In the ever-evolving landscape of GST compliance, one significant update that demands attention is the recent clarification regarding the availability of input tax credit (ITC) on ducts and manholes used in optical fiber cable (OFC) networks. This clarification, issued by the Central Board of Indirect Taxes and Customs (CBIC) through Circular No. 219/13/2024-GST, addresses concerns raised by the Cellular Operators Association of India (COAI) regarding the denial of ITC on these essential components.
Background
Representations from the COAI highlighted that some tax authorities were denying ITC on ducts and manholes used in OFC networks, categorizing them as immovable property. This denial was based on the provisions of Section 17(5) of the Central Goods & Services Tax Act, 2017 (CGST Act). To prevent unwarranted litigation and ensure uniform implementation of the law, the CBIC has issued a detailed clarification.
Clarification on ITC Eligibility
Key Provisions of Section 17(5) of the CGST Act
Section 17(5) of the CGST Act specifies that ITC is not available in certain cases, including:
- Works contract services for the construction of immovable property (other than plant and machinery), except when it is an input service for further supply of works contract service.
- Goods or services received for the construction of immovable property (other than plant and machinery) on one’s account.
Definition of “Plant and Machinery”
The Explanation to Section 17 of the CGST Act defines “plant and machinery” as:
- Apparatus, equipment, and machinery fixed to earth by foundation or structural support used for making outward supplies of goods or services.
- Includes foundation and structural supports but excludes land, buildings, civil structures, telecommunication towers, and pipelines laid outside factory premises.
Inclusion of Ducts and Manholes in “Plant and Machinery”
The CBIC’s clarification states that ducts and maintenance holes are integral components of the OFC network, necessary for laying, maintaining, and providing telecommunication services. As they are not specifically excluded from the definition of “plant and machinery,” they qualify for ITC under the CGST Act.
Implications for the Telecommunication Sector
This clarification brings much-needed relief to the telecommunication sector by confirming that ITC on ducts and maintenance holes used in OFC networks is permissible. This ensures uniformity in tax treatment across the country and reduces the risk of litigation for telecommunication companies.
Conclusion
The CBIC’s Circular No. 219/13/2024-GST provides clear guidance on the availability of ITC for ducts and manholes in OFC networks, reinforcing their inclusion under “plant and machinery.” This update is crucial for businesses involved in the telecommunication sector, ensuring they can claim ITC on these vital components and maintain compliance with GST regulations.