ITC Reversal on Non-Taxable GIDC Leasehold Transfer Unsustainable: Gujarat HC

Kor Chems Vs Assistant Commissioner (Gujarat High Court)

Summary: The Gujarat High Court allowed the writ petition and quashed the GST proceedings arising from Input Tax Credit of Rs.29,25,000/- availed by the petitioner on acquisition of leasehold rights in an industrial plot at Ankleshwar. The petitioner, a partnership firm trading in industrial chemicals, acquired leasehold rights from M/s. Myspace Infracon in February 2022 for Rs.1,91,75,000/-, inclusive of GST of Rs.29,25,000/-. GST was charged through tax invoice dated 17.02.2022 and the petitioner, believing the credit to be admissible, availed ITC in its GSTR-3B for February 2022. During inspection under Section 67(1) of the CGST Act, the petitioner stated that the credit had been taken under a bona fide belief.

It subsequently reversed the entire ITC through DRC-03 dated 21.01.2023 and discharged interest of Rs.4,44,280/- through DRC-03 dated 22.12.2023. Nevertheless, proceedings were initiated under Section 74(1) alleging that the ITC constituted blocked credit under Section 17(5)(d), culminating in an Order-in-Original confirming ITC demand, interest and an equal penalty of Rs.29,25,000/-, followed by dismissal of the petitioner’s appeal. The petitioner relied upon Gujarat Chamber of Commerce and Industry & Ors., wherein assignment by sale or transfer of GIDC leasehold rights was held to constitute transfer of benefits arising out of immovable property and not a taxable supply under Section 7 read with Schedule II and Schedule III, and also upon Special Civil Application No.18068 of 2025, which held that Section 17(5)(d) applies to construction-related expenditure and could not be invoked where no construction activity was undertaken. The Revenue was unable to controvert that the controversy was covered by these decisions.