GST: AAAR Denies ITC on Land Lease for Air Separation Plant Setup

The appellant, M/s. Inox Air Products Private Limited, engaged in manufacturing industrial and medical gases, planned to establish an Air Separation Unit (ASU) at Hosur. For this purpose, it entered into an arrangement with M/s. India Pistons Ltd. to acquire leasehold rights over land for a long duration of 72 years, against a consideration of Rs. 15 crore. GST was charged on this transaction, and the appellant sought to avail Input Tax Credit (ITC) on the same.

The issue was initially examined by the Authority for Advance Ruling (AAR), which denied the ITC by invoking Section 17(5)(d) of the CGST/TNGST Act. The matter was subsequently remanded by the High Court for fresh consideration. Before the Appellate Authority for Advance Ruling (AAAR), the appellant contended that the lease was integral to setting up a plant and therefore should qualify under the “plant and machinery” exception to blocked credit.

Main Issue: Whether ITC on GST paid for acquiring leasehold rights in land for setting up an Air Separation Plant qualifies as “plant and machinery” or is restricted under Section 17(5)(d) of the CGST/TNGST Act.

Tribunal’s Decision: The Appellate Authority upheld the denial of ITC and ruled against the appellant. It observed that although “plant and machinery” is excluded from the restriction under Section 17(5)(d), the statutory definition clearly excludes land from its ambit. The Authority emphasized that the nature of the inward supply being leasehold rights in land was determinative.

Since land is specifically excluded from the definition of plant and machinery, any GST paid on its acquisition, even in the form of long-term leasehold rights, would not qualify for ITC. The fact that the land was intended for setting up an Air Separation Plant did not alter the legal position. Accordingly, the ITC claim was held to be blocked under Section 17(5)(d).

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