AI Drafter 
TaxTMI 
TaxTMI 
2023 (9) TMI 165
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....ial plant. The said lease was for 99 years & GIDC had collected an upfront premium & was also entitled to periodical lease rentals. VEL being desirous of vacating the premises intended to transfer the leasehold rights in the said land for the balance period of lease with GIDC ie for 52 years to the applicant. 4. In terms of the said MoU, applicant is required to deposit an advance equivalent to 40% of the total consideration at the time of signing along with applicable GST; that tax invoice will be issued by VEL on receipt of Final Transfer Order from GIDC. The applicant intends to use the land for setting up/expanding its manufacturing facility for manufacture of chemicals to be used by the applicant in the course or furtherance of its business of manufacturing. 5. The primary reason for filing the application before the authority is to know their eligibility to claim ITC of the GST paid by them to VEL, post receipt of final tax invoices. 6. On merits, the appellant has contended as follows: • Section 16 of the CGST Act governs entitlement of ITC; that the section covers under its ambit the goods/services which have been used and are intended to be used in th....
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....& services received for construction of immovable property; that this restriction is for goods & services received for a specific purpose of construction of immovable property; that this can cover goods/services viz cement, steel, construction contractor, electrical, plumbing, engineering, architect, etc ie goods/services which are consumed in the course of construction of immovable property; that this may include services directly or indirectly used for construction of immovable property- the services in question transfer of leasehold rights over the land cannot be construed for construction of an immovable property because if it is so, then most of the activities of a business would be covered under the said restriction entry, leading to an absurd interpretation of law; • that the intention to disallow the credit is only for the actual and physical activity of construction; that the definition of construction does not cover activity which is preceding construction; • the term 'for' used in section 17(5), ibid, would encompass only such goods & services inextricably linked with construction; • further, at the time of procuring the leaseh....
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....ehold right is in course of business; that there is no proposal of construction of immovable property over the said land; that the land may also be put for other uses or even further transferred to some other party; • the applicant would fulfill all the conditions prescribed u/s 16 (1) and 16(2), ibid, for availing the ITC of the GST paid on the leasehold rights; • that the restriction u/s 17 (5)(d), ibid, is not relevant to the facts of their case; that only credit of tax paid on goods or services received on own account, for construction of immovable property is restricted; that their MoU is for acquiring leasehold rights of the land for the business purpose; • that a plain reading of section 17(5)(d), ibid, shows that the word/phrase 'for construction' means 'used for construction' of immovable property and hence would include goods/services such as bricks, cement, steel, architect services, engineer services, construction services, etc.; that only those goods and services which are used in the creation of immovable property should be covered by the restriction; that other goods / services received pre-facto i.e. prior to the creation of im....
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....ructed, the underlying land, if on lease, need not be a part of immovable property; • that the case of GNAL., is distinguishable from the facts in the present case, in as much as • GNAL acquired the leasehold rights and was setting up Caustic Soda and captive power plant on the leased property to manufacture Caustic Soda; • The leasehold rights were acquired for setting-up including erection, installation and commissioning of the said two plants. • that AAR in the above judgement misread the restriction that goods or services for construction of land is not allowed to hold that land is procured for construction of immovable property: • that further reliance placed in advance ruling on the GST Council Minutes is incorrect, as it does not lay down the position of law and is only reflective of the discussion of the GST Council. 10. In the meantime, a communication dated 26.5.2023 was received from Deputy Director, DGCEI, RU, Vapi, informing • that an inquiry was being conducted by them against the applicant on issue of non-admissibility of ITC in respect of transfer of leasehold right; • that....
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....ct would also mean a reference to the same provisions under the GGST Act. 13. We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made during the course of personal hearing. We have also considered the issue involved, the relevant facts & the applicant's submission/interpretation of law in respect of question on which the advance ruling is sought. 14. Before adverting to the submissions made by the applicant, we would like to reproduce the relevant provisions/circular for ease of reference: (17) "business" includes-- (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; (e) provisio....
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....t tax credit.- (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; 1[(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;] (b) he has received the goods or services or both. 2[Explanation.-For the purposes of th....
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....thirtieth day of November] following the end of financial year to which such invoice or ^7[****] debit note pertains or furnishing of the relevant annual return, whichever is earlier. ^8[Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019.] Section 17. Apportionment of credit and blocked credits.- ..... ...... ...... (5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:- (c....
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....roperty (other than plant and machinery) except where it is an input service for further supply of works contract service. Further, sub-clause (d) to the sub-section, restricts ITC on goods or services or both, received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services are used in the course or furtherance of business. 18. A conjoint reading leads us to a conclusion, that [a] land being immovable property, is not goods; [b] land does not fall within the ambit of services also; [c] that the credit being sought is in respect of leasehold rights paid by the applicant on upfront amount to M/s. VEL; [d] section 16(1) clearly states that ITC subject to conditions & restrictions can be availed of input tax charged on any supply of goods or services or both which are used or intended to be used in the course or furtherance of business; [e] what stands excluded is [a] ITC on works contract services when supplied for construction of an immovable property [other than P&M] and [b] goods or services received for construction of an immovable propert....
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....into the legislation any further. The said decision of the Hon'ble Bombay High Court has been affirmed by the Hon'ble SC vide order dated 09.11.2022 (Special Leave to Appeal (c) No. 23068/2018) keeping the following two issues open viz. (a) question of exemption granted by notification No. 12/2017-CT(Rate) dated 28.06.2017 and (b) scope and ambit of the expression in Clause 2 (a) of Schedule-II "licence to occupy land is a supply of services". 23. It is in this background that the transaction needs to be examined. Invariably, it is undisputed that the applicant by entering into an MOU with VEL to acquire leasehold rights of GIDC land on payment of a consideration for the balance lease period of 52 years as per the GIDC norms, is in receipt of service from VEL. Now we find that the applicant in para 8 of Annexure II to his application has stated that that the land belonging to GIDC in respect of which the applicant has obtained leasehold rights from M/s. VEL in terms of an MoU, is an industrial plot, adjacent to their existing manufacturing plant & as per the applicant, they intend to set up a new manufacturing plant/expand its existing manufacturing plant. This....
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....after has argued that other goods/services received pre-facto i.e. prior to the creation of immovable property would not be covered under the restriction. We have examined the argument. The argument belies legal basis and hence is not tenable. The applicant has thereafter raised an argument that even from an accounting standards perspective, goods/services used for construction of building are capitalized under 'Buildings' while Leasehold rights in land are capitalized under 'Leasehold Land'; that leasehold rights will not become a part of immovable property in terms of building & hence cannot be treated as part of immovable property or as a service for construction of immovable property. Even this argument on being examined under the threshold of section 17(5)(d), ibid, read with the explanation concerned, is not legally tenable. 28. We further find that on a similar issue, GAAR has already given its ruling [Advance Ruling No. Guj/GAAR/R/53/2021 dated 18.10.20211 in the case of M/s. GACL NALCO Alkalies & Chemcials P Ltd. The applicant has tried to distinguish the ruling. We have gone through the said ruling & find that the following paragraphs are relevant to the issue at hand ....
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....r into the subject agreement with GACL for the subject land is to construct factory with administrative block, et al, so that GNAL may pursue its business. 14.2 Thus we hold that subject GST borne by GNAL is blocked credit under Section 17(5)(d) CGST Act for the land leased to it will be for the construction of civil structures, administrative block/ factory et al. Thus the plain meaning of the words of Section 17(5)(d) blocks the subject amount from credit admissibility. 18. We note that the GST Council is cognizant of this position of law that tax credit of GST on leasing of land, for construction of immovable property, is not available. Here we find it apt to reproduce the wordings of H'ble Delhi High Court, in the case of Manufacturers Traders Association vs UOI-2020 (43) G.S.T.L. 616 (Del.), at para 10: 'GST Council - Status of - This is a Constitutional body brought into existence by 101st Amendment and is chaired by the Union Minister for Finance with Finance Minister of all States as members - Rates of GST are jointly decided and recommendations made to Central and State Governments - It is highest deliberative forum to resolve issues arising out ....
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....stated that the Chennai Port Trust has allotted covered space to an extent of 267 sq.m at Ground floor - North wing of Jawahar building on Upfront Premium for Long Term Lease Basis to the applicant till 31.08.2045 from the date of handing over of the premises by Chennai Port Trust. The space is intended to be used by the applicant as an extended corporate office. The prevailing rate as per Schedule of Rates for the above building premises at Rajaji Salai is Rs. 740/ -(for January 2021) per Sq.m per month or part thereof which is arrived after effecting the compoundable annual escalation of 5% on every year basis. The Details of the allotment and Upfront premium calculation are as below:- 8.2 The State Jurisdictional authority has stated that input tax credit is ineligible in the instant case under Section 17 (5) (d) of the CGST Act, 2017. The relevant provisions of the Section is extracted below: 17 (5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:- (d) goods or services or both received by a taxable person for construction....