2021 (12) TMI 110 - AAR - GST

Input tax credit - input services - Lease Premium paid to Ginni Filaments on which they have charged GST under the head miscellaneous receipt under SAC code No. 99979 - Blocked credit or not - HELD THAT - The expression plant and machinery excludes land. As expounded at para 12 of this Ruling, with this 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. 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.

Issues Involved:
1. Eligibility of Input Tax Credit (ITC) on GST paid for lease premium.
2. Interpretation and applicability of Section 17(5)(d) of the CGST Act.

Issue-wise Detailed Analysis:

1. Eligibility of Input Tax Credit (ITC) on GST paid for lease premium:
The applicant, M/s JM Chemicals, sought a ruling on whether they are eligible to claim ITC on GST paid for the lease premium to M/s Ginni Filaments. M/s JM Chemicals argued that the lease of land is not related to the construction of an immovable property and thus should not be restricted under Section 17(5)(d) of the CGST Act.

2. Interpretation and applicability of Section 17(5)(d) of the CGST Act:
Section 17(5)(d) of the CGST Act states that ITC is not available for "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." The explanation further clarifies that "construction" includes reconstruction, renovation, additions, or alterations to the extent of capitalization.

The applicant contended that the leasehold land obtained from Ginni Filaments is not a service for the construction of immovable property and thus ITC should not be disallowed. They emphasized that the lease of land is separate from the construction activities that may follow.

Discussion and Findings:
The authority examined the provisions of both the CGST Act and the GGST Act, noting that they are essentially the same except for certain provisions. The key points considered are:

1. Section 16(1) of the CGST Act:
- This section allows every registered person to take credit of input tax charged on any supply of goods or services used in the course or furtherance of business.

2. Section 17(5)(d) of the CGST Act:
- This section overrides Section 16(1) and explicitly blocks ITC for goods or services received for the construction of immovable property, excluding plant and machinery.
- The law explicitly excludes land from the definition of "plant and machinery."

3. Interpretation of the term "for":
- The word "for" in Section 17(5)(d) indicates a purpose or intended goal, which in this case is the construction of a factory shed or administrative block on the leased land.
- The authority held that the GST paid on the lease premium is for the purpose of constructing immovable property, thus falling under the blocked credit category.

4. Legislative Intent:
- The exclusion of land from "plant and machinery" indicates a clear legislative intent to block ITC on services pertaining to land used for construction of immovable property.

5. GST Council's Position:
- The GST Council is aware that tax credit on leasing of land is not available for construction of immovable property, as highlighted in the 37th GST Council meeting.

Ruling:
The authority ruled that the GST amount borne by M/s JM Chemicals on the lease premium is blocked credit under Section 17(5)(d) of the CGST Act and is thereby ineligible for availment. The ruling is based on the following grounds:
1. The expression "plant and machinery" excludes land.
2. The word "for" in Section 17(5)(d) indicates the purpose of construction.
3. The GST Council recognizes that ITC on leasing of land is not available for construction.
4. Adherence to the GST Council's decision, as supported by the Delhi High Court's ruling.

The judgment concludes that M/s JM Chemicals cannot claim ITC on the GST paid for the lease premium due to the explicit legislative intent and the interpretation of Section 17(5)(d) of the CGST Act.

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