permanent civil structures and thus does not attract the “blocked credit” provisions u/s 17(5)(c) and (d). 

• It contended that all conditions u/s 16 of the CGST Act were satisfied: it possessed valid tax invoices, received the goods/ services, paid GST, and furnished requisite returns. 

• The nature of work laying underground cables was not a “works contract for immovable property”. Given that cables and ducts can be dismantled and relocated, they qualify as “plant and machinery”. 

• The company relied on the clarificatory CBIC Circular No. 219/23/2024-GST, dated 26 June 2024, which treats ducts and related network infrastructure (in context of optimal fibre cables) as “plant and machinery” for purposes of ITC- arguing similar rationale should apply for power-transmission infrastructure. 

• Finally, Alleima had capitalized the project cost in the books of accounts and treated the infrastructure as an enabling asset, thus reinforcing its claim to ITC. 

Arguments of the Respondent (Revenue): 

• The Revenue opposed that since the transmission infrastructure is located outside the factory boundaries, it does not qualify as “plant and machinery” but instead constitutes immovable property or civil structure. This would attract blocked credit restrictions. 

• The project involves excavation, laying underground cables over a long stretch, construction of ducts, manholes, and supervision of the installation. These activities resemble a “work contract for immovable property”, thereby restricting ITC under statutory provisions. 

• If the ownership or control of the transmission of assets eventually vests with GETCO, the revenue argues that the applicant is not the ultimate user of the assets. Such transfer could either deny eligibility for ITC or trigger a mandatory reversal u/s 18(6). 

The central issue/ argument for/of the revenue would be/ was that whether the transmission infrastructure truly falls within the definition of “plant and machinery”, or whether it should be treated as “immovable property” expressly excluded under blocked credit. 

Decision of the Court: 

The Gujarat AAR proposed ruling in favor of the applicant. It ruled that ITC is indeed admissible on the capital goods and related services used to lay power-transmission infrastructure from GETCO substation to the factory even though installed outside the factory premises. 

The AAR observed that the assets (cables, wires, switchyard equipment, ducts, manholes etc.) are movable in nature, can be dismantled, coiled or relocated, and thus are not “immovable property”, within the purview of blocked credit. 

Accordingly, provided the applicant met all pre-conditions u/s 16 the ITC was admissible. The AAR also noted that if, at a later stage, the assets revert to GETCO (or are transferred), then reversal u/s 18(6) would be triggered. 

Reasons for decision: 

• Nature of assets: The core basis is the “movable” and modular nature of cables, ducts, switchyards equipment they can be dismantled, relocated, and are not fixed immovable civil structures. 

• Definition of “plant and machinery”: Under explanation S. 17 of the CGST Act, which specifically excludes land & building, telecommunication towers, and pipelines laid outside the factory premises. The AAR found that the transmission infrastructure does not fall into excluded categories.  

• Precedent and analogous reasoning: The AAR relied on the recent clarificatory CBIC circular dated 26^th June 2024 that held ducts and manholes used for optical fibre cable networks qualify as “plant and machinery” — applying similar logic to power transmission infrastructure. 

• Compliance with statutory conditions: The applicant had in possession valid invoices, had received and capitalised the goods/services, paid GST, and filed return — satisfying Section 16 requirements. 

• Accounting treatment: Capitalisation in the books of account and claiming depreciation reinforced that the infrastructure is treated as a business asset, not as part of civil construction, thereby aligning with the “plant and machinery” classification. 

Applicability of the Judgment: 

• This ruling is a significant precedent for manufacturers and industrial units which arrange for dedicated power-transmission infrastructure (cables, ducts, switchyard, etc.) from a DISCOM substation to their factory especially where such infrastructure lies partly or wholly outside the factory premises. 

• It demonstrates that ITC can be legitimately claimed on capital goods and services used for external power-transmission infrastructure, subject to compliance with Sections 16 and 17 of the CGST Act. 

• Entities which have already capitalized such infrastructure or plan to arrange dedicated power supply via underground / overground transmission lines should consider this ruling while assessing GST credit eligibility. 

• The judgment also affirms the practical interpretation of “plant and machinery” under GST law, aligning with recent clarificatory circular and moving beyond narrow civil-structure vs machinery dichotomy. 

• However, enterprises must be mindful: if such assets are later transferred to DISCOM / transmission companies (as maintenance or ownership condition), they must ensure proper reversal of ITC under Section 18(6), as noted by the AAR. 

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