GST Input Tax Credit Denied for Factory Electrical Installations
The Appellate Authority for Advance Ruling ruled that electrical works for factory expansion are immovable property and ineligible for Input Tax Credit.
- Ruling
- Order No. AAAR/08/2025 (AR) dated 18.12.2025
- Dated
- 18 Dec 2025
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Shibaura Machine India asked if electrical works qualify for Input Tax Credit.
- The authority ruled these installations are part of immovable property.
- Input Tax Credit is blocked for construction of immovable property.
- The ruling confirms electrical infrastructure is not 'plant and machinery'.
In short
The company asked if they could claim Input Tax Credit (ITC) on electrical panels, wiring, and bus-ducts installed during a factory expansion. The tax authority decided these items are permanently attached to the building, making them immovable property rather than machinery. Because GST law blocks ITC for services used to construct immovable property, the claim was denied.
What has changed
How it worked before
Many businesses assumed that electrical installations essential for manufacturing could be classified as 'plant and machinery,' allowing them to claim ITC even if the items were attached to the factory structure.
What has changed
The authority clarified that if electrical works are intended for the permanent benefit of the building, they are treated as immovable property. This means businesses cannot claim ITC on these expenses, increasing the total cost of factory construction projects.
Who this affects
Manufacturing businesses planning factory expansions or new facility construction involving comprehensive electrical contracts.
An example
A textile manufacturer builds a new warehouse and installs a complex lighting and power distribution system. They want to claim ITC on the electrical contractor's bill. Based on this ruling, the tax department would likely view the wiring and panels as part of the building's permanent infrastructure and deny the credit.
What you should do
Review your construction contracts to see if electrical works are bundled as part of the building structure. Remember that this ruling only binds the company that asked; your local tax officer may have a different view, so consult a professional before deciding to claim or forgo credit.
If you do nothing
If you claim ITC on these expenses and the tax department disagrees, they may issue a demand notice for the tax amount plus interest and penalties. You could face a lengthy legal battle to prove your installations are 'plant and machinery' rather than building components. It is safer to assume these costs are not eligible for credit unless you have specific legal advice to the contrary.
The terms explained
- Input Tax Credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its own sales.
- Immovable Property
- Assets like buildings or land that cannot be moved without causing damage or losing their original character.
- Plant and Machinery
- Equipment or tools used for business operations that are generally eligible for tax benefits, unlike building materials.
The ruling in detail
Appellate Authority for Advance Ruling
M/s. Shibaura Machine India Private Limited
Order No. AAAR/08/2025 (AR) dated 18.12.2025 · Tamil Nadu
Questions before the authority
- Whether Input Tax Credit (ITC) is eligible on electrical works carried out for expansion of factory for manufacturing activity?
- What should be the basis to arrive 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.
Facts
The Appellant entered into a contract for the supply, installation, testing, and commissioning of electrical works for a new factory expansion. They sought an advance ruling on whether ITC is available for these electrical installations and the timeline for availing ITC on advance payments. The Appellant argued that these installations are movable and essential for manufacturing, thus qualifying as plant and machinery.
Ruling
| Question | What the authority ruled |
|---|---|
| Eligibility of ITC on electrical works | Not eligible Blocked under Section 17(5)(c) and 17(5)(d) of the CGST/TNGST Acts as they form part of immovable property. |
| Timeline to avail ITC on advance component | Does not arise The question was not answered as the main query on ITC eligibility was decided in the negative. |
The Appellate Authority upheld the original ruling, concluding that the electrical installations are not eligible for ITC. It determined that these works constitute part of the immovable property and do not qualify as plant and machinery under the GST law. Consequently, the second question regarding the timeline for availing ITC on advance payments was rendered moot.
Reasoning
The Authority reasoned that the electrical installations, including panels, bus-ducts, and wiring, are **permanently fastened** to the building and lack an independent existence, thereby becoming part of the immovable property. It held that these items do not meet the definition of 'plant and machinery' as they are not used for making outward supply but are generic infrastructure for the facility. The ruling relied on the **exclusion clauses** under Section 17(5)(c) and 17(5)(d) of the CGST Act, which block ITC for works contract services and goods/services received for the construction of immovable property. The Authority also applied the principles of the **functionality and permanency tests** to determine that the installations were intended for the permanent benefit of the factory building.
Provisions relied on
- Section 16(1) of the CGST Act
- Section 17(5)(c) of the CGST Act
- Section 17(5)(d) of the CGST Act
- Section 3(26) of the General Clauses Act
- Section 3 of the Transfer of Property Act
For the practitioner
This ruling reinforces a **restrictive interpretation** of ITC eligibility for electrical installations in factory construction, categorizing them as immovable property rather than plant and machinery. It serves as a warning for practitioners that even if equipment is technically movable, the **intent and nature of annexation** to the building will likely lead to the denial of ITC. It does not provide relief for taxpayers seeking to claim ITC on comprehensive electrical works contracts for new factory setups.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2026-02/2-shibaura_electrical_works_aaar_order_08-2025-1.pdf
Legibility of the scan, as read: high.
Prepared 12-10-2026.
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