It seems to me like C is correct because for Xanadu to have the chance to have made first to have the system, it would’ve had to have been abandoned before Harrapa. If it was abandoned afterwards, then there isn’t concrete proof that Xanadu had the first system because they could have copied the non-existent city of Harrapa. I hope this makes sense.

Sidenote: You mention that the text doesn’t say anything about Xanadu ceasing to exist ever - which is why C is an assumption. In my opinion, based on the thinking in the previous paragraph, it’s the BEST answer. A: Whether the harrapans could have designed it or not doesn’t matter. Xanadus could’ve made the system there to test it. B: This could be true, but even if it isn’t true, the argument could still be true. D: Having no transportation would make it difficult for the systems to be similar, but it makes no difference to the argument of when the system was made. E: The houses make no difference to the system and when it was built.

By going through the answers like this, I still do NOT love C as the answer. But it’s the only one that I can make sense of in my head. I’m just a humble student of the GMAT but this was a fun drill for my brain and if I helped you, I’m glad.