The Telangana Authority of Advance Ruling (AAR) has recently held that the applicant, M/s. Daicel Chiral Technologies (India) Private Limited is not eligible to avail Input Tax Credit(ITC) on payment to lessor of one time Lease Premium Charges , annual lease rentals and maintenance charges towards land / premises lease even if it is for business purposes.
Facts of the case:
The Applicant, M/s. Daicel Chiral Technologies (India) Private Limited is engaged in providing Pharmaceutical Research and Development services. These services involve preparative separation and analysis of pharmaceutical compounds which are commonly referred to as ‘chromatography services’. They classified chromatography services under the head ‘technical Testing and Analysis Services’ (SAC No. 998346) which are liable to 18% GST.
In order to render such services, the applicant requires a lab where such separation and analysis services can be performed. Currently, the applicant is rendering such chromatography services from their premises. The applicant had to acquire a new premise on lease to cater to the growing demand for services.
Accordingly, the applicant acquired land on lease from M/s. IKP Knowledge Park (lessor) for a period of 33 years and executed a lease deed .As per the terms of the lease, the applicant is required to pay one-time lease premium at the beginning of the lease and also annual lease rentals at the end of every year to the lessor for 33 year. In addition to the above the applicant is also required to pay maintenance charges for the leased premises.
The Lessor has classified the lease services rendered by him under ‘Rental or Leasing services involving own or leased non-residential property’ having Service Account Code (SAC) as 997212. The lessor has collected GST@18% (i.e. SGST 9% +CGST 9%) on one time lease premium. Further, at the end of the year, the lessor will also be required to pay GST on the Annual Lease Charges and maintenance charges at the applicable GST rates.
Issues on which advance ruling was sought:
The applicant has sought advance ruling on the 3 main issues.
- Whether the applicant is eligible to avail input tax credit of GST paid on payment of “lease premium charges (one-time charges)” towards land lease for business purpose.
2. Whether the applicant is eligible to avail input tax credit of GST paid on “annual lease rentals” (recurring) towards supply of land on lease for business purpose.
3. Whether the applicant is eligible to avail input tax credit of GST paid on “maintenance charges” collected by the lessor.
Ruling of Telangana AAR:
It clearly emerges that all the referred services are received by the applicant for construction of immovable property(other than plant and machinery) on their own account. The exclusion clause 17(5)(d) shows that the exclusion is applicable including when such services are used in the course or furtherance of business which is the clam of the applicant. Thus , the referred services in the instant case and in the given facts , squarely fall under the exclusion vide Section 17(5)(d) and hence ineligible to ITC.
In view of above, the Authority comprising of the Additional Commissioner of State Tax, J. Laxminarayana, and the Joint Commissioner of Central Tax, B. Raghukiran ruled that the applicant is not eligible to avail input tax credit of GST paid on payment of Lease Premium Charges (one-time charges) towards land lease.
The Authority further ruled that the applicant is neither eligible to avail input tax credit of GST paid on annual Lease rentals (recurring) towards the supply of land on lease nor on maintenance charges collected by the lessor.
READ / DOWNLOAD ORDER:
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