ITC on Breakwater Construction Denied: AAR Maharashtra Holds Sea Wall is Immovable Civil Structure, Not
ITC on Breakwater Construction Denied: AAR Maharashtra Holds Sea Wall is Immovable Civil Structure, Not "Plant and Machinery"
In a significant ruling with wide implications for infrastructure and marine-facing businesses, the Maharashtra Authority for Advance Ruling (AAR), has denied Input Tax Credit (ITC) on GST paid for construction of a breakwater wall at the applicant's LNG regasification terminal in Dabhol, Maharashtra.
Konkan LNG had engaged M/s Larsen & Toubro Ltd. under a works contract to construct/reconstruct a 2,300-metre breakwater comprising a rock core, armour layer, and specially engineered accropode units to protect the jetty and vessel berthing from monsoon sea conditions. The applicant argued the breakwater was essential "plant and machinery," relying heavily on the Supreme Court's functionality test laid down in Chief Commissioner of CGST v. Safari Retreats (P.) Ltd. [(2024) 23 Centax 62 (S.C.)], and urged that without the breakwater, safe year-round berthing and hence the regasification business itself would be compromised.
The AAR disagreed on multiple counts. First, it held that the services received were works contract services for an immovable property, squarely attracting Section 17(5)(c) rather than 17(5)(d) meaning the Safari Retreats functionality test (developed specifically for clause (d)) did not even apply. Second, and independently, the retrospective amendment to Section 17(5)(d) by the Finance Act, 2025 (effective 1.10.2025) now deems every reference to "plant or machinery" as "plant and machinery," rendering the Safari Retreats interpretation otiose going forward. Applying annexation, permanency, and marketability tests, the AAR found the breakwater to be a permanent civil structure explicitly excluded from the definition of "plant and machinery" under the Explanation to Section 17 since it only enables inward supply (safe unloading) rather than contributing to outward supply of goods or services.
Key Takeaway
The ruling confirms that marine and civil protective structures (breakwaters, sea walls, boundary structures) remain excluded from ITC even where operationally critical, unless they satisfy the strict definition of "plant and machinery." Post the Finance Act, 2025 amendment, reliance on Safari Retreats-style functionality arguments under clause (d) is significantly weakened businesses should reassess ITC positions on similar infrastructure works contracts.
Case law referred: In re: Konkan LNG Pvt. Ltd., (2026) 46 Centax 173 (A.A.R. GST Mah.), Order No. GST-ARA-123/18-19/2024-25/B-640, dated 18.12.2025.
