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 ... Eligibility to avail input tax credit for supplies used in the course or furtherance of business - restriction on input tax credit for goods or services received for construction of immovable property (Section 17(5)(d)) - exclusion of land and building from the definition of 'plant and machinery' - non-obstante effect of Section 17(5) over Section 16(1)Eligibility to avail input tax credit for supplies used in the course or furtherance of business - restriction on input tax credit for goods or services received for construction of immovable property (Section 17(5)(d)) - exclusion of land and building from the definition of 'plant and machinery' - non-obstante effect of Section 17(5) over Section 16(1) - Entitlement of the applicant to avail and utilize input tax credit of GST charged by IPL on consideration paid for transfer of leasehold rights, if that transaction is considered a supply. - HELD THAT: - The amount paid to IPL was consideration for acquiring leasehold rights in land to set up an Air Separation Unit (ASU). Section 16(1) permits credit of input tax on supplies used in the course or furtherance of business, but Section 17(5)(d) specifically denies ITC in respect of goods or services received for construction of an immovable property on own account except where such immovable property qualifies as 'plant and machinery.' The Explanation excludes land, building or other civil structures from the definition of 'plant and machinery.' Even assuming the ASU may qualify as plant and machinery, the leased land itself remains excluded. The supply from IPL was in relation to acquisition of leasehold of land; therefore the tax attributable to that supply falls within the restriction in Section 17(5)(d). The non-obstante opening of Section 17(5) makes that restriction prevail over the general entitlement under Section 16(1). Accordingly, GST charged by IPL on the transaction for transfer of leasehold rights is not available as ITC to the applicant. [Paras 7, 8]The applicant is not entitled to avail and utilize input tax credit of GST charged by IPL on the transfer of leasehold rights, as such credit is restricted under Section 17(5)(d) if the transaction is a supply.Final Conclusion: The Advance Ruling holds that GST paid to IPL on the transaction for transfer of leasehold rights (if treated as a supply) is not eligible as input tax credit to INOX due to the express restriction in Section 17(5)(d) and the exclusion of land from the definition of 'plant and machinery.' 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.