Telecommunication service providers can avail ITC on Ducts and manholes used in OFC networks (Circular No. 219/13/2024)

Key Takeaways:

- Ducts and manholes used in OFC networks are classified as "plant and machinery"

- ITC is available on these components for telecommunication service providers

- The circular aims to prevent unwarranted litigation in the telecom sector

- This clarification ensures uniform implementation of GST provisions across field formations

- Right Click here and open Official Circular in new tab

Issue Handled:

The Circular No. 219/13/2024-GST addresses a significant issue in the telecommunications industry regarding the availability of input tax credit (ITC) on crucial components of optical fiber cable (OFC) networks.

Let's break down the key points and their implications:

Background:

The Cellular Operators Association of India (COAI) raised concerns that some tax authorities were denying ITC on ducts and manholes used in OFC networks. The denial was based on the interpretation that these components fell under the category of immovable property (other than plant and machinery), which is subject to ITC restrictions under section 17(5) of the Central Goods & Services Tax Act, 2017 (CGST Act).

Clarification on ITC Availability:

The circular provides a clear stance on this issue. It states that ITC is not restricted for ducts and manholes used in OFC networks under either clause (c) or clause (d) of sub-section (5) of section 17 of the CGST Act . This clarification is based on the following reasoning:

1. Definition of "Plant and Machinery":

The Explanation in 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 supply of goods or services . This definition includes the foundation and structural supports but excludes:

- Land, building, or other civil structures

- Telecommunication towers

- Pipelines laid outside factory premise

2. Nature of Ducts and Manholes:

- Ducts (PVC ducts/sheaths) and manholes (service/connectivity manholes) are essential components of OFC networks .

- They are necessary for laying, upkeep, and maintenance of optical fiber cables.

- These components are used as part of the OFC network for the outward supply of telecommunication signal transmission .

3. Classification as "Plant and Machinery":

- Ducts and manholes are not specifically excluded from the definition of "plant and machinery" in the Explanation to section 17 of the CGST Act .

- They are not considered land, building, civil structures, telecommunication towers, or pipelines laid outside factory premises .

Implications:

This clarification ensures that telecommunication service providers can avail ITC on ducts and manholes used in their OFC networks. It removes ambiguity and prevents potential disputes between taxpayers and tax authorities, thereby reducing the likelihood of litigation in the sector.

FAQs:

Q1: What specific components are covered under this clarification?

A1: The circular specifically mentions ducts (PVC ducts/sheaths) and manholes (service/connectivity manholes) used in optical fiber cable (OFC) networks.

Q2: Does this clarification apply to all telecommunication service providers?

A2: Yes, the circular applies to all telecommunication service providers using ducts and manholes in their OFC networks for providing telecommunication services.

Q3: Are there any conditions or limitations to availing ITC on these components?

A3: The circular does not mention any specific conditions or limitations. As long as the ducts and manholes are used in OFC networks for providing telecommunication services, ITC should be available.

Q4: How does this clarification affect past denials of ITC on these components?

A4: While the circular doesn't explicitly address past cases, it provides a clear interpretation that can be used to support appeals or revisions of previous denials.

Q5: Does this clarification extend to other components of telecommunication infrastructure?

A5: The circular specifically addresses ducts and manholes. Other components would need to be evaluated based on their nature and the definitions provided in the CGST Act.

Key Precedents:

- Central Goods & Services Tax Act, 2017 (CGST Act)

- Section 17(5) of the CGST Act

- Explanation to Section 17 of the CGST Act

- Circular No. 219/13/2024-GST dated 26th June, 2024

Circular No. 219/13/2024-GST

F. No. CBIC-20001/4/2024-GST

Government of India

Ministry of Finance

Department of Revenue

Central Board of Indirect Taxes and Customs

GST Policy Wing

North Block, New Delhi,

Dated the 26th June, 2024

To,

The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/Commissioners of Central Tax (All)

The Principal Directors General/ Directors General (All)

Madam/Sir,

Subject: Clarification on availability of input tax credit on ducts and manholes used in network of optical fiber cables (OFCs) in terms of section 17(5) of the CGST Act, 2017 -reg.

Representations have been received from Cellular Operators Association of India (COAI) submitting that input tax credit (ITC) is being denied by some tax authorities on ducts and manholes used in network of optical fiber cables (OFCs)on the ground that the same is blocked as per section 17(5) of the Central Goods &Services Tax Act, 2017 (herein after referred to as the ‘CGST Act”), being in nature of immovable property (other than Plant and Machinery). It has been requested to issue clarification in respect of availability of ITC on ducts and manholes used in network of optical fiber cables (OFCs), so as to prevent unwarranted litigation in the telecommunication sector across the country.

2. In order to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the CGST Act, hereby clarifies the issue as below.

Issue Clarification Whether the input tax credit on the ducts and manholes used in network of optical fiber

1. Sub-section (5) to Section 17 of the CGST Act provides that input tax credit shall not be available, inter alia, in respect of the following: cables (OFCs) for providing telecommunication services is barred in terms of clauses (c) and (d) of sub-section (5) of section 17 of the CGST Act, read with Explanation to section 17 of CGST Act ?

i. works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; or

ii. goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

2. Explanation in section 17 of CGST Act provides that the expression "plant and machinery" means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes land, building or any other civil structures; telecommunication towers; and pipelines laid outside the factory premises.

3. Ducts and manholes are basic components for the optical fiber cable (OFC) network used in providing telecommunication services. The OFC network is generally laid with the use of PVC ducts/sheaths in which OFCs are housed and service/connectivity manholes, which serve as nodes of the network, and are necessary for not only laying of optical fiber cable but also their upkeep and maintenance. In view of the Explanation in section 17 of the CGST Act, it appears that ducts and manholes are covered under the definition of “plant and machinery” as they are used as part of the OFC network for making outward supply of transmission of telecommunication signals from one point to another. Moreover, ducts and manholes used in network of optical fiber cables (OFCs) have not been specifically excluded from the definition of “plant and machinery” in the Explanation to section 17 of CGST Act, as they are neither in nature of land, building or civil structures nor are in nature of telecommunication towers or pipelines laid outside the factory premises.

4. Accordingly, it is clarified that availment of input tax credit is not restricted in respect of such ducts and manhole used in network of optical fiber cables (OFCs), either under clause (c) or under clause (d) of sub-section (5) of section 17 of CGST Act.

3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

4. Difficulty, if any, in the implementation of this Circular may be brought to the notice of the Board. Hindi version would follow.

(Sanjay Mangal)

Pr. Commissioner (GST)