AAR Rajasthan refuses advance ruling on ITC for completed construction of plant foundations
Background of the applicant and project
M/s CPL Pharmaceuticals Private Limited, a private limited company, is engaged in manufacturing and supplying a wide range of pharmaceutical products, including Active Pharmaceutical Ingredients (APIs), finished dosage forms, food supplements, biotechnology products and pharmaceutical machinery.
The assessee has established a new facility at RIICO, Udaipur (Kaladawas Extension, Phase II), Rajasthan, specifically to produce lyophilized injectable drugs. For setting up this lyophilized injectables plant (the “plant” / “factory”), the assessee issued a Purchase Order dated 14.02.2023 to Sribal Construction Company (SCC) for extensive civil, RCC, structural steel and ancillary works. These works were required to provide the foundation and structural support for heavy and highly specialized pharmaceutical machinery.
SCC discharged GST at 18% under SAC 995413 (“Construction services of industrial buildings such as buildings used for production activities (used for assembly line activities), workshops, storage buildings and other similar industrial buildings”) and raised tax invoices during FY 2023–24 and 2024–25. The assessee availed input tax credit (ITC) of the GST charged on these works contract services and approached the Authority for Advance Ruling, Rajasthan (AAR) seeking clarity on eligibility of ITC with respect to such construction.
Manufacturing process of lyophilized injectables and core equipment
The factory is designed around the lyophilization (freeze‑drying) technique, which removes water from injectable formulations that are sensitive to heat and moisture. The manufacturing process broadly involves:
- Freezing – The solution of drugs and excipients is frozen so that water converts into ice. This separates the phases and forms interfaces between ice and the drug substance.
- Annealing (optional) – The product may be held at a temperature higher than the final freezing temperature to promote crystallization of components like mannitol or glycine and avoid vial breakage during primary drying.
- Primary drying – Under reduced pressure, heat is applied so that ice sublimates directly into vapour. The frozen mass gradually becomes a porous cake, while heat must be continuously supplied to compensate for heat of sublimation.
- Secondary drying – Residual unfrozen moisture is removed by desorption at higher shelf temperatures to reduce moisture content to below about 1%, ensuring stability. This is also termed “Isothermal Desorption”.
To execute this highly controlled and sterile process, the assessee installs multiple sophisticated machines and systems, including:
- Lyophilizer (freeze dryer)
- Vial Filling Line (IMA Group)
- Autoclave
- Inspection Machine
- Leak Test Machine
- Mfg. Skids
- CIP Skid
- Part Washer
- Vial Labelling equipment
- Cartonator
- Track and Trace system
- Check Weighing machine
In addition, utility equipment such as boilers, chillers, cooling towers, air compressors, diesel generators and transformers is installed within the plant premises.
These machines generate considerable static and dynamic loads, torque and vibration. They cannot simply be placed on bare ground. They require specialized foundations and structural supports designed in accordance with standards such as IS 456:2000, IS 800:2007 and IS 2974, so that the loads are safely transmitted to the ground, operational vibrations are controlled and precise alignment is maintained.
Nature of construction and foundation activities
The assessee engaged SCC to perform wide‑ranging foundation and structural works, all claimed to be integral to the installation and operation of plant and machinery. The work covered, among other things: