The Tamil Nadu Authority for Advance Ruling (AAR) has delivered an important ruling on the eligibility of Input Tax Credit (ITC) in relation to electrical works carried out for factory expansion.
In Advance Ruling No. 32/ARA/2025 dated 18 August 2025, passed in the case of Shibaura Machine India Private Limited, the applicant had undertaken electrical installation works such as supply, installation, testing, and commissioning of electrical systems for a newly constructed factory building adjoining its existing manufacturing unit.
The applicant contended that the electrical installations were essential for manufacturing operations and should qualify as plant and machinery, making the ITC admissible. It was also argued that mere capitalisation in the books of accounts should not determine ITC eligibility.
However, the Authority rejected this argument and adopted a construction-centric approach. It held that the electrical works were executed under a composite contract and became inseparable from the factory building. Since the installations resulted in the creation of immovable property and were capitalised as part of the factory infrastructure, they were treated as works contract services.
On this basis, the AAR concluded that Input Tax Credit on such electrical works is blocked under Section 17(5)(c) and Section 17(5)(d) of the CGST Act, 2017, as the credit pertained to construction of immovable property on the applicant’s own account.
This ruling reinforces the restrictive interpretation adopted by advance ruling authorities in cases involving factory construction and expansion, particularly where electrical and allied works are integrated with the building structure.