No input tax credit on long-term land lease: Firms drag Centre, state to HC

Topics GST

The Rajasthan High Court (HC) has agreed to hear companies, which have challenged a provision that denies input tax credit (ITC) under goods and services tax (GST) for taking land on long-term lease for commercial building.

Section 17(5)(c) and Section 17(5)(d) of the Central Goods and Services Tax Act, 2017, have been challenged. The two Section deal with blocked credits for works contract services when supplied for the construction of an immovable property and goods or services or both received by a taxable person for construction of an immovable property, respectively, have been challenged. The high court has issued notices to the central and state governments and will now hear the case on September 24.

The petitioner company, Kamal Cogent Energy Private Limited, has also challenged the levy of 9 per cent Central GST (CGST) and Rajasthan GST (RGST) for the land that it took on a 99-year lease from the Rajasthan Industrial Development and Investment Corporation (RIICO).

In its petition to the high court, a copy of which Business Standard has seen, the company has said that since it intends to make a commercial complex or a hotel on the land that it had leased from the RIICO, which would come as taxable supply unde the provisions of CGST, it would automatically qualify as input service. The company thus should be able to claim ITC, the petition says.

“The tax paid on such a service should be available to the petitioner as input tax credit. However, after the enactment of CGST, certain restrictions have been provided in the Act,” the company said in its petition.

Similar pleas have been filed by companies across several high courts of the country.

The Odisha high court in a judgment in May this year had ruled in favour of the petitioners who had sought ITC on long-term land lease deals.

In its judgment, the high court had said; “If the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, it is required to have the input tax credit on GST.”

“The denial of credit leads to tax cascading and has been a matter of debate. As this is against the very objective of GST, the arbitrariness behind such restriction to credit has been argued”, said Abhishek A Rastogi, partner at Khaitan & Co., adding that restrictions posed under Section 17(5) increases the cost especially in case when the output supply is taxed.

Real estate companies have petitioned the Delhi High Court to strike down the provisions of Section 17(5)(c) and (d) of the CGST Act and similar provisions in the Delhi GST Act.

Section 17 (5) of the CGST Act

  • Deals with blocked credit under CGST and states’ GST
  • Not available in respect of certain inward supply of goods or services
  •  Blocks ITC for motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons
  •  Blocks ITC for vessels, aircraft including leasing, renting or hiring thereof
  •  Blocks ITC on supply of food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery


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