TaxTMI 
TaxTMI 
2026 (4) TMI 1324
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.... Act, 2017 and the GGST Act, 2017 by M/s. Agratas Energy Storage Solutions Pvt Ltd (for short - 'appellant') against the Advance Ruling No. GUJ/GAAR/R/2025/46, dated 03.11.2025. 3. Briefly, the appellant is a newly set up company for undertaking the business of manufacturing of battery cells for motor vehicles. They are a wholly owned subsidiary of Tata Sons. The appellant have entered into a lease agreement with the Government of Gujarat for a duration of 50 years for the period from 26 June, 2024 to 25 June, 2074. They have been granted lease hold rights from the Gujarat Government for industrial use, a net plot area admeasuring 321 acres approx. The appellant would use the land for carrying out their business activities including industrial construction, erection, repair or demolition of construction for the concerned purpose etc. In consideration for the grant of lease, the appellant have 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 appellant is liable to discharge GST under the Reverse Charge Mechan....
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....clude 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. (c). that there cannot be differential tax treatment on the basis of the manner/periodicity of payment. (d). that 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) dated 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). that without prejudice to the above, the appellant 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 ....
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....App. AAR-GST-Guj), has rejected the appeal filed by GACL-NALCO Alkalies and Chemicals Pvt Ltd. (c). As per interpretation of the Supreme Court in the case of Oblum Electrical Industries Pvt Ltd Vs Collector of Customs [1997(94) ELT 449], the expression 'materials required to be imported for the purpose of manufacture of products' cannot be construed as referring only to materials which are used in the manufacture of the products. Therefore, the term 'for does not, in fact, restrict the scope of Section 17(5)(d) to materials having a direct nexus to construction, but enlarges it. (d). Clause (c) of Section 17, 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. (e). Upfront payments and annual lease rentals are not the same. The Supreme Court in the case of Commissioner of Income Tax, Assam Vs The Panbari Tea Co. Ltd [1965 AIR 1871] has brought out the distinction betwee....
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....d annual lease rentals are not the same and can be given differential treatments. (b). The GAAR has not followed the decision of the Supreme Court in the case of CCE Vs TELCO quoted by the appellant and instead failed to distinguish the present case; that it has failed to provide any findings as to why the decision is not applicable in the instant case. (c). The appellant had elaborated in the application for advance ruling that the leased land would be used for industrial purposes, wherein the construction would be expected to be completed by October 2026 and upon completion, the leasehold land would not be used 'for construction' of building and, therefore, for the period before the initiation of construction activity and after the completion of construction activity, the ITC ought to be allowed. However, this was not considered by the GAAR which has cherry picked certain clauses of the agreement and undertook limited reading of the said conditions to rule that no ITC would be available. (d). The input services of long-term lease procured by the appellants are in the course of furtherance of business of the appellant in terms of Section 16 of the CGST A....
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....g out construction activity for the entire 50-year period of the lease. (j). Restriction under Section 17(5)(d) should be read in the context of Section 17(5)(c) of the CGST Act; Section 17(5) restricts ITC on works contract service when supplied for immovable property. Therefore, where a person appoints a contractor for constructing an immovable property on his own account, he would not be entitled to ITC on works contract. Section 17(5)(d) restricts ITC even in a situation where the assessee decides to undertake construction on its own by procuring cement, steel, labour etc. Thus, sub-clause (d) was to restrict ITC even in a situation where the assessee decided to undertake construction on its own by procuring cement, steel, labour etc. instead of appointing a works contractor. Works contract, by nature, does not involve an element of transfer of title of land. As Section 17(5)(c) only restricts ITC with respect to works contract services wherein service element does not include land and, hence, the transaction related to land cannot be covered under the service part of Section 17(5)(d). GAAR has failed to consider the object and purpose of introducing these two clauses ....
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....paid on lease rental would be available when repairs, maintenance, and renovation activities are undertaken on the factory building. Construction of the factory building and any repair, renovations, additions or alterations are distinct activities from the leasing of land itself. Therefore, ITC on GST paid for lease rental during which repairs etc. would be undertaken would be available to the appellant. (q). The project is a part of the 'Make in India' initiative of the Government of India, which aim at transforming India into a global manufacturing hub with special focus on increasing investments Thus, any denial of the ITC on the annual lease rental would burden any taxpayer who intends to lease a piece of land from the Government for setting up a factory under the 'Make in India' flagship initiative. This would result in the costs of the product so manufactured, thereby make the domestically produced goods uncompetitive in the global market. 9. Personal hearing in the matter was held on 21.1.2026, wherein Shri Ishan Bhatt, Advocate, Ms. Shaifali Arora, Head Taxation, Agratas Energy Storage Solutions Pvt. Ltd. and Ms Snehal Atre, DGM, IDT, Tata Motors Global Services....
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....mium and lease rental paid annually. However, in Para 15 (sic) (actually it is Para 16 and not Para 15 as submitted by the appellant) of the order, the advance ruling authority had observed that the upfront payments and annual lease rentals are not the same and can be given different tax treatments. Para 16 of the order of the advance ruling authority is reproduced below:- "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 Notification No. 12/2017-CT (R) dtd. 28.06.2017, while annual lease payments are subject to GST. This differential 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. First of all, upfront payments and annual lease rentals are not the same. The Supreme Court in the case of Commissioner of In....
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....itted that they had made detailed submissions to substantiate how the word 'for as used in Section 17(5)(d) of the CGST Act needs to be interpreted restrictively and narrowly in light of the decision of the Supreme Court in the case of Collector of Central Excise, Pune Vs Tata Engineering and Locomotives Co Ltd. [2003-TIOL-15-SC-CX ]. However, the advance ruling authority has not followed the said decision and neither distinguished it. We find that the advance ruling authority has dealt with the same in Para 14 of the order, which is reproduced below:- " ...... The applicant has relied upon the judgement of the Supreme Court in the case of Collector of Central Excise, Pune Vs Tata Engineering and Locomotives Co. Ltd [2003(158) ELT 130 (SC)] to put a restrictive meaning for the word 'for'. We have gone through this judgement. We find that the Supreme Court was comparing the expression 'used for producing or processing' with 'used in or in relation to the manufacture of the final product'. It is in these circumstances that the Supreme Court held that "used for producing or processing" must mean something less than "used in or in relation to the manufacture of the final produ....
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....eme Court to put a restrictive meaning to the exclusion clause was that, as the main part of the notification exempted the machinery/equipment manufactured captively in the factory, the exclusion clause cannot be interpreted to extend to the very same machinery/equipment. In other words, the phrase ' in or in relation to the manufacture of the final product in the main clause has to be interpreted differently from that in the exclusion clause, because of the phrase "used for producing or processing" and "bringing about any change in any substance" precedes the phrase 'in or in relation to the manufacture of the final product'. Thus, the restrictive meaning given by the Supreme Court for interpreting the exemption Notification No. 217/86-CE, dated 02.04.1986 cannot be applied to an altogether different situation i.e. Section 17(5)(d) of the Act, which is reproduced below. (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 of an immovable prope....
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.... during the course of hearing, has laid emphasis on the judgement of the Supreme court in the case Commissioner of Customs (Import), Mumbai Vs Dilip Kumar & Company - [2018 (361) ELT 577 (SC)]. The appellant has laid specific emphasis on the below mentioned view of the Supreme Court- "Interpretation of taxing statute-Tax Liability-Regard must be had to the clear meaning of words and matter should be governed wholly by the language of the notification, equity or intendment having no place in interpretation of a tax statute-If words are ambiguous in a taxing statute (not exemption clause) and open to two interpretations, benefit of interpretation is given to the subject." As per the said judgement while interpreting the statute, regard must be had to the clear meaning of words and the matter should be governed wholly by the language of the notification, equity or intendment having no place in interpretation of a tax statute. Further, if the words are ambiguous in a taxing statute (not exemption clause) and open to two interpretations, benefit of interpretation is given to the subject. We would have agreed with the said contention of the appellant, if there was any ambigui....
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....able property. The appellant's case is that the intention of the legislature would not have been to provide a differential treatment for the same transaction i.e. construction of immovable property, as in case of works contract, it is only the goods and service element forming part of the works contract, which is barred. The service element in a works contract does not include an element of transfer of title of land. Thus, the intention of the legislature would be to cover in clause (d), those items used for construction of immovable property, which would have otherwise been covered by clause (c) of Section 17(5). The appellant themselves, have quoted the judgement of the Supreme Court in the case of Dilip Kumar & Company, wherein the Court has stated that in the interpretation of a taxing statute, if the meaning of the words is clear, there is no room for intendment. We have already seen that the words of the statute are not ambiguous so as to impute a different meaning than what is stated in the statute. Thus, the appellant cannot take shelter under the intention of the legislature. Besides, Section 17(5) contains nine sub-clauses. Sub-clause (a) restricts ITC of motor vehicles f....
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....spective of their frequency or method. We find that the advance ruling authority has already dealt with this aspect, at Para 16 of its ruling, as under - "First of all, upfront payments and annual lease rentals are not the same. The Supreme Court in the case of Commissioner of Income Tax, Assam Vs The Panbari Tea Co. Ltd [1965 AIR 1871] has brought out the distinction between the upfront payment (called as premium, salami, cost, price, development charges etc) and rent as under:- "When the interest of the lessor is parted with for a price, the price paid is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital income and the latter a revenue receipt." Therefore, both the payments cannot be equated. Further, Notification No. 12/2017-CT(Rate) dtd. 28.06.2017 grants exemption of GST paid only on upfront amount for granting of long-term lease of industrial plots or plots, for development of infrastructure for financial business, provided by the State Governments, Union Territories, State Industrial Development Corporations or Undertakings. This was a ....
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....ent schedule. The tax treatment cannot be dictated by the periodicity of lease rentals. Adopting the appellant's view would allow taxpayers to circumvent Section 17(5)(d) by strategically deferring payments until after construction-a result clearly contrary to the legislative intent of the Act. Further, the appellants have themselves contended that there cannot be a differential tax treatment on the basis of the manner/periodicity of payment. 24. The appellants have also contended that ITC of GST paid on lease rentals would be available when repairs, maintenance, and renovation are undertaken on the factory building. We find that the explanation in Section 17(5) specifically includes reconstruction, renovation, additions or alterations or repairs to the immovable property in the expression 'construction used in Section 17(5)(c) and 17(5)(d). As per the appellant, the restrictions under Section 17(5)(d) apply to activities concerning the factory building, such as repairs, renovations, additions or alterations, they do not extend to the leasehold land itself. We reject this contention, as it is already established that the restrictions under Section 17(5)(d) extend to services rel....