2021 (12) TMI 36 - AAR - GST

GST credit for leasehold rights denied as land not considered 'plant & machinery'

The authority ruled that the GST amount borne by GNAL on the leasehold rights service is blocked credit under Section 17(5)(d) of the CGST Act and is ... Input Tax Credit - Section 17(5)(d) CGST Act - Plant and machinery exclusion - Leasing of land as supply of service - Non-obstante provision - Interpretation of 'for' vis-a -vis 'used' - GST Council positionInput Tax Credit - Section 17(5)(d) CGST Act - Plant and machinery exclusion - GST paid by GNAL on consideration to GACL for transfer/surrender of leasehold rights is not admissible as input tax credit. - HELD THAT: - The Authority held that Section 17(5) is a non-obstante provision overriding Section 16(1), and that the statutory exclusion of 'land' from the expression 'plant and machinery' means services pertaining to land for construction of immovable property are blocklisted from ITC. The Authority rejected the applicant's submission that the payment relates to plant and machinery because (a) the Explanation expressly excludes land, building or other civil structures from 'plant and machinery', (b) the wordology of clause (d) employs 'for' construction of immovable property - indicating purpose to construct buildings/civil structures on the leased land - and (c) capitalization of subsequent plant and machinery in accounts does not alter the statutory blocking. The Authority also referred to precedents and reasoning permitting contextual reading of 'or' as 'and' where necessary, but concluded that legislative intent to exclude land is explicit and that no mechanism exists under the Act or Rules to permit proportionate credit for portions of land used for open installation versus constructed civil structures. Finally, the Authority noted that the GST Council is seized of and aware of the issue and that its position supports the conclusion that ITC on such leasing is not available. The determinative reasoning is summarized at paras 13, 14, 15 and 16 and applied in the ruling at para 19. [Paras 13, 14, 15, 16, 19]GST borne by GNAL on the leasehold transfer from GACL is blocked from ITC under Section 17(5)(d) CGST Act and is ineligible for availment.Final Conclusion: The Advance Ruling holds that the GST paid on the transfer/surrender of leasehold rights in the subject land is ineligible for input tax credit under Section 17(5)(d) of the CGST Act, for the reasons summarized in paras 13-16 and applied at para 19. Issues Involved:1. Eligibility of Input Tax Credit (ITC) on GST paid for leasehold rights.2. Interpretation of Section 17(5)(d) of the CGST Act.3. Definition and scope of 'Plant and Machinery' under GST laws.4. Legislative intent and statutory interpretation regarding ITC on land leasing services.Detailed Analysis:1. Eligibility of Input Tax Credit (ITC) on GST paid for leasehold rights:GNAL sought a ruling on whether it is entitled to claim ITC on GST paid for services provided by GACL in surrendering leasehold rights. GNAL argued that the consideration paid for acquiring leasehold rights is in the course of or for the furtherance of business, making it eligible for ITC under Section 16 of the CGST Act. They emphasized that the leasehold rights were acquired for setting up a Greenfield project for manufacturing caustic soda, thus qualifying as a business activity.2. Interpretation of Section 17(5)(d) of the CGST Act:The authority examined Section 17(5)(d) which restricts ITC on goods or services received for the construction of immovable property, except for 'plant and machinery.' GNAL contended that the caustic soda plant and power plant qualify as 'plant and machinery,' thereby falling under the exception. However, the authority noted that the law explicitly excludes land from the definition of 'plant and machinery,' thereby blocking ITC on services related to land used for constructing immovable property.3. Definition and Scope of 'Plant and Machinery' under GST laws:The authority referred to the explanation under Section 17(5) which defines 'plant and machinery' as apparatus, equipment, and machinery fixed to earth by foundation or structural support, but explicitly excludes land, buildings, and other civil structures. GNAL's argument that the land is used for constructing plant and machinery was found unconvincing as the primary purpose of the land lease was for constructing immovable property, including administrative blocks and factory buildings.4. Legislative Intent and Statutory Interpretation regarding ITC on Land Leasing Services:The authority highlighted that the legislative intent behind excluding land from 'plant and machinery' was to block ITC on services related to land used for constructing immovable property. This intent was further supported by the GST Council's recognition of the issue, as discussed in the 37th GST Council meeting. The authority emphasized that the word 'for' in Section 17(5)(d) indicates the purpose of the service, which in this case is the construction of immovable property, thereby blocking ITC.Conclusion:The authority ruled that the GST amount borne by GNAL on the leasehold rights service is blocked credit under Section 17(5)(d) of the CGST Act and is therefore ineligible for availment. The ruling was based on the explicit exclusion of land from 'plant and machinery,' the legislative intent to block ITC on land-related services, and the interpretation of statutory provisions.