Setting up cold chain infrastructure for agricultural produce involves substantial capital outlay across civil works, pre-engineered building shells, thermal insulation, and mechanical refrigeration equipment. Business owners and accountants must classify these procurement contracts correctly to avoid claiming blocked credits or missing legitimate deductions.
Statutory framework under Section 17(5) and plant and machinery definition
Input tax credit is generally available on business inputs under Section 16(1), but Section 17(5) of the CGST Act overrides this general entitlement. Clauses (c) and (d) block input tax credit on works contracts and procurements for the construction of immovable property:
- Section 17(5)(c): Works contract services 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.
- Section 17(5)(d): Goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when used in the course or furtherance of business.
The distinction in both clauses turns on the term plant and machinery. The statutory Explanation at the end of Section 17 of the CGST Act defines plant and machinery as 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, including such foundation and structural supports. However, the Explanation explicitly excludes:
- Land, building, or any other civil structures
- Telecommunication towers
- Pipelines laid outside the factory premises
For related rules on general immovable property contracts, review our detailed guide on construction works contract ITC eligibility as well as the complete overview of blocked credit under GST Section 17(5).
Common mistake: Treating composite turnkey contracts for an entire cold storage facility as a single capital asset. If the contractor issues a consolidated invoice for civil building construction alongside refrigeration systems without separating values, tax officers often dispute the entire credit under Section 17(5)(c).
Distinguishing eligible cooling equipment from ineligible civil building structures
Cold storage units require both physical structures and technical cooling systems. The statutory definition divides these assets into two distinct categories:
| Component | Category | Statutory Status | ITC Treatment |
|---|---|---|---|
| Civil building, warehouse shed, flooring, foundation plinth | Civil structures | Section 17(5)(d) exclusion (i) | Blocked |
| Refrigeration compressors, condensers, chillers, piping | Apparatus & equipment | Section 17 Explanation | Eligible |
| Dedicated structural foundation for compressors and cooling towers | Structural supports | Included in Section 17 Explanation | Eligible |
| PIR/PUF insulated sandwich panels mounted on refrigeration frame | Apparatus component | Refrigeration chamber apparatus | Eligible |
| Administrative office, staff quarters, boundary walls, paved roads | Building & civil structures | Section 17(5)(d) exclusion (i) | Blocked |
The Supreme Court in Chief Commissioner of Central Goods and Services Tax v. M/s Safari Retreats Pvt. Ltd. (Civil Appeal No. 2948 of 2023, judgment dated 3 October 2024) upheld the constitutional validity of Section 17(5)(c) and Section 17(5)(d). The Court affirmed that these provisions cannot be challenged merely on grounds of economic hardship or read down wholesale, holding that a functionality test applies on a case-by-case basis to determine whether an asset qualifies as plant or apparatus used for making outward supply.
Depreciation condition under Section 16(3)
Even when an asset qualifies as plant and machinery, you must observe the restriction under Section 16(3) of the CGST Act. Section 16(3) specifies that where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
You must ensure that your bookkeeper capitalizes only the base value of eligible plant and machinery to the asset block if ITC is availed, leaving the GST amount outside the depreciation calculation.
Worked example: Cold storage facility capital expenditure
Consider FreshAgro Cold Chain Private Limited, establishing a cold storage warehouse for apples and potatoes with a total capital outlay of ₹2,00,00,000 plus GST at 18% (₹36,00,000 tax). The project involves separate procurement packages for civil work and refrigeration machinery.
| Package Description | Taxable Base | GST (18%) | Statutory Test | ITC Claimable |
|---|---|---|---|---|
| Civil warehouse shed, concrete flooring, plinth | ₹80,00,000 | ₹14,40,000 | Excluded civil building under Section 17(5)(d) | ₹0 |
| Refrigeration plant, compressors, chillers, controls | ₹70,00,000 | ₹12,60,000 | Plant and machinery under Section 17 Explanation | ₹12,60,000 |
| PUF insulated cold room wall and ceiling panels | ₹35,00,000 | ₹6,30,000 | Apparatus for thermal enclosure chamber | ₹6,30,000 |
| Specialized concrete foundation for compressors | ₹5,00,000 | ₹90,000 | Foundation support covered under Section 17 | ₹90,000 |
| Administrative block and boundary wall | ₹10,00,000 | ₹1,80,000 | Excluded civil building under Section 17(5)(d) | ₹0 |
| Total | ₹2,00,00,000 | ₹36,00,000 | Reconciled eligibility | ₹19,80,000 |
The mathematical verification of eligible versus blocked tax shows:
- Eligible ITC on plant and machinery: ₹12,60,000 (compressors) + ₹6,30,000 (panels) + ₹90,000 (machinery foundation) = ₹19,80,000
- Blocked ITC on civil works: ₹14,40,000 (warehouse shed) + ₹1,80,000 (office and boundary) = ₹16,20,000
- Total GST incurred: ₹19,80,000 + ₹16,20,000 = ₹36,00,000
In Form GSTR-3B, the eligible credit of ₹19,80,000 is reported under Table 4(A)(5) as all other ITC, or Table 4(A)(4) if imported. The blocked credit of ₹16,20,000 is disclosed under Table 4(B)(1) as ineligible credit under Section 17(5) according to the GSTN reporting manual, ensuring full compliance.
Practical procurement steps for cold storage setups
- Split contract packages: Execute separate contracts or clear line-item schedules for civil construction works versus mechanical refrigeration plant supply and installation.
- Itemize equipment invoices: Require vendors to invoice compressors, cooling coils, valves, and electrical control panels with specific HSN codes rather than bundled civil descriptions.
- Verify GSTR-2B filing: Check that machinery vendors upload invoices in their GSTR-1 on time so credits appear in your auto-populated GSTR-2B before filing Form GSTR-3B.
- Segregate fixed assets in accounts: Create distinct ledger accounts in your balance sheet for Plant & Machinery versus Building & Civil Works to prevent claiming depreciation on the tax component under Section 16(3).
Frequently asked questions
Can you claim ITC on refrigeration compressors and cooling equipment in cold storage?
Yes. Refrigeration compressors, chillers, condensers, and insulated piping qualify as apparatus and equipment under the Explanation to Section 17 of the CGST Act. They are plant and machinery, making input tax credit fully eligible.
Is ITC available on civil warehouse construction for agricultural produce storage?
No. Under Section 17(5)(c) and Section 17(5)(d) of the CGST Act, goods and services received for constructing civil buildings, sheds, and brick structures are blocked credits because the Explanation specifically excludes land, building, or other civil structures.
What happens if depreciation is claimed on the tax component under income tax?
Under Section 16(3) of the CGST Act, if depreciation is claimed on the tax component of the cost of capital goods and plant and machinery under the Income-tax Act, 1961, input tax credit on that tax component is not allowed.
Check your capital goods ITC in GSTR-2B
Verify vendor invoices for high-value cold chain equipment directly against your purchase register to spot missing supplier filings before claiming credit. Your GSTR-2B and purchase register files are read in your browser and never uploaded to any server.
Last checked: 23 October 2026. Sources: CBIC Tax Information Section 17, GSTN GSTR-3B Manual.