In re Agratas Energy Storage Solutions Pvt. Ltd. (GST AAAR Gujarat)
The Appellate Authority for Advance Ruling (AAAR), Gujarat, considered an appeal concerning the eligibility of Input Tax Credit (ITC) on GST paid under the Reverse Charge Mechanism on annual lease rentals for land taken on a 50-year lease from the Government of Gujarat for industrial use. The appellant, engaged in manufacturing battery cells for motor vehicles, intended to construct a factory on the leased land and sought clarity on ITC availability in various scenarios, including pre-construction and post-construction periods, repairs and maintenance activities, and for portions of land where no construction would occur.
The Gujarat Authority for Advance Ruling (GAAR) had earlier denied ITC in all such situations, holding that GST paid on lease rentals for land used for construction of immovable property is restricted under Section 17(5)(d) of the CGST Act. The GAAR concluded that the restriction applies irrespective of whether construction has commenced or been completed, and also extends to vacant land and repair-related activities.
Before the AAAR, the appellant argued that lease of land is not directly “for construction,” and that the expression “for” in Section 17(5)(d) should be interpreted narrowly to apply only to goods and services directly used in construction. It was also contended that ITC should be available for periods when the land is not used for construction, for repairs and maintenance activities, and for vacant portions of land. The appellant further argued that there should be no differential treatment based on payment structure and that denial of ITC would lead to inequitable outcomes.
