2021 (12) TMI 36 - AAR - GST

Input tax credit - GST paid on the services provided by GACL in the form of agreeing to surrender/ relinquish its rights in the leasehold property in favour of GNAL - HELD THAT - The subject GST borne by GNAL is blocked credit under Section 17(5)(d) CGST Act for the land leased to it will be for the construction of civil structures, administrative block/ factory et al. Thus the plain meaning of the words of Section 17(5)(d) blocks the subject amount from credit admissibility. The treatment of capitalising an expenditure under Plant and Machinery in the Balance Sheet does not have a bearing on the blocking of GST portion borne by GNAL for the subject leasing activity, as the subject leasing service received by a GNAL for the new construction of immovable property such as factory building/ shed/ administrative block, et al by GNAL. Also, GNAL have given a faint impression that certain of their pipes fitted on supporting structures may be installed in the open, i.e, outside a shed but on a supporting structure - the proportion of plot area used for the construction of civil structures/ administrative block/ factory/ building sheds (having plant and machinery inside it )vis- -vis the proportion of plot area used for installation of pipes fitted on supporting structures in the open on the land, if that be the case, cannot be taken as a basis for awarding a proportionate credit, for the CGST Act and Rules have not envisaged such a mechanism to award proportionate credit for GST in such cases. GST amount borne by GNAL on subject service received is blocked credit vide Section 17(5)(d) CGST Act and thereby ineligible for availment of credit.

Summary

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on GST paid for leasehold rights.
2. Interpretation of Section 17(5)(d) of the CGST Act.
3. Definition and scope of "Plant and Machinery" under GST laws.
4. Legislative intent and statutory interpretation regarding ITC on land leasing services.

Detailed Analysis:

1. Eligibility of Input Tax Credit (ITC) on GST paid for leasehold rights:
GNAL sought a ruling on whether it is entitled to claim ITC on GST paid for services provided by GACL in surrendering leasehold rights. GNAL argued that the consideration paid for acquiring leasehold rights is in the course of or for the furtherance of business, making it eligible for ITC under Section 16 of the CGST Act. They emphasized that the leasehold rights were acquired for setting up a Greenfield project for manufacturing caustic soda, thus qualifying as a business activity.

2. Interpretation of Section 17(5)(d) of the CGST Act:
The authority examined Section 17(5)(d) which restricts ITC on goods or services received for the construction of immovable property, except for "plant and machinery." GNAL contended that the caustic soda plant and power plant qualify as "plant and machinery," thereby falling under the exception. However, the authority noted that the law explicitly excludes land from the definition of "plant and machinery," thereby blocking ITC on services related to land used for constructing immovable property.

3. Definition and Scope of "Plant and Machinery" under GST laws:
The authority referred to the explanation under Section 17(5) which defines "plant and machinery" as apparatus, equipment, and machinery fixed to earth by foundation or structural support, but explicitly excludes land, buildings, and other civil structures. GNAL's argument that the land is used for constructing plant and machinery was found unconvincing as the primary purpose of the land lease was for constructing immovable property, including administrative blocks and factory buildings.

4. Legislative Intent and Statutory Interpretation regarding ITC on Land Leasing Services:
The authority highlighted that the legislative intent behind excluding land from "plant and machinery" was to block ITC on services related to land used for constructing immovable property. This intent was further supported by the GST Council's recognition of the issue, as discussed in the 37th GST Council meeting. The authority emphasized that the word "for" in Section 17(5)(d) indicates the purpose of the service, which in this case is the construction of immovable property, thereby blocking ITC.

Conclusion:
The authority ruled that the GST amount borne by GNAL on the leasehold rights service is blocked credit under Section 17(5)(d) of the CGST Act and is therefore ineligible for availment. The ruling was based on the explicit exclusion of land from "plant and machinery," the legislative intent to block ITC on land-related services, and the interpretation of statutory provisions.