GST Input Tax Credit Denied for Land Leasehold Rights
The Appellate Authority for Advance Ruling ruled that GST paid on land leasehold rights for construction is ineligible for input tax credit.
- Ruling
- Order-in-Appeal No. AAAR/04/2026 (AR) dated 18.03.2026
- Dated
- 18 Mar 2026
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Inox Air Products sought credit for GST on land leasehold rights.
- The land was leased to build an industrial gas manufacturing unit.
- The authority ruled the credit is blocked under Section 17(5)(d).
- The facility is considered immovable property, not plant and machinery.
In short
The company asked if they could claim input tax credit on the GST paid to acquire land leasehold rights for building a factory. The tax authority decided that because the land is used to construct an immovable property, the tax paid is blocked and cannot be claimed back.
What has changed
How it worked before
Businesses were often uncertain whether leasehold rights for land could be treated as a service eligible for credit, or if they were strictly tied to the construction of immovable property.
What has changed
The authority confirmed that GST paid on land leasehold rights for construction is ineligible for input tax credit. This means businesses cannot recover the tax paid on these leases if the land is used to build a permanent facility.
Who this affects
Manufacturing businesses or any company acquiring land leasehold rights to build their own factory or office premises.
An example
Imagine a logistics company, 'FastMove Ltd', leases land to build a large warehouse. They pay GST on the leasehold rights and want to claim that GST as input tax credit. Based on this ruling, FastMove Ltd would likely be denied the credit because the warehouse is considered immovable property built on their own account.
What you should do
This ruling only applies to the company that asked for it. If your business is in a similar situation, do not assume you can claim this credit; consult your tax advisor to review your specific agreement and construction plans.
If you do nothing
If you claim this credit and the tax department disagrees, they may issue a demand notice for the unpaid tax plus interest and penalties. Relying on a ruling that does not apply to you is not a valid defense during an audit. You could face significant financial losses if you are forced to reverse the credit later.
The terms explained
- Input Tax Credit
- The tax a business pays on its purchases that it can use to reduce the tax it owes on its own sales.
- Immovable Property
- Land, buildings, and anything permanently attached to the land that cannot be moved without significant damage.
- Blocked Credit
- Specific types of business expenses where the government does not allow you to claim back the GST paid.
The ruling in detail
Appellate Authority for Advance Ruling
M/s. Inox Air Products Private Limited
Order-in-Appeal No. AAAR/04/2026 (AR) dated 18.03.2026 · Tamil Nadu
Questions before the authority
- Whether they would be entitled to avail and utilize Input Tax Credit (ITC) of Goods and Services Tax (GST) charged by India Pistons Limited (IPL) if such transaction is considered to be a supply.
Facts
The Appellant entered into an agreement with India Pistons Limited (IPL) to acquire leasehold rights for a portion of land to set up an Air Separation Unit (ASU) for the manufacture of industrial gases. The Appellant sought an advance ruling on whether they are entitled to claim Input Tax Credit on the GST charged by IPL for this transfer of leasehold rights. The lower authority had previously denied the credit, and the matter was remanded by the High Court for de novo consideration.
Ruling
| Question | What the authority ruled |
|---|---|
| Eligibility of ITC on GST charged by IPL for transfer of leasehold rights | Not entitled to avail and utilize ITC Restricted under Section 17(5)(d) of the CGST/TNGST Acts, 2017 |
The Appellate Authority ruled that the Appellant is not entitled to avail and utilize the Input Tax Credit of GST charged by IPL. The authority concluded that the service received is for the construction of an immovable property on the Appellant's own account, which is blocked under the relevant provisions of the GST law.
Reasoning
The authority determined that the acquisition of leasehold rights is for the purpose of constructing an Air Separation Unit, which constitutes the construction of an immovable property on the Appellant's own account. It relied on the **Explanation to Section 17(5)** of the CGST Act, which includes 're-construction, renovation, additions or alterations' under the definition of construction. The authority further held that the installation does not qualify as 'plant and machinery' under the statutory definition, as it is intended for the permanent beneficial enjoyment of the land. Consequently, the **input tax credit is blocked** under Section 17(5)(d) of the CGST Act.
Provisions relied on
- Section 17(5)(d) of the CGST Act, 2017
- Explanation to Section 17(5) of the CGST Act, 2017
- Section 101(1) of the Tamil Nadu Goods and Services Tax Act, 2017
For the practitioner
This ruling clarifies that GST paid on leasehold rights for land intended for the construction of a manufacturing facility is **ineligible for Input Tax Credit**. It reinforces a strict interpretation of the construction-related block under Section 17(5)(d). Practitioners should note that the authority distinguishes this from cases involving purely movable plant and machinery, emphasizing that the **intended permanent use of the land** is a critical factor.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2026-04/inox_air_products_india_pvt_ltd_aaar_order-3.pdf
Legibility of the scan, as read: high.
Prepared 12-10-2026.
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