The Gujarat Authority of Advance Ruling (AAR) in its recent ruling in the case of M/s J M Chemicals has held that the Input Tax Credit (ITC) is not available for GST paid on Lease Premium of land as same is blocked under Section 17(5)(d) of the CGST Act, 2017.
Facts of the Case:
The applicant M/s J M Chemicals purchased rights of the Industrial Plot situated at GIDC Panoli Industrial Estate. The transferor M/s Ginni Filaments Ltd has charged GST @18% on the Sale of Transferring the Rights of the Industrial Plots by executing the deed of assignment dated
29.06.2020. M/s Ginni Filaments has developed the piece of Land with road, amenities
and has made many plots in the said piece of Land. M/s. Ginni Filaments has done the
conveyance of the said sub plots by deed of assignment of lease to its members.
The applicant submits that Long Term Lease premium is exempt from tax under
Entry 41 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 issued under
Section 11 of the GST Acts only in respect of grant of lease by State Government
Industrial Development Corporations or Government entities. The transferee from GIDC
herein named as M/s Ginni Filaments intends to charge GST and pay tax under the GST
Acts on lease premium to be collected from JM for assignment of lease.
The applicant submit that they are eligible to input tax credit of tax paid on assignment of lease in terms of the provisions of Section 16 (1) of CGST Act if the leasehold land is used for business purpose and that the provisions of section 16(2) of the CGST Acts are fulfilled.
Issues on which ruling was sought:
The applicant sought the advance ruling on the issue as to whether M/s. J.M. Chemicals is eligible to claim Input Tax Credit of GST paid on input services of Lease Premium paid to Ginni Filaments on which they have charged GST under the head miscellaneous receipt under SAC code No. 99979.
Order of AAR: Deliberation and Ruling
- The expression ‘plant and machinery’ excludes land. 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. AAR held that the phrase ‘plant or machinery’ in secton 17(5)(d) may be read as ‘plant and
machinery’ which is in line with decision of AAAR in case of M/s. Tarun Realtors Pvt Ltd.
- With the 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 including when such services are used in the course or
furtherance of business.
- The word used by the Legislature in Section 17(5)(d) CGST Act is ‘for’ and not ‘used’, thereby the intention of Legislature was to block the credit of subject lease service received by Taxable person for construction of immovable property.
- GST Council is seized of the matter that GST borne by a Taxable Person on such leasing is not available for construction of immovable property. We abide by the decision of the GST Council, for it is legal and proper so to do.
In view of the above deliberations, the coram of Sanjay Saxena and Arun Richard held that the GST amount borne by M/s J M Chemicals on subject service received is blocked credit vide Section 17(5)(d) CGST Act and thereby ineligible for availment.
Relevant Statutory Provision:
Section 17(5)(d) of the CGST Act, 2017
17(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:—
(d) 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 or both are used in the course or furtherance of business.
Explanation.––For the purposes of clauses (c) and (d), the expression “construction”
includes re-construction, renovation, additions or alterations or repairs, to the extent of
capitalisation, to the said immovable property;
Explanation to Section 17(5)
Explanation.—For the purposes of this Chapter and Chapter VI, the expression ‘plant and
machinery’ means apparatus, equipment, and machinery fixed to earth by foundation or
structural support that are used for making outward supply of goods or services or both
and includes such foundation and structural supports but excludes —
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
