Eligibility of Input Tax Credit (ITC) on Lease of a Sugar Factory under a Rehabilitate-Operate-Transfer (ROT) Agreement Covering Land, Building, Plant & Machinery, and Corporeal Rights

[TEAM GST]

Eligibility of Input Tax Credit (ITC) on Lease of a Sugar Factory under a Rehabilitate-Operate-Transfer (ROT) Agreement Covering Land, Building, Plant & Machinery, and Corporeal Rights

[KASTURI SETHI]

Pl. elaborate your query with full facts and specific questions.

[TEAM GST]

Sugar factory 'A"is leased out to another sugar factory 'B' on Lease- Rehabilitate-Operate and Transfer basis. The lease of scheduled property includes land and building, plant and machinery, allied equipment, agricultural land, farms and other movable assets -corporeal rights. Both factory A and factory B are registered under GST. Factory A is raising an invoice towards the lease amount on Factory B. Now can Factory B avail ITC on the entire amount of GST paid on the lease or is it restricted to only plant and machinery and allied equipment.

[Raam Srinivasan Swaminathan Kalpathi]

Dear Querist

Typically in such situations only a single tax invoice is issued towards 'Taxable leasing service'. Also, it is advisable that the lease deed clearly establishes that it is a single business lease of a functioning industrial undertaking.

In compliance of the above, I am of the view that Factory B is entitled to ITC on the entire GST charged and not merely on the portion attributable to Plant and Machinery subject to fulfillment of provisions of Section 16 r w r 36.

Kindly note that I have assumed that all of the leased assets are used only for taxable supplies.

[TEAM GST]

Sir, Thank you for your valuable insight.

The leased assets will be used for both taxable and exempt outward supplies. Accordingly, the provisions of Rule 42 / 43 of the CGST Rules, 2017, shall be made applicable.

[Shilpi Jain]

Credit would be eligible.

AI Summary

Input tax credit on a single factory lease may cover the entire leasing service, subject to conditions and apportionment.
Input tax credit on GST charged for leasing a functioning sugar factory under a Rehabilitate-Operate-Transfer arrangement may extend to the entire taxable leasing service where the lease is documented as a single business lease and invoiced as one taxable leasing service. Credit need not be limited to plant and machinery, subject to fulfilment of input tax credit conditions and documentation requirements. Use of leased assets for both taxable and exempt outward supplies requires proportionate credit reversal or apportionment under applicable rules.