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TMI Blog2025 (1) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, if the construction of a building by the recipient of service is for his own use, the chain will break, and ITC would not be available. The appellant has not denied the fact that construction activity has not been done on the leasehold land acquired from GACL. Though the averment is that the chartered engineers certificate states that 99.85% of the land would be utilized for construction of plant and machinery; that plant building will be constructed on a part of leaseholding premises and the unconstructed area will be used for auxiliary services. Conclusion - The GST paid on the surrender of leasehold rights is ineligible for ITC. Appeal dismissed. - RAJEEV TOPNO AND B.V. SIVA NAGA KUMARI, MEMBER Present for the Appellant: Shri NB Tripathi, CFO, Shri Dhruvit Shah, Jt. Manager, Shri Anmol Rathi, Manager, Shri Hemant Desai, Advocate. At the outset we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 and Gujarat Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act, 2017 and the GGST Act, 2017 ) are pari materia and have the same provisions in like matter and differ from each other only on a few specific provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for proportionate credit fails as it cannot be taken as basis for awarding proportionate credit; that the act does not envisage mechanism to award proportionate credit for GST in such cases: that the GST council in its 37th meeting mentions that the high rate of GST makes new project unviable since credit of GST on leasing is no available for construction of immovable properties. 6. The GAAR, vide the impugned ruling dated 18.10.2021, held as follows: RULING GST amount borne by GNAL on subject service received is blocked credit vide Section 17 (5) (d) CGST Act and thereby ineligible for availment, for the reasons summarised at para 19. 7. Aggrieved by the aforesaid advance ruling, the appellant is before us, raising the following contentions, viz goods manufactured by the appellant will be supplied to customers is taxable under GST; appellant paid consideration to GACL for agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act ; that the tax invoice issued is under HSN 999792; ITC of GST chargeable on relinquishment of rights/agreeing to surrender the rights should be eligible in terms of section 16 of CGST Act, 2017 as it is used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the license to occupy land is the supply of service which covers all commercial transactions; that the license to occupy is a benefit arising out of land not supply of land itself; that any lease of a licence to occupy land is defined as service; that not allowing ITC will burden the end consumer shall lead to double taxation; that the leasehold right premium amount has been paid to occupying the right over land engage in manufacturing; that in their view on his own account means the immovable property is constructed for self-occupied use or non-commercial purposes; that license to occupy land must be dealt on profit of pendre; that the leasehold plot has been used for furtherance of business and not on its own personal account such as self-occupied or a non-commercial object; that after acquiring leasehold right construction of immovable property has taken place in which manufacturing plant is erected which produces taxable goods GST is charged on the outward supply of goods; the leasehold right if capitalized will be under leasehold right land not under building block ; that hence leasehold right consideration is not used for construction of the building; 8.2 Likewise, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:- (c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; (d) 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. Explanation .-For the purposes of clauses (c) and (d), the expression construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property; Explanation .-For the purposes of this Chapter and Chapter VI, the expression plant and machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- (i) land, building or any other c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice or (ii) it is to be used by the person constructing as a setting in which business is carried out. However, construction cannot said to be on a taxable person s own account if it is intended to be sold or given on lease or license. 33. Section 17(5) incorporates an explanation which provides that the word construction used in clauses (c) and (d) includes reconstruction, renovation, additions, alterations or repairs, to the extent of capitalisation, to the immovable property. Thus, a very wide meaning has been assigned to the expression construction by the said explanation. 34. There is hardly a similarity between clauses (c) and (d) of Section 17(5) except for the fact that both clauses apply as an exception to sub-section (1) of Section 16. Perhaps the only other similarity is that both apply to the construction of an immovable property. Clause (c) uses the expression plant and machinery , which is specifically defined in the explanation. Clause (d) uses an expression of plant or machinery , which is not specifically defined. 35. Now, what is material is the explanation to Section 17, which reads thus: Explanation . For the purposes of this Chapter and Chapter VI, the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven on lease or license. 13. The Hon ble Supreme Court, in the case of M/s. Safari Retreats P Ltd, ibid , while further analyzing has held as follows viz 43 . As the expression plant or machinery appears to be intentionally incorporated, it is not possible to accept the contention of the learned ASG that the word or in clause (d) should be read as and . If the said contention is accepted, there will not be any difference between the expressions plant and machinery and plant or machinery . This will defeat the legislative intent. 46. The expression plant or machinery has a different connotation. It can be either a plant or machinery. Section 17 (5) (d) deals with the construction of an immovable property. The very fact that the expression immovable property other than plants or machinery is used shows that there could be a plant that is an immovable property. As the word plant has not been defined under the CGST Act or the rules framed thereunder, its ordinary meaning in commercial terms will have to be attached to it. 52. This Court has laid down the functionality test. This Court held that whether a building is a plant is a question of fact. This Court held that if it is found on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her terms and conditions of the CGST Act and Rules framed thereunder are fulfilled; that however, if the construction of a building by the recipient of service is for his own use, the chain will break, and ITC would not be available. 15. We find that the appellant has not denied the fact that construction activity has not been done on the leasehold land acquired from GACL. Though the averment is that the chartered engineers certificate states that 99.85% of the land would be utilized for construction of plant and machinery; that plant building will be constructed on a part of leaseholding premises and the unconstructed area will be used for auxiliary services. The aforementioned judgement lays down the law as far as section 17 (5) (d), ibid, is concerned, ITC on services received for construction of immovable property on his own account is blocked subject however, to two exceptions, as listed supra. The Hon ble Court further explains taxable person s own account to be when (i) it is made for his personal use and not for service or (ii) it is to be used by the person constructing as a setting in which business is carried out. On examining the applicant s case in light of the above, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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