Blocked input tax credit on factory land lease rental extends to construction, repairs, renovation and the full lease period.

Lease rental paid on government land taken for setting up and running a factory was treated as a service received for construction of an immovable property on the applicant's own account, so input tax credit of GST paid under reverse charge was blocked under section 17(5)(d) of the CGST Act. The expression "for construction" was read broadly and the explanation to section 17 was applied to include reconstruction, renovation, additions, alterations and repairs to the extent capitalised. The blocked-credit restriction was held to apply throughout the lease period, including the pre-construction and post-construction periods, as well as to repairs, maintenance, renovation and the vacant portion of the land.

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Issues: Whether input tax credit of GST paid under reverse charge on annual lease rental for government land leased for setting up and running a factory is barred by section 17(5)(d) of the Central Goods and Services Tax Act, 2017, including for the pre-construction period, post-construction period, repairs, maintenance and renovation, and the vacant portion of the leased land.

Analysis: The lease of government land was obtained for industrial use and for construction of a factory, so the lease rental was treated as a service received for the purpose of construction of an immovable property on the applicant's own account. The expression "for construction" was read broadly and not confined to only directly used construction inputs. Section 17(5)(c) was held to operate in a different field and not to control section 17(5)(d). The definition of "construction" in the explanation to section 17 was applied to include reconstruction, renovation, additions, alterations and repairs to the extent of capitalization. On that basis, the authority held that the credit remained blocked throughout the lease period, whether before or after commencement of construction, and also in relation to repairs, maintenance, renovation, and the vacant portion of the land.

Conclusion: Input tax credit on GST paid under reverse charge on the lease rental was held to be unavailable and the objection was decided against the applicant.

Final Conclusion: The ruling affirms that lease rental paid for land taken for construction of an immovable factory asset attracts blocked credit under the GST law and does not qualify for input tax credit on any of the questions referred.

Ratio Decidendi: Services received for construction of an immovable property on one's own account are hit by the blocked credit provision, and the term "construction" extends to repairs and renovation to the extent capitalised.

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