2023 (9) TMI 165 - AAR - GST

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

In Re: M/s. Bayer Vapi P. Ltd.

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 - services received from Vapi Enterprise Ltd in the form of transfer of its rights in the leasehold land owned by GIDC - HELD THAT:- The applicant wishes to use the service received from M/s VEL, in the form of leasehold rights to land of GIDC and intends to set up a new manufacturing plant/expand its existing manufacturing plant. This being the fact, clearly shows that the service of leasehold rights to land was received and is a precursor to construction being carried out on the said land to set up a new manufacturing plant/expand existing manufacturing facility. It is clearly hit by 17(5)(d) of CGST Act, 2017 also bringing the non obstante clause into play. For repetition, 17(5)(d), ibid, as already stated, bars ITC on services received by a taxable person for construction of an immovable property (other than P&M) on his own account including when such services are used in the course or furtherance of business. The applicant himself has admitted that the leasehold rights of the land have been acquired for setting up/expanding its manufacturing facility for manufacture of chemicals which implies that there will be construction on the said land. This being the case, the services in question is to be utilized subsequently for construction of an immovable property (other than P&M) on his own account. The ITC therefore would clearly be hit in terms of section 17 (5)(d) of CGST Act, 2017. The applicant is not entitled to take ITC of the CGST & SGST paid by them on the services received from Vapi Enterprise Ltd in the form of transfer of its rights in the leasehold land owned by GIDC in terms of Section 17(5)(d) of the CGST Act, 2017. 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.