Oxygen Plant is Immovable Property, Not Merely ‘Plant & Machinery’: AAAR Denies GST ITC on Leasehold Rights [Read Order]

The Tamilnadu State Appellate Authority for Advance Ruling (AAAR) recently held that that no Input Tax Credit (ITC) may be availed on the Goods and Services Tax (GST) paid for the transfer of leasehold rights of the land to set up a medical and industrial oxygen plant, as the same is classified as an ‘immovable property’ and not “plant and machinery”.

The applicant M/s Inox Air Products Private Limited (Inox) is a GST-registered entity engaged in the manufacture and supply of industrial and medical gases.

The facts follow India Pistons Ltd. (IPL), which originally leased the subject land from SIPCOT for 99 years.

IPL agreed to transfer leasehold rights over a portion of the land along with the existing superstructures to Inox for the remaining lease period of 72 years. A Memorandum of Understanding was executed between the parties and transfer was done with approval from SIPCOT, for a total consideration of ₹15 crore.

The appellant presently sought an advance ruling on whether they could avail ITC of GST charged by IPL on such transfer of leasehold rights. Earlier, the Authority for Advance Ruling (AAR) denied the credit under Section 17(5)(d) of the CGST/TNGST Act, 2017, and the same was upheld in appeal.

When the matter was escalated before the Madras High Court, it was remanded the matter for fresh consideration, directing the AAAR to examine whether the plant constituted immovable property and whether it qualified as “plant and machinery”.

The primary contention raised by the appellant was that the leasehold rights were not used for construction and that the Air Separation Unit (ASU) to be installed was in the nature of plant and machinery used directly in manufacturing.

It was contended that the restriction of ITC under Section 17(5)(d) of the CGST Act is applicable only where goods or services are used directly for construction of immovable property and not for acquiring lease rights. The appellant further maintained that even if the installation were treated as immovable, it would still fall within the exception for “plant and machinery”.

The AAAR members Madan Mohan Singh, I.R.S. and S. Nagarajan, I.A.S. observed that the transfer of leasehold rights was intrinsically linked to the setting up of a “state-of-the-art” oxygen manufacturing facility, which would include multiple integrated components such as compressors, storage tanks, cooling systems and structural supports, effectively forming a complete industrial setup.

The Authority held that such an integrated industrial facility cannot be deemed merely as ‘individual’ machinery or equipment but rather constitutes a manufacturing facility that is embedded to earth, and qualifies as an immovable property.

The AAAR also noted that the explanation to Section 17 of the Act specifically excluded land, building and civil structures under the category of “plant and machinery”.

Since the appellant sought to avail GST ITC on the service of transfer of leasehold rights for the construction of an immovable property which did not qualify as “plant and machinery”, AAAR ruled that the GST paid on such inward supply was blocked by the restriction under Section 17(5)(d).

Accordingly, the AAAR ruled that the appellant is not entitled to avail or utilize ITC of GST charged by IPL on the transfer of leasehold rights.

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