2026 (4) TMI 283 - AAAR - GST

GST input tax credit blocked on leasehold-right transfer and industrial installation not qualifying as plant and machinery.

GST input tax credit on leasehold-right transfer was blocked because the inward supply was treated as part of construction of a manufacturing facility on ... Blocked input tax credit on construction of immovable property - Leasehold rights as input service for construction - definition of ‘plant and machinery” - Permanent Beneficial Enjoyment - Marketability Test - Functional Efficacy - Strict Interpretation of Taxing Statutes - Whether they would be entitled to avail and utilize Input Tax Credit (ITC) of Goods and Services Tax (GST) charged by India Pistons Limited (IPL) if such transaction is considered to be a supply. Blocked input tax credit on construction of immovable property - HELD THAT: - The Authority held that the transfer of leasehold rights was not a standalone business input unrelated to construction, but an integral enabling service without which the appellant could neither obtain the land nor set up the proposed manufacturing facility. Having regard to the long-term lease, the existence of shed and superstructures, the stated purpose of establishing the air separation plant, and the statutory explanation that construction includes additions or alterations to an existing immovable property to the extent capitalised, the consideration paid for obtaining the leasehold rights formed part of the cost of the facility and was capitalised with it. On that basis, the service received from IPL was treated as one received for construction, and such construction was undertaken on the appellant's own account. [Paras 6] The first condition for invoking the bar under section 17(5)(d) was held satisfied, and the appellant's claim that the leasing service was not used for construction was rejected. Immovable property - Plant and machinery - Distinction between manufacturing facility and apparatus or equipment - HELD THAT: - The Authority applied the tests of annexation, object, intendment and marketability and held that the overall installation was meant for the permanent beneficial enjoyment of the leased land. It observed that even if some individual components were detachable, the integrated plant with supporting infrastructure could not be detached and moved as such, and was not marketable as a standalone article. The appellant's reliance on Bharti Airtel Ltd. v. Commissioner of Central Excise, Pune [2024 (11) TMI 1042 - SUPREME COURT] and M/s.Solid & Correct Engineering Works & Others [2010 (4) TMI 15 - SUPREME COURT] was rejected as distinguishable, and the CESTAT order in the appellant's Raigad matter was also held inapplicable because it arose under the Finance Act, 1994 on a different statutory definition and materially different facts. On the separate question directed to be examined on remand, the Authority held that the statutory definition of plant and machinery covers apparatus, equipment or machinery fixed to earth by foundation or structural support and used for making outward supplies, but does not extend to the entire manufacturing facility comprising multiple units and supporting infrastructure. Since the resultant immovable property was the manufacturing facility itself and not an apparatus, equipment or machinery as defined, it did not qualify for the exclusion from the credit bar. [Paras 6] The air separation plant was held to be an immovable property other than plant and machinery, and therefore ITC of GST charged on the impugned service was held to be barred under section 17(5)(d). Final Conclusion: On de novo consideration after remand, the Authority held that the GST paid on the transfer of leasehold rights was received for construction of an immovable manufacturing facility on the appellant's own account, and that the facility did not qualify as plant and machinery under the statute. The appeal was accordingly rejected and the ruling denying ITC was sustained. Issues: (i) whether GST paid on transfer of leasehold rights was hit by the blocked credit provision as consideration for construction of an immovable property on the assessee's own account; (ii) whether the Air Separation Plant qualified as plant and machinery so as to fall outside the credit restriction.Issue (i): whether GST paid on transfer of leasehold rights was hit by the blocked credit provision as consideration for construction of an immovable property on the assessee's own account.Analysis: The transaction was not treated as a bare lease of land. It was held to be an inward supply enabling the assessee to secure long-term leasehold rights together with existing shed and superstructures for establishing a manufacturing facility. The expression 'construction' in the blocked-credit provision was construed broadly to include re-construction, renovation, additions or alterations to the extent of capitalisation. On that basis, the service received from IPL was found to be integrally connected with construction of the manufacturing facility on the assessee's own account and the capitalised cost formed part of the project cost.Conclusion: The restriction under Section 17(5)(d) applied, and the credit was not admissible on this ground.Issue (ii): whether the Air Separation Plant qualified as plant and machinery so as to fall outside the credit restriction.Analysis: The definition of plant and machinery under the GST law was applied strictly, requiring apparatus, equipment or machinery fixed to earth by foundation or structural support and used for outward supplies, while excluding land, building and other civil structures. The Plant was found to be an integrated industrial installation erected on a long-term leased site, intended for permanent beneficial enjoyment of the land, and not merely detachable equipment fixed for operational stability. The criteria of annexation, object of annexation, intendment and marketability were applied, and the installation was held not to answer the statutory description of plant and machinery.Conclusion: The Air Separation Plant did not qualify as plant and machinery for the purpose of the blocked-credit exception.Final Conclusion: Input tax credit on the GST charged for transfer of leasehold rights was held to be blocked under the statutory restriction governing construction of immovable property, and the assessee's claim to avail the credit failed.Ratio Decidendi: Where a service is received to facilitate construction of a manufacturing facility on the recipient's own account, and the resulting installation does not satisfy the statutory definition of plant and machinery, input tax credit is blocked under the specific exclusion provision.