ITC denied for GST paid on surrender of leasehold rights where construction is for recipient's own use, appeal dismissed

AAAR held that ITC on GST paid for surrender of leasehold rights is ineligible and dismissed the appeal. Relying on SC precedent treating "plant or machinery" by functionality, the authority noted a building may qualify as plant and permit ITC for renting/leasing services if statutory conditions are met; however, where construction is undertaken for the recipient's own use the input tax chain breaks. As the appellant did not refute that construction would be for its use, GST on surrender of leasehold rights cannot be claimed as ITC.

---

---

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the appellant, M/s. GACL-NALCO Alkalies & Chemicals Private Limited, is entitled to claim Input Tax Credit (ITC) of the GST paid on services provided by GACL in the form of agreeing to surrender/relinquish its right on leasehold property in favor of the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Eligibility to Claim ITC on GST Paid for Surrender of Leasehold Rights

Relevant legal framework and precedents:

• The legal framework primarily involves Sections 16 and 17 of the Central Goods and Services Tax Act, 2017 (CGST Act), particularly Section 17(5) which deals with blocked credits.
• The judgment also references the Supreme Court decision in the case of M/s. Safari Retreats P Ltd, which provides interpretation of clauses (c) and (d) of Section 17(5).

Court's interpretation and reasoning:

• The court analyzed whether the services received by the appellant for the construction of an immovable property fall under the exceptions provided in Section 17(5)(d) of the CGST Act.
• The court applied the "functionality test" as established by the Supreme Court to determine if the construction qualifies as "plant or machinery."

Key evidence and findings:

• The appellant argued that the land acquired was for furtherance of business and not for constructing immovable property for personal use.
• The appellant presented various documents, including plans and certificates, to support their claim that the land was used for constructing a plant and machinery.

Application of law to facts:

• The court found that the appellant's construction on the leasehold land was for their own account, as it was used to set up a caustic soda plant, which is considered an immovable property.
• The court concluded that the construction did not qualify for the exceptions under Section 17(5)(d) as it was for the appellant's own use.

Treatment of competing arguments:

• The appellant's argument that the services received were not leasing services and should be eligible for ITC was rejected based on the Supreme Court's interpretation of the law.
• The court dismissed the appellant's reliance on various judgments regarding statutory interpretation, as the Supreme Court had already established the relevant legal principles.

Conclusions:

• The court concluded that the appellant is not entitled to claim ITC on the GST paid for the surrender of leasehold rights, as it falls under the blocked credits as per Section 17(5)(d) of the CGST Act.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

• "The Hon'ble Supreme Court, while analyzing section 17 (5) (d), ibid, has concluded that it seeks to exclude from the ambit of sub-sections 16 (1) & 18 (1), ibid, services received by a taxable person to construct an immovable property on his own account subject however, to two exceptions."
• "The Hon'ble Court further explains taxable person's 'own account' to be when (i) it is made for his personal use and not for service or (ii) it is to be used by the person constructing as a setting in which business is carried out."

Core principles established:

• The judgment reinforces the interpretation of Section 17(5)(d) of the CGST Act, emphasizing the conditions under which ITC is blocked for construction of immovable property.
• The functionality test is crucial in determining whether a building qualifies as a plant for ITC purposes.

Final determinations on each issue:

• The appeal filed by M/s. GACL-NALCO Alkalies & Chemicals Private Limited was rejected, upholding the Advance Ruling that the GST paid on the surrender of leasehold rights is ineligible for ITC.

---