Ineligibility of Input Tax Credit (ITC) on Leasehold Land Premium
Paid for Setting Up a Caustic Soda Plant (21)
Name of
Party: M/s. GACL-NALCO Alkalies & Chemicals Pvt. Ltd.
Name of
Ruling Authority: Gujarat Appellate Authority for Advance
Ruling (GAAAR)
Ruling
Number: GUJ/GAAAR/APPEAL/2024/04
Date of
Ruling: 30.12.2024
Summary of
Ruling:
The Gujarat Appellate
Authority for Advance Ruling (GAAAR) upheld the decision of the Gujarat
Authority for Advance Ruling (GAAR), ruling that Input Tax Credit (ITC) is not
available on GST paid on the leasehold land premium paid to Gujarat Alkalies
and Chemicals Ltd. (GACL). The authority held that the leasehold rights
acquired were for the construction of an immovable property, which is
specifically blocked under Section 17(5)(d) of the CGST Act, 2017.
Facts of
Advance Ruling:
- M/s. GACL-NALCO Alkalies &
Chemicals Pvt. Ltd. is a joint venture between GACL and NALCO, engaged in
setting up a caustic soda plant and a captive power plant.
- GACL had leased a plot of land to
GACL-NALCO for the construction of the plant.
- A rectification deed was signed on
08.01.2018, transferring 5,000 square meters of land on a long-term lease
for the project.
- The consideration paid was ₹72.79
crores, including ₹13.10 crores as GST.
- The applicant sought an advance
ruling on whether ITC can be availed on GST paid on the leasehold premium.
Question
Raised:
1. Whether
ITC can be claimed on the GST paid for services provided by GACL in the form of
agreeing to surrender/relinquish leasehold rights in favor of GACL-NALCO?
Submission
Made by Applicant:
- The applicant argued that ITC should
be available since the acquired land is used in the course of business for
manufacturing taxable goods.
- The payment for the leasehold right
is a supply of service (classified under HSN 999792), and as per Section
16(1) of the CGST Act, ITC should be allowed.
- The leasehold rights were not used
for the construction of an immovable property but rather for the
establishment of a manufacturing plant and machinery.
- The company relied on various case
laws, arguing that ITC should be liberally construed to avoid double
taxation.
Relevant
Sections & Notifications:
- Section 16(1) of CGST Act, 2017 –
Allows ITC on goods and services used in business.
- Section 17(5)(c) & (d) of CGST
Act, 2017 – Blocks ITC on construction-related services for immovable
property.
- Explanation to Section 17(5) –
Defines "construction" to include reconstruction, renovation,
additions, alterations, and repairs.
- Finance Act, 2023 (w.e.f. 01.10.2023)
– Strengthened restrictions on ITC for immovable properties.
Discussion
and Findings of Ruling Authority:
- The leasehold land premium was paid
for acquiring rights over land, which ultimately facilitated the
construction of an immovable property (caustic soda plant).
- ITC is blocked under Section
17(5)(d), as it is related to the construction of an immovable property.
- The term "plant and
machinery" does not include land or buildings, meaning that the
leased land does not qualify as plant & machinery for ITC eligibility.
- The applicant's reliance on case laws
was misplaced, as they dealt with different circumstances and were not
directly applicable.
- The Supreme Court ruling in Safari
Retreats Pvt. Ltd. (2024 INSC 756) was referenced, which upheld the denial
of ITC for construction-related expenses on leased land.
Final
Ruling and Conclusion:
- ITC is not available on the GST paid
for acquiring leasehold land rights.
- The appeal was rejected, and the
ruling by GAAR (Advance Ruling No. GUJ/GAAAR/R/153/2021, dated 18.10.2021)
was upheld.
This ruling confirms that
GST ITC cannot be claimed on leasehold land premiums used for
construction-related activities, reinforcing the restrictions under Section
17(5) of the CGST Act, 2017
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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