GST on lease premium charges, annual lease rentals and maintenance charges paid on lease of land for own bulding construction is restricted and not eligible for ITC as per section 17(5)(d): Says AAR

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.

Section 17(5) of the CGST 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.

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.

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. 

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.

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. 

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).

Ruling

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

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