TaxTMI 
TaxTMI 
2025 (11) TMI 757
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....at Government for industrial use to a net plot area of admeasuring 321 acres approx. The applicant would use the land for carrying out their business activities including industrial construction, erection, repair or demolition of construction of the concerned purpose etc. In consideration for the grant of lease, the applicant has agreed to pay annual lease rental at the rate of 6% of the total Market price (market price at the time of allotment of land) to the Government of Gujarat with an escalation of 10% of lease rent every five years. 4. The said 'grant of the long term lease of land' by the Government of Gujarat to the applicant amounts to 'supply of service' in terms of Section 7 read with Section 2(102) and Clause No. 2(a) of Schedule II to the CGST Act, 2017. Further, in terms of Sr. No. 5A of Notification No. 13/2017 (R) dtd. 28.06.2017 as amended, the applicant is liable to discharge GST under the Reverse Charge Mechanism (RCM) in terms of Section 9(3) of the Act, ibid, in respect of the services supplied by the Government of Gujarat by way of grant of the long-term lease of land. 5. In view of the above facts, the applicant is seeking the following advance ruling:-....
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.... of payment. (d) Treatment of upfront premium and periodic payment would be different if the ITC on periodic premium payment is not allowed. Notification No. 12/2017-CT (R) dtd. 28.06.2017 exempts upfront premium paid for services involving the grant of long-term leases of industrial plots or plots for infrastructure development from GST if they are provided by certain government owned entities. However, this exemption is not available for annual lease payments, which are subject to GST. The differential treatment between upfront premium payments and annual lease may lead to inequitable outcomes for taxpayers engaging in similar lease transactions if the ITC on periodic lease premiums is disallowed. (e) Without prejudice to the above, the applicant would be eligible for ITC of GST charged on the lease rental paid for the period pre and post the activity of construction, as the land would not be used 'for construction' of immovable property. Further, the portion of land on which construction activity would not be undertaken, is not used of construction. Therefore, the ITC on lease rentals with respect to the said portion of land would not be hit by the provisions o....
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.... the factory is undergoing repair, maintenance or renovation. (c) The advance ruling in the case of Bayer Vapi Pvt Ltd proceeds on the basis that the transaction of assignment of lease rights does not qualify as sale of land and is not excluded from the levy of GST. However, the Gujarat High Court in its recent judgement dtd. 03.01.2025 in the case of GCCI & Others Vs UOI [2025 (1) TMI 516-HC-GST] has held that assignment of leasehold rights by lessee-assignor to assignee qualifies as transfer of immovable property and would not qualify as 'supply of service'. (d) The advance ruling has not discussed the issue regarding applicability of Section 17(5)(d) of the CGST Act in light of the judgement dtd. 03.10.2024 of the Supreme Court in the case of Chief Commissioner of CGST Vs Safari Retreats Pvt Ltd & Others [2024 (10) TMI 286-Supreme Court] where the Hon'ble Supreme Court has affirmed the 'functionality test' and observed that where a building has been so planned and constructed as to serve an assessee's special technical requirements, it would qualify to be treated as a plant. Discussion and findings 8. At the outset, we would like to state that the provisi....
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....ting manufacturing plant & as per the applicant, they intend to set up a new manufacturing plant/expand its existing manufacturing plant. This further finds a reaffirmation in para R. of Annexure III. However, moving forward in para DD in Annexure III, the applicant states that at the time of procuring the leasehold land, the applicant had not thought about whether the land will be used for construction of immovable property or not. The averment we therefore find, is contradictory. 24. Thus, it is clear that the applicant wishes to use the service received from M/s VEL, in the form of leasehold rights to land of GIDC and intends to set up a new manufacturing plant/expand its existing manufacturing plant. This being the fact, clearly shows that the service of leasehold rights to land was received and is a precursor to construction being carried out on the said land to set up a new manufacturing plant/expand existing manufacturing facility. It is clearly hit by 17(5)(d) of CGST Act, 2017 also bringing the non obstante clause into play. For repetition, section 17(5){d), ibid, as already stated, bars ITC on services received by a taxable person for construction of an immovable....
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....ation following Section 17(5) CGST Act. We note the following: i. Law has expressed that Plant and Machinery excludes land in Section 17(5) CGST Act. ii. The phrase Plant and Machinery is used in Section 17(5)(c) CGST Act and. the words plant or machinery is used in section 17(5)(d) CGST Act. We hold that. the phrase 'plant or machinery' in section 17(5)(d) may be read as 'plant and machinery'. Here, We find it apt to quote a relevant excerpt, as follows-In the case of an appeal filed by M/s. Tarun Realtors Pvt. ltd. against Ruling dated 30-9-19 passed by the Authority of Advance Ruling of Karnataka (reported at 2020 (35) G.S.T.438 (App. AAR-GST-Kar.), the Appellate Authority for Advance Ruling for Karnataka (in their Ruling No. KAR/AAAR-14/2019-20 dated 06.02.2020), while examining the aspect of eligibility for input tax credit of various goods of the appellants covered under the definition of plant and machinery held that the word 'or' in clause (d) of Section 17(5) of the CGST Act can be read as 'and' since it appears to give effect to the intention of the Legislature to allow input tax credit on the construction of plant and/or machinery. Relevant portion of t....
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....hinery. ..... " iii. The subject land leasing service from GACL to GNAL hinges on said leased land. iv. We cannot brush aside the position of law that Legislature has excluded 'land' from plant and machinery. There must be an intent of Legislature to explicitly exclude the word 'land' in the expression. With this expression of Plant and Machinery excluding land, explicitly incorporated in the Blocked Credit section 17(5) CGST Act, we hold that Legislature has expressed its intent that ITC shall not be available in respect of services pertaining to land received by a taxable person for construction of an immovable property on his own account including when such services are used in the course or furtherance of business. v. For if there was no such legislative intention, the word 'land' need not have been used in the said exclusion expression of plant and machinery'. 14. Further, besides the discussed legislative intent, the plain meaning of very wordings of Section 17(5)(d) itself blocks subject credit admissibility, detailed as follows: i. We find that the words used in the said Section 17(5)(d) reads as: services received by a taxable p....
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....cked 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." 13. The above ruling of this Authority was challenged before the Appellate Authority for Advance Ruling, and the Appellate Authority vide order dtd. 30.12.2024 [2025 (96) GSTL 211 (App. AAR-GST-Guj) has rejected the appeal filed by GNAL. Therefore, we are of the opinion that the applicant is not eligible to avail Input Tax credit of the GST paid under RCM on the lease rental. 14. Having held so, we now deal with the averments made by the applicant. As per the applicant the term 'for' used in section 17(5)(d) of the Act i.e. 'for construction' should be applicable only to those goods and services which are directly used in the construction of factory building and would not cover supplies indirectly/remotely related to construction activities. In other words, the applicant's interpretation is that only those services which have a direct nexus to 'construction" such as works contract, services of engineer/contractor....
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.... be read in the context of Section 17(5)(c) of the CGST Act. Section 17(5)(c) only restricts ITC with respect to works contract services wherein the service element does not include land, therefore, the transaction related to land (such as lease) cannot be said to be covered under the service part of Section 17(5)(d) of CGST Act. We do not agree with the averment of the applicant as both the clauses i.e. (c) and (d), deal with different situations. Clause (c) specifically deals with work contract service supplied for construction of an immovable property whereas Clause (d) deals with any goods or services used for construction of an immovable property which is received by a taxable person. Therefore, both these clauses are independent of each other and one cannot be read in context of the other. 16. The next averment of the applicant is that there cannot be differential tax treatment on the basis of the manner/periodicity of payment. As per the applicant, upfront premium paid for services involving the grant of long-term leases of industrial plots or plots for infrastructure development from GST, if they are provided by certain government owned entities, are exempted vide Notifi....
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....eferred by GST Council to the GoM on Real estate. Present GST rate: Vide Sl. No. 41 of the notification No. 12/2017-CT(R) dated 28.06.2017 GST exemption is available on upfront amount payable in respect of service by way of granting of long term lease of industrial plot or plot for development of infrastructure for financial business, provided by the State Government Industrial Development Corporation or undertaking or by any other entity having 50% or more ownership of Government. The entry reads as under: - "Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years or more of industrial plot or plot for development of infrastructure for financial business, provided by the State Government Industrial Development Corporation or undertaking or by any other entity having 50% or more ownership of Central Government, State Government, Union Territory to the industrial unit or the developer in any industrial or financial business area." Justification for exemption (as mentioned in letter of the Hon'ble FM of Punjab): â€....
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....es have, at Para 3.1.4 of the Annexure-A, which is forming part of ARA-01, mentioned that would be keeping a land vacant for environmental and other purposes. While, it has not been specifically mentioned as to for what other purposes, apart from mandatory environmental purposes, the land would be kept vacant, but the fact remains that the whole land has been lease out by the Government for industrial purposes, for which we have already held that ITC of GST charged on the lease rental of land is blocked vide Section 17(5)(d). Further, any land kept vacant for meeting the mandatory environment guidelines would be a part of the industry being constructed by the applicant on the leased land. We also find that a somewhat similar claim was made by the applicant in Re: M/s GACL-NALCO Alkalies and Chemicals Pvt Ltd., which is reproduced below: - "Also, GNAL have given us a faint impression that certain of their pipes fitted on supporting structures may be installed in the open, i.e, outside a shed but on a supporting structure. We are of the opinion that the proportion of plot area used for the construction of civil structures/ administrative block/ factory/ building sheds (havin....
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....whereas in their case, it is the annual lease rent for a period of 50 years, and therefore, the question of ITC eligibility also arises for the period before and after the construction of factory. We have already dealt this aspect in the preceding paras. The other grounds raised are that the AAR in Bayer Vapi was not faced with the question regarding eligibility of ITC for the vacant unoccupied portion of land where construction would not take place at all and is also silent on the issue of eligibility of ITC during the 50-year lease period where the factory is undergoing repair, maintenance or renovation. We have also dealt with these issues in the preceding paras. 20.1 The applicant, has further submitted that the ruling in Re: Bayer Vapi Pvt Ltd. is in jeopardy as the advance ruling proceeds on the basis that the transaction of assignment of lease rights does not qualify as sale of land and is not excluded from the levy of GST. However, the Gujarat High Court in its recent judgement dtd. 03.01.2025 in the case of GCCI & Othrs Vs UOI [2025 (1) TMI 516-HC-GST has held that assignment of leasehold rights by lessee-assignor to assignee qualifies as transfer of immovable property ....