The Applicant had purchased an industrial plot on which GST @18% had been charged by the seller for sale of transferring the rights of the industrial plot. The Applicant had sought an advance ruling before the Gujarat AAR to ascertain the eligibility of ITC of GST paid on input services of Lease Premium paid. The Applicant had submitted that obtaining land on lease cannot be considered to be a service used for construction of immovable property and thus, ITC cannot be disallowed u/s. 17(5)(d) of the CGST Act.
The AAR observed that the expression ‘plant and machinery’ excludes land. Accordingly, with the expression of Plant and Machinery excluding land, explicitly incorporated in the Blocked Credit provision u/s. 17(5) CGST Act, the 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. In view of the above, it was held that ITC shall not be available on lease premium.
JM Chemicals [2021-TIOL-276-AAR-GST]
Authors’ Notes:
In terms of Section 17(5) of the CGST Act, only those supplies, having direct nexus with construction activity are ineligible for credit and not any related activity. The industry is of the view that leasing of land, as a separate transaction, does not have any direct nexus with construction activity and corresponding ITC should be available. However, it is seen that Advance Ruling authorities often take a pro-Revenue approach in such matters. Similar view had been taken by the Tamil Nadu AAR in RE: Inox Air Products Private Limited [2021-TIOL-199-AAR-GST].
Disclaimer:
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.
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