The Gujarat Appellate Authority of Advance Ruling (AAAR) has ruled that Input Tax Credit (ITC) is not available on services provided in the form of agreeing to surrender right on leasehold property.
The bench of Rajeev Topno and B V Siva Naga Kumari has reject the appeal filed by the appellant and upheld the ruling of the Authority of Advance Ruling (AAR) by which it was held that GNAL is not entitled to claim ITC of the GST paid on the services provided by GACL in the form of agreeing to surrender/relinquish its right on leasehold property in favour of GNAL.
The bench relied on the decision of the Supreme Court in the case of Safari Retreats in which it was held that in the case of works contract, benefit of FIC is not available in respect of services supplied for the construction of immovable property, subject however to two exceptions. Firstly, when the goods, services, or bot, are received for construction of plant and machinery’. Secondly, where the works contract service supplied for the construction of immovable property is an input service for further supply of the works contract.
GACL has transferred its leasehold right on land to GNAL. Though words used are plant or machinery in section 17(5)(d) of the GST Act, in terms of ruling by the Karnataka Appellate Authority for Advance Ruling, in the case of M/s. Tarun Realtors P Ltd, the word ‘or’ can be read as ‘and’.
Plant and machinery excludes land in terms of explanation to section 17(5). Legiature’s intent is that ITC shall not be available in respect of services pertaining to land received by a taxable person for construction of an immovable property. Had that not been the legislative intention the word “land” would neve have been used.
The word ‘for’ in section 17(5)(d) indicates a purpose, the intended goal; that the word ‘for’ is to be construed to indicate the purpose to construct a building/civil structure/administrative block.
The argument 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 case
The GST council in its 37th meeting mentions that the high rate of GST makes new projects unavailable since credit of GST on leasing is not available for construction of immovable properties.
The AAR ruled that GNAL is not entitled to claim ITC of the GST paid on the services provided by GACL in the form of agreeing to surrender/relinquish its right on leasehold property in favour of GNAL.
The appellant appealed against the order of the AAR.
The appellant contended that 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 IISN 999792.
The appellant contended that 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 the course or furtherance of business. The relinquishment of right does not get covered in the ineligible list of input services;the service received by the appellant is not a leasing service.
The appellant contended that the acquired land is to be used in the course of furtherance of business & not for the purpose of construction of immovable property. It is a trite law that predominant test is to be applied; that as per the chartered engineer’s certificate, 99.85% land would be utilized for the purpose of constructing plant and machinery. The plants, once fully constructed, will be capitalized as plant and machinery.
The AAAR rejected the appeal and upheld the AAR’s ruling.
Appellant Name: M/s. GACL-NALCO Alkalies & Chemicals Private Limited
Date: 30/12/2024
