The Tamil Nadu Appellate Authority of Advance Ruling (AAAR) while upholding the AAR’s Order held that INOX cannot utilise ITC of GST restricted under Section 17(5)(d) Charged by IPL.
The applicant, INOX Air Products Pvt Ltd. has stated that they are engaged in the business of manufacture and supply of industrial 86 Medical gases, including oxygen (both Industrial 86 Medical Grade), nitrogen, argon etc (in both liquid and gaseous form).; State Industrial Promotion Corporation of Tamilnadu (hereinafter referred as SIPCOT) had entered into an agreement dated 22.07.1993 with India Pistons Limited(hereinafter referred to as IPL) for lease of an area of land in Hosur for a period of 99 years for the purpose of setting up a piston manufacturing industry.; INOX had approached IPL for transfer of the leasehold rights for the remainder period of 72 years in respect of part of the property for setting up of State-of-the-art medical and industrial gases plant, i.e. Air Separation Unit (ASU) for manufacture and supply of Industrial gases.; INOX and IPL entered into a Memorandum of Understanding for transfer of leasehold rights(MOU) dated 20.11.2020.; SIPCOT vide Order No. P-II/SICH/II/IPL/146/2012 dated 28.12.2020 had accorded its approval for transfer of leasehold rights to INOX. Accordingly, SIPCOT has amended its original lease agreement vide a modified lease deed on 12.01.2021 in order to lease the part property to INOX. In terms of Clause 2 of MOU, IPL has agreed to transfer the leasehold rights in the part property to INOX for a total consideration of Rs. 15,00,00,000/-.
The applicant has sought the advance ruling on the issue Whether INOX would be entitled to avail and utilize ITC of GST Charged by IPL if such transaction is considered to be a supply.
The AAR ruled that the applicant is not entitled to avail and utilize ITC of GST charged by IPL as the same is restricted under Section 17(5)(d) of the CGST/TNGST Act 2017, if such transaction is considered to be a supply.
The coram of M.S.Sidhiqui and M.V.S.Choudhary held that ASP is installed and commissioned with foundation and structural support, embedded on the land, the leasehold rights of which is obtained by the appellant by receiving the service of agreeing to withdraw the lease hold rights held by IPL in their favour. Without the appellant having the leasehold rights. they cannot undertake ‘construction’ of the manufacturing Plant, ASP. Also, ASP is an immovable property and not mere ‘Plant’ or ‘machinery’ but can be termed as ‘Plant and Machinery’, the Explanation of which specifically excludes land. Thus, it is clear that intention of law maker is to restrict ITC on services related to land, received for construction. Thus, we hold that, the services received from IPL, the cost of which is capitalised along with ASP, is a service received ‘for construction’ of an immovable property, and therefore the taxes paid is restricted as per Section 17(5)(d) of the CGST/TNGST Act 2017 and we uphold the ruling of the Lower Authority.
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