Appellant denied ITC on GST paid for withdrawing leasehold rights as ASU deemed immovable property under Section 17(5)(d)

The AAAR held that the appellant cannot claim ITC on GST paid to IPL for withdrawing leasehold rights to facilitate construction of an Air Separation Unit manufacturing plant. The tribunal determined that the ASU constitutes an immovable property as it was permanently installed with foundations and structural supports on leased land for 72 years. The service received from IPL for relinquishing leasehold rights was deemed integral to construction, as without it the appellant could not obtain land lease or construct the facility. The restriction under Section 17(5)(d) of GST Act 2017 applies since the service relates to land acquisition for construction of immovable property, making ITC unavailable despite the cost being capitalized with the plant.

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Issues Involved:
1. Entitlement to Input Tax Credit (ITC) under Section 17(5)(d) of the CGST/TNGST Act, 2017.
2. Definition and applicability of terms "for construction" and "immovable property."
3. Classification of Air Separation Unit (ASP) as "plant and machinery" or "immovable property."

Detailed Analysis:

1. Entitlement to Input Tax Credit (ITC) under Section 17(5)(d) of the CGST/TNGST Act, 2017:
The appellant sought clarification on whether they could avail and utilize ITC of GST charged by IPL for transferring leasehold rights if such a transaction is considered a supply. The Original Authority ruled that ITC is not available under Section 17(5)(d) if the transaction is considered a supply. The appellant contended that the conditions for restricting ITC under Section 17(5)(d) (i.e., goods/services received 'for construction' of immovable property and the immovable property not qualifying as 'plant and machinery') were not met. They argued that the services received were not for construction but for acquiring leasehold rights, and the ASP qualifies as 'plant and machinery.'

2. Definition and applicability of terms "for construction" and "immovable property":
The appellant argued that the service provided by IPL was not used for any construction activity per se, and there was no direct nexus between the service and construction. They relied on Supreme Court rulings to emphasize that a taxing statute should be strictly interpreted. The appellant further contended that the ASP is movable and not permanently embedded, thus not qualifying as immovable property. However, the Appellate Authority held that the services received for acquiring leasehold rights are integral to the construction of the manufacturing plant, which is an immovable property. The Authority also noted that the term 'for construction' has a broader scope and includes services facilitating the construction.

3. Classification of Air Separation Unit (ASP) as "plant and machinery" or "immovable property":
The appellant claimed that the ASP is a movable property and qualifies as 'plant and machinery,' which should exclude it from the restriction under Section 17(5)(d). They argued that the ASP is not permanently embedded and can be shifted to another site, thus not falling under the definition of immovable property. The Authority, however, determined that the ASP, along with other utilities, is permanently embedded and forms an integral part of the manufacturing facility, making it immovable property. The Authority cited the Supreme Court's decision in Duncans Industries Ltd. v. State of U.P. & Ors., which held that machinery embedded in the earth for permanent use constitutes immovable property.

Conclusion:
The Appellate Authority upheld the ruling of the Lower Authority, concluding that the services received from IPL for transferring leasehold rights are for the construction of an immovable property. Consequently, the taxes paid on such services are restricted under Section 17(5)(d) of the CGST/TNGST Act, 2017. The ASP, being an integral and permanently embedded part of the manufacturing facility, qualifies as immovable property and not merely 'plant and machinery.' Therefore, the appellant is not entitled to avail and utilize ITC for the GST charged by IPL.

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