2021 (8) TMI 730 - AAR - GST

Transfer of leasehold rights not eligible for Input Tax Credit under CGST Act

The Authority for Advance Ruling held that the transfer of leasehold rights from IPL to INOX does not qualify for Input Tax Credit (ITC) under the CGST ... Entitlement to avail and utilize ITC - the transfer of leasehold rights in the part property - the GST amount charged by IPL if such transaction is considered to be a supply - HELD THAT:- In the case at hand, it is seen that INOX had paid ‘consideration’ to IPL, for agreeing to part with their rights in the leasehold held by IPL, on the land required by the applicant. IPL had consented against such consideration and applied for withdrawing the leasehold held by them in favour of the applicant and on approval by SIPCOT, the applicant has entered into a lease agreement with SIPCOT on payment of necessary charges as required and acquired the leasehold rights for the land. Thus, it is evident that the amount paid is towards acquiring their entitlement to take on lease the land required for putting up a State of the art Ultra High Purity Cryogenic Liquid Medical and Industrial Oxygen Plant. The applicant is a registered person and therefore is entitled to avail credit of the supplies received by them in the course or furtherance of business as per Section 16(1) of the Act. The applicant has stated that as the ‘Air Separation Unit (ASU)’ which is put up on the land leased is a ‘Plant and Machinery’, the restriction at Section 17(5)(d) is not applicable in respect of the goods and services used for the construction of such Plant and Machinery. Section 17(5) of the Act, starts with the Non-obstante clause, ‘Notwithstanding anything contained in sub-section (1) of section 16’, which indicates that the provisions under Section 17(5) prevails over section 16(1) of the Act. From the explanation of ‘Plant and Machinery’, it is evident that while ‘Plant and Machinery’ includes foundation and structural supports required to fix apparatus, equipment, machinery on the earth, land building or other civil structures are specifically excluded. The services availed from IPL is in relation to acquiring lease of the land. By the specific exclusion in the definition of ‘Plant and Machinery’, as land stands excluded from ‘Plant and Machinery’, the services availed and utilized for acquiring such land on lease is restricted under Section 17(5)(d) of the CGST Act 2017, though the activity is in the course or furtherance of the business of the applicant and the credit of GST if payable on such supply is not eligible as credit to the applicant. The applicant is not entitled to avail and utilize ITC of GST charged by IPL as the same is restricted under Section 17(5)(d) of the CGST/TNGST Act 2017, if such transaction is considered to be a supply. Issues Involved:1. Whether the transfer of leasehold rights by IPL to INOX constitutes a supply under GST.2. Whether INOX is entitled to avail and utilize Input Tax Credit (ITC) of GST charged by IPL if such a transaction is considered a supply.Detailed Analysis:Issue 1: Whether the transfer of leasehold rights by IPL to INOX constitutes a supply under GST.The applicant, INOX, approached IPL for the transfer of leasehold rights for a portion of land to set up a state-of-the-art medical and industrial gases plant. A Memorandum of Understanding (MOU) was executed between IPL and INOX, and SIPCOT approved the transfer of leasehold rights. The transaction involved a consideration of Rs. 15,00,00,000/- for the transfer of these rights.Issue 2: Whether INOX is entitled to avail and utilize ITC of GST charged by IPL if such a transaction is considered a supply.The applicant contended that the transfer of leasehold rights for setting up an Air Separation Unit (ASU), which qualifies as 'Plant and Machinery,' should allow them to avail ITC under Section 16 of the CGST Act. They argued that Section 17(5)(d) of the CGST Act, which restricts ITC for construction of immovable property, does not apply because the ASU does not result in the construction of any land, building, or civil structure.Statutory Provisions Examined:- Section 2(19) of CGST Act: Defines 'capital goods' as goods capitalized in the books of account and used in the course or furtherance of business.- Section 16(1) of CGST Act: Entitles a registered person to take credit of input tax charged on supplies used in the course or furtherance of business.- Section 17(5)(d) of CGST Act: Restricts ITC for goods or services received for the construction of immovable property (other than plant or machinery) on one's own account.Analysis and Conclusion:The Authority for Advance Ruling examined the facts and statutory provisions. It was noted that INOX paid consideration to IPL for the leasehold rights, which was approved by SIPCOT, and subsequently entered into a lease agreement with SIPCOT.The key points considered include:- The ASU is intended to be capitalized as 'Plant and Machinery' in INOX's books of accounts.- The transaction is in the course or furtherance of INOX's business, making it eligible for ITC under Section 16(1) of the CGST Act.- However, Section 17(5)(d) explicitly excludes land, building, or any other civil structures from the definition of 'Plant and Machinery.'The Authority concluded that:- The land leased does not qualify as 'Plant and Machinery' due to the specific exclusion in the GST law.- The services availed from IPL for acquiring the lease of land are restricted under Section 17(5)(d) of the CGST Act, even though the activity is in the course or furtherance of INOX's business.Ruling:The applicant, INOX, is not entitled to avail and utilize ITC of GST charged by IPL as the same is restricted under Section 17(5)(d) of the CGST/TNGST Act 2017, if such a transaction is considered to be a supply.