TMI Blog2023 (9) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... icant himself has admitted that the leasehold rights of the land have been acquired for setting up/expanding its manufacturing facility for manufacture of chemicals which implies that there will be construction on the said land. This being the case, the services in question is to be utilized subsequently for construction of an immovable property (other than P M) on his own account. The ITC therefore would clearly be hit in terms of section 17 (5)(d) of CGST Act, 2017. The applicant is not entitled to take ITC of the CGST SGST paid by them on the services received from Vapi Enterprise Ltd in the form of transfer of its rights in the leasehold land owned by GIDC in terms of Section 17(5)(d) of the CGST Act, 2017. - MILIND KAVATKAR AND AMIT KUMAR MISHRA, MEMBER Present for the Applicant : Ms. Khushboo Kundalia, Shri Ranjan Khatavkar Shri Nrupesh Machchhar Brief facts: M/s. Bayer Vapi Private Ltd., Plot No. 306/3, 2 nd Phase, GIDC Vapi, GIDC, Valsad, Gujarat 396195 is registered with the department and their GST registration number is 24AABCB2100L1ZA. 2. The applicant, is engaged in the manufacture of chemicals for agriculture environmental health science applications which are mainl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of section 16(1), tax ought to be charged secondly, goods/services, should be intended to be used in the course or furtherance of its business ie nexus/connection between the said services by the applicant the manufacturing activity is required to be proved; that the land belonging to GIDC in respect of which the applicant has obtained leasehold rights from M/s. VEL. in terms of an MoU, is an industrial plot, adjacent to their existing manufacturing plant the applicant intends to set up a new manufacturing plant/expand its existing manufacturing plant; M/s. VEL., has levied GST on advance amount paid by the applicant in terms of the MoU; that they have used HSN code 999792 relating to services; that the GST paid is for procurement of input services to be used by applicant in the course of furtherance of its business therefore they are eligible for the ITC; that the definition of input service is inclusive; that the words used are any service ; that all input services used in activities in relation to or for furtherance of business are input service : that the word business is to be understood as continuous activity not confined to mere manufacture of product or provision of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would pay the periodical rentals to GIDC; that the sum paid to VEL is like a part of compensation of the upfront amount by VEL to GIDC at the time of original lease; that amount paid by VEL is nothing but supply of renting of immovable property service. 7. The applicant vide the aforesaid application, has sought advance ruling in respect of the following question viz Whether the applicant is entitled to take ITC of the CGST SGST paid by them on the services received from Vapi Enterprise Ltd in the form of transfer of its rights in the leasehold land owned by GIDC in favour of the applicant which is to be used by the applicant in the course or furtherance of its business in terms of the provisions prescribed under the CGST SGST Act. 8. Personal hearing was held on 23.3.2023 wherein Ms. Khushboo Kundalia, Shri Ranjan Khatavkar Shri Nrupesh Machchhar appeared and reiterated the grounds raised in the application. A further hearing was held on 8.5.2023 wherein they relied upon the additional submission dated 12.4.2023. 9. The applicant, thereafter vide letter dated 12.4.2023, submitted the following additional submissions viz that they have no existing plans or projections for any devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderlying land, there is no dispute on the eligibility to ITC; similarly, when there is only a leasehold rights in the land it cannot be treated differently, so as to restrict the eligibility to ITC; that the GST law exempts grant of leasehold rights by State Industrial Development Corporation with an intent to support new industries; that if the ITC is disallowed to the second lessee, it will amount to discrimination between the first second lessee when there is no difference in the nature of the transaction; that from an accounting standards perspective, goods/services used for construction of building are capitalized under Buildings while Leasehold rights in land are capitalized under Leasehold Land ; that leasehold rights will not become a part of immovable property in terms of building hence cannot be treated as part of immovable property or as a service for construction of immovable property; that the stamp duty of value of a building without underlying land is provided separately and specifically in stamp duty legislations; that even if a building is constructed, the underlying land, if on lease, need not be a part of immovable property; that the case of GNAL., is distinguis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided; that they had not claimed refund of the ITC in respect of acquisition of leasehold rights, as they had never availed of the ITC at the time of filing the refund claim; that the applicant filed a refund claim on 9.12.2022; that even in the refund claim, it was categorically stated that no ITC was availed on the amount claimed as refund. that the applicant has already reversed the ITC vide DRC 03 dated 24.05.2003; that there is no loss to the Government, as they had sufficient ITC balance throughout the period of availment of the ITC. Discussion and findings 12. At the outset, we would like to state that the provisions of both the CGST Act and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the GGST Act. 13. We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made during the course of personal hearing. We have also considered the issue involved, the relevant facts the applicant s submission/interpretation of law in respect of questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy; (102) services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; 9 [ Explanation . For the removal of doubts, it is hereby clarified that the expression services includes facilitating or arranging transactions in securities;] *Section 16. Eligibility and conditions for taking input tax credit.- (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services or both along with tax payable thereon. (3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961 (43 of 1961), the input tax credit on the said tax component shall not be allowed. (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the 6 [thirtieth day of November] following the end of financial year to which such invoice or 7 [****] debit note pertains or furnishing of the relevant annual return, whichever is earlier. 8 [Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to anything attached to the earth. 17. Now moving on to section 17 which talks about apportionment of credit and blocked credits, we find that sub-clause (c) to sub section 5, ibid, which restricts ITC on 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. Further, sub-clause (d) to the sub-section, restricts ITC on 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 are used in the course or furtherance of business. 18. A conjoint reading leads us to a conclusion, that [a] land being immovable property, is not goods; [b] land does not fall within the ambit of services also; [c] that the credit being sought is in respect of leasehold rights paid by the applicant on upfront amount to M/s. VEL; [d] section 16(1) clearly states that ITC subject to conditions restrictions can be availed of input tax charged on any supply of goods or services or both which are used or intended to be used in the course or furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to land and building and includes a lease, then, the consideration therefor as a premium/one-time premium is a measure on which the tax is levied, assessed and recovered and hence the Court cannot then probe into the legislation any further. The said decision of the Hon ble Bombay High Court has been affirmed by the Hon ble SC vide order dated 09.11.2022 (Special Leave to Appeal (c) No. 23068/2018) keeping the following two issues open viz. (a) question of exemption granted by notification No. 12/2017-CT(Rate) dated 28.06.2017 and (b) scope and ambit of the expression in Clause 2 (a) of Schedule-II licence to occupy land is a supply of services . 23. It is in this background that the transaction needs to be examined. Invariably, it is undisputed that the applicant by entering into an MOU with VEL to acquire leasehold rights of GIDC land on payment of a consideration for the balance lease period of 52 years as per the GIDC norms, is in receipt of service from VEL. Now we find that the applicant in para 8 of Annexure II to his application has stated that that the land belonging to GIDC in respect of which the applicant has obtained leasehold rights from M/s. VEL in terms of an MoU, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an immovable property (other than P M) on his own account. The ITC therefore would clearly be hit in terms of section 17 (5)(d) of CGST Act, 2017. 27. The applicant, thereafter has argued that other goods/services received pre-facto i.e. prior to the creation of immovable property would not be covered under the restriction. We have examined the argument. The argument belies legal basis and hence is not tenable. The applicant has thereafter raised an argument that even from an accounting standards perspective, goods/services used for construction of building are capitalized under Buildings while Leasehold rights in land are capitalized under Leasehold Land ; that leasehold rights will not become a part of immovable property in terms of building hence cannot be treated as part of immovable property or as a service for construction of immovable property. Even this argument on being examined under the threshold of section 17(5)(d), ibid, read with the explanation concerned, is not legally tenable. 28. We further find that on a similar issue, GAAR has already given its ruling [ Advance Ruling No. Guj/GAAR/R/53/2021 dated 18.10.20211 in the case of M/s. GACL NALCO Alkalies Chemcials P Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vil structures, administrative block et al on the leased land. The purpose to enter into the subject agreement with GACL for the subject land is to construct factory with administrative block, et al, so that GNAL may pursue its business. 14.2 Thus we hold that 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. 18. We note that the GST Council is cognizant of this position of law that tax credit of GST on leasing of land, for construction of immovable property, is not available. Here we find it apt to reproduce the wordings of H ble Delhi High Court, in the case of Manufacturers Traders Association vs UOI-2020 (43) G.S.T.L. 616 (Del.), at para 10: GST Council - Status of - This is a Constitutional body brought into existence by 101st Amendment and is chaired by the Union Minister for Finance with Finance Minister of all States as members - Rates of GST are jointly decided and recommendations made to Central and State Governments - It is hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust has allotted covered space to an extent of 267 sq.m at Ground floor - North wing of Jawahar building on Upfront Premium for Long Term Lease Basis to the applicant till 31.08.2045 from the date of handing over of the premises by Chennai Port Trust. The space is intended to be used by the applicant as an extended corporate office. The prevailing rate as per Schedule of Rates for the above building premises at Rajaji Salai is Rs. 740/ -(for January 2021) per Sq.m per month or part thereof which is arrived after effecting the compoundable annual escalation of 5% on every year basis. The Details of the allotment and Upfront premium calculation are as below:- 8.2 The State Jurisdictional authority has stated that input tax credit is ineligible in the instant case under Section 17 (5) (d) of the CGST Act, 2017. The relevant provisions of the Section is extracted below: 17 (5) Notwithstanding 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:- (d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... least five years from the date of the Deed coming into force, is entitled to assign to another person the unexpired residual period of the sub-lease after taking written approval of the Sub-lessor and on payment of transfer fee, being 10% of the prevailing market value of the property as assessed by the Registering Authority of the State Government. 1.3 The Liquidator wants to know whether GST is payable on the consideration receivable on such assignment. If so, what should be the SAC and the rate applicable? He also seeks clarity on whether he can claim input tax credit for the GST paid on the transfer fee. Both the questions are admissible under section 97 (2) (a), (b), (d) (e) of the GST Act. 4.7 Similarly, the transfer fee charged by the Sub-lessor is in the nature of a consideration for tolerating an act that the applicant is otherwise refrained from doing in terms of clause 12.28 of the Deed. It is also a service classifiable under Other miscellaneous service (SAC 999794) and taxable @ 18% under Sl No. 35 of the Rate Notification. It is the consideration payable to the Sub-lessor for providing a service in the course or furtherance of business, more specifically because busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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