2023 (9) TMI 165 - AAR - GST

Input tax credit denied on services for leasehold rights transfer under Section 17(5)(d) CGST Act 2017

The AAR Gujarat ruled that the applicant cannot claim input tax credit on services received for transfer of leasehold rights to GIDC land. The applicant ... Input tax credit - blocked credit under section 17(5)(d) - lease or license to occupy land as supply of services - assignment/transfer of leasehold rights as supply - construction for the purposes of section 17(5) - definition of immovable property (General Clauses Act)Input tax credit - blocked credit under section 17(5)(d) - assignment/transfer of leasehold rights as supply - construction for the purposes of section 17(5) - Whether ITC of CGST and SGST paid on consideration for transfer/assignment of leasehold rights in GIDC land is admissible to the applicant - HELD THAT: - The Authority held that the transaction of acquiring leasehold/assignment of leasehold rights from the original allottee amounts to a 'supply' of services (lease/license/assignment) and therefore falls within the ambit of taxable supply (paras 19, 21). The Authority relied on the inclusive definition of 'services' and the treatment of lease/license of land as supply under the statute, and noted that land is immovable property as defined in the General Clauses Act (para 16). A conjoint reading of sections 16 and 17 shows that while ITC is generally available for inputs used or intended to be used in the course or furtherance of business, clause 17(5)(d) expressly blocks ITC in respect of goods or services received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account (paras 17-18). The Authority found that the applicant itself stated an intention to use the acquired leasehold rights to set up/expand manufacturing facilities adjacent to its existing plant, which makes the leasehold acquisition a precursor to construction on the land (paras 23-24). Consequently, the services received are for the purpose of construction of immovable property on the applicant's own account and are therefore excluded from ITC under section 17(5)(d). The applicant's arguments that pre-construction or transfer/lease/right-assignment services are outside the scope of clause (d), or that accounting treatment/leasehold categorisation should permit ITC, were rejected as not tenable in law when clause 17(5)(d) and its explanation are applied to the admitted facts (paras 26-27). The Authority also relied on earlier advance rulings with identical facts to reinforce the legal position that GST borne on leasing/lease-assignment for construction is blocked from credit (paras 28-29). [Paras 23, 24, 26, 27, 28]ITC on CGST and SGST paid to Vapi Enterprise Ltd. for transfer of leasehold rights in GIDC land is not admissible to the applicant as it is blocked under section 17(5)(d) of the CGST Act, 2017.Final Conclusion: Advance ruling: the applicant is not entitled to avail input tax credit of CGST and SGST paid on the transfer/assignment of leasehold rights in the GIDC industrial plot, the credit being blocked under section 17(5)(d) as the services were for construction of immovable property on the applicant's own account. Issues Involved:1. Eligibility to claim Input Tax Credit (ITC) on GST paid for transfer of leasehold rights.2. Interpretation of relevant sections of the CGST Act, 2017, particularly Sections 16 and 17.Summary:Eligibility to Claim ITC:The applicant, engaged in manufacturing chemicals, entered into an MoU with Vapi Enterprises Ltd (VEL) to transfer leasehold rights in an industrial plot. The primary issue was whether the applicant could claim ITC on the GST paid for these leasehold rights. The applicant argued that under Section 16 of the CGST Act, ITC is available for goods/services used in the course or furtherance of business, including those used for setting up manufacturing facilities.Interpretation of Relevant Sections:The applicant contended that the restriction under Section 17(5)(d) of the CGST Act, which disallows ITC on goods/services received for the construction of immovable property, should not apply to the transfer of leasehold rights. They argued that the term 'for construction' should be limited to goods/services directly used in construction activities, not preceding activities like acquiring leasehold rights.Authority's Findings:1. Definition of Goods and Services: The authority noted that 'goods' do not include immovable property, and 'services' include anything other than goods. Leasehold rights are considered services under Section 7(1)(a) and Schedule II of the CGST Act.2. Immovable Property: The authority referred to the General Clauses Act, 1897, which defines immovable property to include land and benefits arising out of land.3. Section 17(5)(d) Applicability: The authority concluded that the leasehold rights acquired by the applicant were intended for setting up a new manufacturing plant or expanding the existing one. This intention implies construction activities, making the ITC on these services ineligible under Section 17(5)(d), which bars ITC on services received for the construction of immovable property (other than plant and machinery).Rulings on Similar Cases:The authority referred to previous rulings, including the case of M/s. GACL NALCO Alkalies & Chemicals P Ltd, which supported the interpretation that ITC is blocked for services related to land used for construction. They also discussed rulings cited by the applicant, such as Kamarajar Port Ltd and M/s. Enfield Apparels Ltd, but found them not applicable due to differing facts.Final Ruling:The applicant is not entitled to take ITC of the CGST & SGST paid on the services received from Vapi Enterprise Ltd for the transfer of leasehold rights in the land owned by GIDC, as per Section 17(5)(d) of the CGST Act, 2017.