2025-VIL-179-AAR
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SGST Advance Ruling Authority

GST – Gujarat AAR - Input Tax Credit on Lease rental, Construction of Immovable property Facts -Applicant entered into a lease agreement with the Government of Gujarat for a duration of 50 years to use a plot of land for the purpose of carrying out their business activities including industrial construction. The applicant would use the land for setting up a factory for manufacturing of battery cells for motor vehicles - Eligibility of ITC on the GST paid under reverse charge on the annual lease rental - Whether the applicant is eligible to ITC of the GST charged on the lease rental, where the factory building would be constructed on the lease land - HELD - This authority in the cases of M/s Bayer Vapi Pvt Ltd. and M/s GACL-NALCO Alkalies and Chemicals Pvt Ltd. has held that the services received in the form of leasehold rights to land are used for the construction of immovable property, and hence, the ITC on such services is blocked under Section 17(5)(d) of the CGST Act - The AAR rejected the applicant's arguments that the term 'for' used in Section 17(5)(d) should be interpreted narrowly to cover only those services which have a direct nexus to construction, and not the services indirectly or remotely related to construction activities. The term 'for' has a wider connotation and includes all services required for the construction of immovable property, including the land lease services - The applicant is not eligible to avail the ITC of the GST charged on the lease rental – Ordered accordingly - Whether the ITC of GST charged on the lease rental paid would be available for the period prior to and after the construction of the factory building - HELD - The applicant would not be eligible for ITC of GST charged on the lease rental for the period prior to and after the construction of the factory building. The AAR noted that the land has been leased out specifically for the purpose of industrial construction, and hence, the services related to the land are blocked under Section 17(5)(d) irrespective of the stage of construction - The applicant is not eligible for ITC of GST charged on the lease rental for the period prior to and after the construction of the factory building - Whether ITC of GST paid on lease rental would be available when the repairs, maintenance, and renovation activities are undertaken on the factory building - HELD – The applicant would not be eligible for ITC of GST paid on lease rental for the repairs, maintenance, and renovation activities undertaken on the factory building. The expression 'construction' used in Section 17(5)(d) includes reconstruction, renovation, additions, or alterations or repairs to the extent of capitalization, and hence, the ITC on such services would also be blocked - The applicant is not eligible for ITC of GST paid on lease rental for the repairs, maintenance, and renovation activities undertaken on the factory building - Whether ITC of GST paid on lease rental would be available with respect to the area of the land on which no immovable property is constructed, i.e., the vacant portion of the land - HELD - The applicant would not be eligible for ITC of GST paid on lease rental with respect to the vacant portion of the land. The entire land has been leased out for industrial purposes, and any portion of the land, including the vacant portion, would be considered as used for the construction of immovable property, and hence, the ITC on the lease rental for such portion would also be blocked under Section 17(5)(d) - The applicant is not eligible for ITC of GST paid on lease rental with respect to the vacant portion of the land.
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