The AAR, Gujarat, in the case of M/s Bayer Vapi Private Limited [Ruling No. GUJ/GAAR/R/2023/29 dated August 24, 2023] ruled that the transferee acquiring the rights of the lease for construction of the immovable property is not entitled to take Input Tax Credit (ITC) of the Goods and Service Tax (GST) paid by them on the services received by the Transferor by way of the lease as per Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 (CGST Act).
M/s Bayer Vapi Private Limited (Applicant) is engaged in the manufacturing of chemicals for agriculture and health science applications, entered into a Memorandum of Understanding (MOU) with M/s Vapi Enterprises Ltd. (Transferor) for transferring the rights of lease of the leasehold land owned by Gujarat Industrial Development Corporation (Owner). As per the terms of the MOU, Applicant intended to use the aforesaid land to set up/expand its manufacturing facility for the manufacture of chemicals to be used by the Applicant in the course or furtherance of its business of manufacturing.
The Applicant filed an application before the AAR, Gujarat seeking clarification regarding eligibility to claim ITC of the GST paid on services received by way of lease to set up/expand its manufacturing facility.
Whether the Applicant is eligible to claim the ITC of the GST paid by them for acquiring the rights of lease from the Transferor as service for the construction of Immovable Property?
The AAR, Gujarat in Ruling No. GUJ/GAAR/R/2023/29 held as under:
As per Section 17(5)(d) of the CGST Act, the advance ruling is binding upon those cases in which the rights of the lease have been acquired to set up/expand its manufacturing facility in the course or furtherance of its business or manufacturing and the said intent has been clearly expressed.
In M/s Daicel Chiral Technologies (India) Private Limited [TSAAR order No. 6/2020] the Telangana Authority for Advance Ruling relying upon Section 17(5)(d) has opined that the applicant is not eligible to avail the Input Tax Credit of GST paid on payment of Lease Premium Charges (one time charges), annual lease rentals (recurring) and GST paid on maintenance collected by the Lessor towards the supply of land on lease for furtherance/expansion of business.
Section 17(5)(d) of the CGST Act:
“17(5)(d) 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 or both are used in the course or furtherance of business.”
The recent ruling by the AAR, Gujarat, clarifies that recipients acquiring rights to leasehold land for the construction of immovable property are not eligible to claim Input Tax Credit (ITC) on the GST paid for such services. This decision aligns with the provisions of Section 17(5)(d) of the CGST Act and is consistent with previous rulings in this regard. Businesses engaged in activities related to the acquisition of leasehold land rights should be mindful of these GST regulations and rulings to ensure compliance with the law.
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