The Ministry of Finance recently issued a crucial circular. This circular clarifies the availability of Input Tax Credit (ITC) for ducts and manholes used in optical fiber cable (OFC) networks. This update is essential for the telecommunications sector. It aims to ensure uniform implementation of the law and to prevent unnecessary litigation.
Background
The Cellular Operators Association of India (COAI) expressed concerns about the denial of Input Tax Credit (ITC ) on ducts and manholes by some tax authorities. These components are vital for OFC networks. However, authorities considered them immovable property. Consequently, they fell under the blocked credit provisions of Section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017.
Key Clarifications
Understanding Section 17(5) of the CGST Act
Section 17(5) of the CGST Act specifies instances where Input Tax Credit (ITC) is not available. Key points include:
- Works contract services for constructing immovable property (other than plant and machinery) unless used for further supply of works contract service.
- Goods or services used for constructing immovable property (other than plant or machinery) on a taxable person’s own account.
Definition of Plant and Machinery
Section 17 of the CGST Act defines “plant and machinery” as:
- Apparatus, equipment, and machinery fixed to the earth by foundation or structural support used for making outward supply of goods or services.
- It explicitly excludes land, buildings, civil structures, telecommunication towers, and pipelines laid outside factory premises.
Application to Optical Fiber Cable Networks
Components of OFC Network:
- Ducts: PVC sheaths house the OFCs.
- Manholes: Connectivity nodes are essential for laying, upkeep, and maintenance of the OFC network.
Clarification on ITC Eligibility:
- Ducts and manholes are part of “plant and machinery” because they are integral to the OFC network used for telecommunication services.
- These components do not fall under the exclusions (land, buildings, civil structures, etc.) specified in Section 17 of the CGST Act.
Conclusion
The circular clearly states that ducts and manholes used in OFC networks are eligible for ITC. They do not fall under the restricted clauses (c) or (d) of Section 17(5) of the CGST Act. Thus, this clarification will streamline tax processes and reduce litigation in the telecommunications sector.
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