Order Date – 24 August 2023

Facts – 

• The Applicant, M/s. Bayer Vapi P Ltd, has entered into an MoU on 24.12.2021with M/s. Vapi Enterprises Ltd [VEL] to transfer leasehold rights in Industrial plot. VEL had entered into a lease agreement with Gujarat Industrial Development Corporation [GIDC] for setting up an industrial plant for 99 Years.
• In terms of agreement the applicant is required to deposit 40% of total consideration along with GST as advance. The applicant intends to use the land for setting up/expanding its manufacturing Facility for manufacture of chemicals to be used by the applicant in the course or furtherance of its business of manufacturing.

Issue –

• Whether the applicant is eligible for ITC of GST paid by them to VEL, post receipt of final tax invoices?

Order – 

• The AAR observed that the applicant wishes to use the service received from M/s VEL, in the form of leasehold rights to land of GIDC and intends to set up a new manufacturing plant/ expand its existing manufacturing plant. This being the fact, clearly shows that the service of leasehold rights to land was received and is a precursor to construction being carried out on the said land to set up a new manufacturing plant/expand existing manufacturing facility. 
• It is clearly hit by 17(5)(d) of CGST Act,2017 also bringing the non obstante clause into play. Section 17(5)(d) ibid, bars ITC on services received by a taxable person for construction of an immovable property (other than P&M) on his own account including when such services are used in the course or furtherance of business. Therefore, as far as the applicant is concerned, his ITC stands blocked in terms of section 17(5), ibid. 
• Further, the applicant himself has admitted that the leasehold rights of the land have been acquired for setting up/expanding its manufacturing facility for manufacture of chemicals which implies that there will be construction on the said land. This being the case, the services in question is to be utilized subsequently for construction of an immovable property (other than P&M). The ITC therefore would clearly be hit in terms of section l7(5)(d) of CGST Act,2017.
• Hence it was ruled that the applicant is not entitled to take ITC of the CGST & SGST paid by them on the services received from Vapi Enterprise Ltd in the form of transfer of its rights in the leasehold land owned by GIDC in terms of Section l7(5)(d) of the CGST Act,2017.