ITC of GST paid on Land Lease Premium Charges for business purpose not available

TELANGANA STATE AUTHORITY FOR ADVANCE RULING

The Question and Ruling as follows :

8. Discussion & Findings:

8.1 We have considered the submissions made by the applicant in their application for advance ruling as well as at the time of personal hearing. The applicant vide their application sought for clarification as to whether they are eligible to avail input tax credit of GST charged on (i) Lease Premium Charges; (ii) Annual Lease Rentals & (iii) Maintenance Charges paid to lessor towards land lease. To resolve the same, provisions relating to input tax credit as laid down under CGST Act, 2017 need to be perused.

8.2. Sections 16 to 19 of the CGST Act, 2017 contain the provisions relating to allowance of Input Tax Credit subject to the conditions stipulated there under. Sec. 16(1) allows every registered person to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business subject to such conditions and restrictions as may be prescribed.

8.3. Sec. 17(5) of the Act lists the circumstances wherein input tax credit in r/o goods/services shall not be available. It is pertinent to note that Sec.17(5) starts with the phrase ‘notwithstanding anything contained in Section 16(1)’ which facilitates Sec. 17(5) to override the provisions of Sec. 16(1). Thus the pervasive domain of goods/services provided for under Sec. 16(1) was abridged by Sec 17(5)by specifying the situations wherein input tax credit in respect of certain goods/services has been restricted.

8.4. At this juncture, it is relevant to refer to clause (d) Sec. 17(5) which is reproduced hereunder:

(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.

Explanation. — For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

It may be observed from the above legal provision that input tax credit is barred in r/o goods or services used for construction of immovable property (other than plant or machinery) including when such goods or services are used in the course or furtherance of business. The term immovable property has not been defined under the GST Act. Nevertheless, Sec. 3(26) of the General Clauses Act, 1897 defines “immovable property” as under:

“immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.”

As may be observed from the above, the definition of “immovable property” is an inclusive definition and includes all the things attached to the earth or permanently fastened to anything attached to the earth.

8.5. Now, coming to the case on hand, it is not under dispute that the “lease premium charges”, “annual lease rentals” and “maintenance charges” are paid by the applicant to the lessor towards lease of land. It is manifest from the terms and conditions of the lease agreement dated 17.08.2017 that the applicant acquired land from M/s IKP Knowledge Park on lease for the purpose of construction of a building where their own laboratory would be accommodated. This is self evident from clause 5 of the agreement. It has been reported by the applicant that the lessor has paid GST on lease premium charges at the rate of 18% (9% CGST + 9% SGST) treating them as services. The applicant will also be required to pay GST on the “annual lease charges” and “maintenance charges” which are in the nature of services.

8.6. We opine and it is also not disputed that the ‘building’ constructed by the applicant unquestionably falls within the ambit of ‘immovable property’ in terms of the definition of the ‘immovable property’ mentioned supra. Further, as per the agreement, the building after completion of construction would be utilised by the applicant for their own utility to accommodate a laboratory which carries out chromatography services rendered by them. Thus, it is established that the referred services have been received by the applicant for the purpose of construction of immovable property on their own account.

8.7. It is further observed that the restriction stipulated under Sec. 17(5) (d) is not applicable to the goods and services used for construction of “plant and machinery”. To examine as to whether “building” falls under the category of “plant and machinery”, reference has to be made to the explanation appended to Sec. 17(5) which defines the term “plant & machinery” in the following manner:

Explanation.—For the purposes of this Chapter and Chapter VI, the expression “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.

From the above definition, it is obvious that ‘plant and machinery’ excludes building from its purview.

8.8. From the above discussion, it clearly emerges that all the referred services are received by applicant for construction of immovable property (other than plant & machinery) on their own account. The exclusion clause 17(5)(d) shows that the exclusion is applicable including when such services are used in the course or furtherance of business which is the claim of the applicant. Thus, the referred services in the instant case and in the given facts, squarely fall under the exclusion vide Sec. 17(5)(d) and hence ineligible to ITC. The various contentions put forth and case laws cited by the applicant are found to be either not relevant or pertain to distinguishable facts/situations when compared with the facts in the instant case as above and hence inapplicable.

8.9. Accordingly, we hold that the impugned services referred by the applicant have been received for construction of immovable property on their own account and therefore input tax credit on those services is barred under the provisions of clause (d) of Sec. 17(5).

Advance Ruling

9. In view of the observations stated above, the following rulings are issued :

Q1. Whether the applicant is eligible to avail input tax credit of GST paid on payment of Lease Premium Charges (one-time charges) towards land lease for business purpose?

Ans: No. the applicant is not eligible to avail input tax credit of GST paid on payment of Lease Premium Charges (one-time charges) towards land lease.

Q2. Whether the applicant is eligible to avail input tax credit of GST paid on annual Lease rentals (recurring) towards supply of land on lease for business purpose?

Ans: No. The applicant is not eligible to avail input tax credit of GST paid on annual Lease rentals (recurring) towards supply of land on lease.

Q3. Whether the applicant is eligible to avail input tax credit of GST paid on maintenance charges collected by the lessor?

Ans: No. The applicant is not eligible to avail input tax credit of GST paid on maintenance charges collected by the lessor