Blocked GST credit on lease rent for factory land upheld where the lease service supported construction of immovable property.
Input tax credit on GST paid on lease rental for land taken from the Government for construction of a factory was held blocked under Section 17(5)(d) because the lease service was received for construction of an immovable property on own account. The restriction was applied irrespective of whether the land was used before or after construction, whether payment was periodic, and whether the vacant portion formed part of the factory project. The same bar was extended to lease rental connected with repairs, maintenance, renovation, reconstruction, additions and alterations, since the explanation to Section 17(5) treats those activities as construction. The advance ruling was therefore affirmed and the credit claim rejected.
Issues: Whether input tax credit of GST paid on long-term lease rental for land taken from the Government for construction of a factory is barred under Section 17(5)(d), including for the periods before and after construction, for vacant portions of the leased land, and for repairs, maintenance and renovation of the factory building.
Analysis: The restriction in Section 17(5)(d) is framed with a non obstante clause overriding Section 16 and blocks credit on goods or services received for construction of an immovable property on own account, including where such supplies are used in the course or furtherance of business. The expression "for construction" was construed by the Authority and affirmed here according to its ordinary purposive meaning, and the credit bar was held to apply to services received for the purpose of constructing the factory on leased land. The distinction between upfront premium and periodic lease rent was accepted, but it was held immaterial to eligibility because the tax treatment followed the statutory character of the lease service and the intended construction use of the land. The explanation to Section 17(5) extends "construction" to reconstruction, renovation, additions, alterations and repairs, so the same restriction applies to lease rental linked with repair and renovation activity. The vacant or green-belt portion of the land was also treated as part of the leased land devoted to the factory project, and the periodic timing of payment before or after construction was held not to change the statutory bar. Reliance on business-purpose credit under Section 16, on a restrictive reading of "for", and on differential treatment based on payment periodicity was rejected.
Conclusion: Input tax credit on GST paid on the lease rental was held to be inadmissible in all the situations raised, and the credit block under Section 17(5)(d) was applied against the appellant.
Final Conclusion: The impugned advance ruling was affirmed, and the appeal was rejected because the lease rental was treated as blocked credit under the statutory restriction governing construction of immovable property.
Ratio Decidendi: GST paid on a lease rental for land taken for constructing an immovable property is blocked by Section 17(5)(d) when the lease service is received for the purpose of such construction, and the timing of payment or the existence of vacant or repair-related use does not remove the statutory bar.
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