The case examines whether Input Tax Credit (ITC) is available on GST paid for transfer of leasehold rights used to set up an Air Separation Plant (ASP). The Authority held that ITC is not admissible under Section 17(5)(d) as the leasehold cost is directly linked to construction of an immovable property and forms part of the capitalized cost of the plant. It further ruled that the ASP constitutes immovable property due to its permanent installation, long-term lease (72 years), and inability to be relocated as a whole. The argument that the ASP qualifies as “plant and machinery” was rejected, as the Authority clarified that the exception applies only to individual equipment and not an entire manufacturing facility. Consequently, ITC was denied, reinforcing that expenses capitalized towards construction of immovable property are ineligible for credit, even if used for business purposes.
1. FACTS & INTRODUCTION
The Appellant, M/s. Inox Air Products Private Limited, is registered under GST and is engaged in the manufacture and supply of industrial and medical gases, including oxygen, nitrogen, argon, etc., in both liquid and gaseous form.
Background of the Transaction
M/s. India Pistons Ltd. (IPL) had taken land on lease from SIPCOT (State Industries Promotion Corporation of Tamil Nadu) at Hosur for a period of 99 years. The Appellant (Inox) approached IPL seeking transfer of leasehold rights over 5 acres of land with existing shed/superstructures for the remaining 72 years of the lease, with the express purpose of setting up a ‘State of the Art’ Ultra High Purity Cryogenic Liquid Medical and Industrial Oxygen Plant, technically known as an Air Separation Unit (ASU).
A Memorandum of Understanding (MOU) was executed between Inox and IPL on 20.11.2020, and SIPCOT accorded its approval for the transfer. The total consideration payable by Inox to IPL was Rs. 15,00,00,000/- (Rupees Fifteen Crores).
The Core GST Question
Inox sought an Advance Ruling on whether it would be entitled to avail and utilise Input Tax Credit (ITC) of GST charged by IPL on this transaction — i.e., on the transfer of leasehold rights — if such transaction is treated as a ‘supply’ under the GST Act.
Procedural History
| Stage | Authority | Ruling | Date |
| Original Advance Ruling | AAR, Tamil Nadu | ITC not admissible; blocked u/s 17(5)(d) | 30.07.2021 |
| First Appeal | AAAR, Tamil Nadu | AAR ruling upheld | 02.12.2021 |
| Writ Petition (WP 9952 & 9956/2022) | Hon’ble Madras High Court | Remanded for De Novo consideration | 08.04.2025 |
| De Novo Consideration | AAAR, Tamil Nadu (present order) | ITC not admissible | 18.03.2026 |
Read Also: https://taxguru.in/income-tax/key-income-tax-april-1-2026-income-tax-act-2025.html
2. APPELLANT’S ARGUMENTS
The Appellant structured their defence around three key layers:
Layer A: Leasing of Land is NOT used for ‘Construction’
- The expression ‘construction’ in Section 17(5)(d) requires a direct and proximate nexus between the inward supply and construction activity.
- The lease of land merely provides the right to access and use a site — it does not result in, nor is it consumed in, any construction activity per se.
- Services for ‘construction’ cover only direct services like those of engineers, architects, and contractors — not land leasing.
- The lease is availed not for construction, but for conducting business operations — manufacture and supply of industrial gases through the ASP. The nexus is with business use and operation, not construction.
Layer B: The ASP is Inherently Movable
- The Air Separation Plant (ASP) consists of modular machinery — compressors, cold boxes, purifiers, distillation columns, pipelines — mounted on foundations only for stability and vibration control, not for permanent annexation.
- Attachment is by nuts and bolts and the plant is regularly dismantled, transported, and reinstalled.
- The Hon’ble CESTAT Mumbai (Final Order No. A/85751-85753/2025 dated 24.04.2025) in the Appellant’s own case held that identical cryogenic ASPs are movable property.
- Relied on Bharti Airtel Ltd. v. Commissioner of Central Excise, Pune [2024 (11) T 1042 (SC)] — the Supreme Court held that equipment assembled and affixed by nuts and bolts remains movable where attachment is only for operational stability.
Layer C: Even if Immovable, ASP Qualifies as ‘Plant and Machinery’
- Section 17(5)(d) expressly excludes ‘plant and machinery’ from the ITC restriction.
- The ASP comprises apparatus, equipment and machinery fixed to earth by foundation, used for making outward supply of gases — squarely fitting the statutory definition of ‘plant and machinery’ under Explanation to Section 17 of CGST Act.
- The Explanation to Section 17(5) is only classificatory and definitional — it does not operate as an independent restriction on ITC.
- Even if the ASP is treated as immovable, CESTAT Mumbai in the Appellant’s Raigad unit case proceeded on the admitted premise that the ASP constitutes plant and machinery.
Read Also: https://taxguru.in/income-tax/income-tax-act-2025-tds-rates-thresholds-compliance-ty-2026-27.html
3. AUTHORITY’S OBSERVATIONS & ANALYSIS
On Madras High Court’s Remand Direction
The Hon’ble High Court, while remanding the matter, specifically observed that the AAAR had not dealt with the ‘second limb’ of the argument — namely, whether even if the property is immovable, it would fall within the exception for plant and machinery under Section 17(5)(d). The High Court expressly left the merits open for fresh consideration.
Issue 1: Is the Inward Supply ‘For Construction’?
The Authority examined the MOU and SIPCOT approval letter and found that the very purpose of acquiring leasehold rights was expressly stated as ‘for setting up of medical and industrial gases air separation unit.’ The Explanation to Section 17(5) defines ‘construction’ to include re-construction, renovation, additions or alterations or repairs to the extent of capitalisation.
*The service received from IPL is very much ‘for construction’ of the manufacturing facility (ASP). Without IPL agreeing to withdraw its leasehold rights, the Appellant cannot get the leasehold on the land and cannot construct the manufacturing facility. The amount paid to IPL forms an integral part of the cost of the ASP being constructed and admittedly stands capitalised along with ASP in the Appellant’s books of accounts.*
Issue 2: Is the ASP Immovable Property?
The Authority applied the six-fold test laid down by the Supreme Court in Bharti Airtel (para 11.8 of the SC order dated 20.11.2024) to determine the nature of the ASP:
| Six-Fold Test for Determining Movable vs. Immovable Property | |
| (1) Nature of Annexation | How firmly the property is attached to the earth |
| (2) Object of Annexation | Whether attachment is for permanent beneficial enjoyment of the land (= immovable) or merely to facilitate use of the item itself (= movable) |
| (3) Intendment of Parties | Whether the parties intended permanent addition to the immovable property |
| (4) Functionality Test | If fixed to the ground to enhance operational efficacy of the article itself, such property is movable |
| (5) Permanency Test | If capable of dismantling and relocation without any damage, it can be considered movable |
| (6) Marketability Test | If the property, even if attached to the earth, can be removed and sold in the market, it can be said to be movable |
Applying these tests, the Authority concluded the ASP is immovable property on the following grounds:
- The construction/installation took place in the Appellant’s own premises acquired on lease for 72 years — proving the attachment is for permanent beneficial enjoyment of the land.
- The entire Air Separation Plant — including the existing shed/superstructures — is not capable of being detached and moved as a whole.
- Individual components like cooling towers, pumps, compressors, distillation columns, and storage tanks are tailor-made for this specific factory/facility and are not capable of being marketed as stand-alone apparatus.
- The object behind the installation is clearly to enable permanent manufacture and supply of medical and industrial gases.
Distinguishing the CESTAT Mumbai Order:
The Appellant’s Raigad unit case (CESTAT Mumbai) was distinguished on facts: in that case, the plant was set up in ISPAT’s premises with ISPAT’s equipment supplied free of cost and the Appellant had only a right of access. In contrast, the instant case involves acquisition of land by the Appellant themselves on a long-term lease of 72 years, establishing the intention of permanent beneficial enjoyment. Moreover, the CESTAT order dealt with the Finance Act, 1994 for levy of service tax — not GST law.
Issue 3: Does the ASP Qualify as ‘Plant and Machinery’?
The Authority closely examined the statutory definition under the Explanation to Section 17 of the CGST Act:
*”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 civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises.*
The Authority noted a significant retrospective amendment via the Finance Act, 2025 (Sl. No. 124): The words ‘plant or machinery’ in clause (d) of Section 17(5) have been amended to ‘plant and machinery’ with retrospective effect from 01.07.2017, along with insertion of Explanation 2 clarifying that any reference to ‘plant or machinery’ shall always be construed as a reference to ‘plant and machinery.’
The Authority held that the overall Air Separation Plant — which is a comprehensive manufacturing complex involving cooling towers, compressors, distillation columns, pumps, storage tanks, and allied infrastructure meant to perform a whole lot of functions in relation to the entire factory set-up cannot be treated as an Apparatus, Equipment, or Machinery by any means. Therefore, the ASP does not fit the definition of ‘plant and machinery’ as provided under the Explanation to Section 17 of the Act.
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4. FINAL ORDER
The Tamil Nadu State Appellate Authority for Advance Ruling passed the following order after De Novo consideration:
“The Appellant is not entitled to avail and utilize ITC of GST charged by IPL, as the same is restricted under Section 17(5)(d) of the CGST/TNGST Acts, 2017, if such transaction is considered to be a supply.”
5. KEY TAKEAWAYS FOR TAX PROFESSIONALS
| KEY TAKEAWAYS | |
| 1 | Capitalisation is a critical indicator: Where the cost of an inward service is capitalised as part of an immovable property under construction, it strongly indicates the service is ‘for construction’ — making it liable to ITC blockage under Section 17(5)(d). |
| 2 | Long-term lease = Permanent beneficial enjoyment: Acquisition of land on a long-term lease (72 years here), combined with setting up a manufacturing facility, conclusively establishes the object of annexation as permanent beneficial enjoyment of the land — rendering the installation immovable. |
| 3 | CESTAT / Pre-GST precedents must be applied with caution: Decisions under the Finance Act, 1994 or Central Excise Act, 1944 on the question of ‘immovability’ may not be directly applicable under GST law, given the distinct statutory frameworks. |
| 4 | ‘Plant and Machinery’ exception is narrowly construed: A comprehensive manufacturing plant or factory installation cannot claim the benefit of the ‘plant and machinery’ exception. The definition under Explanation to Section 17 applies to individual apparatus, equipment, or machinery — not an entire factory complex. |
| 5 | Retrospective amendment reinforces the position: The Finance Act, 2025 retrospectively substituting ‘plant or machinery’ with ‘plant and machinery’ (w.e.f. 01.07.2017) underscores that the ITC restriction applies comprehensively. |
| 6 | Bharti Airtel principles cut both ways: While the Appellant relied on Bharti Airtel for movability, the Authority used the same judgment’s six-fold test — particularly ‘object of annexation’ and ‘intendment of parties’ — to hold the ASP immovable, demonstrating the test must be applied holistically. |
Read Also: https://taxguru.in/income-tax/tax-loss-harvesting-losses-work.html
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Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Readers are advised to consult their tax advisors for specific guidance.
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very comprehensive presentation.