GST Input Tax Credit on Land Lease Rentals Blocked
The Gujarat Authority for Advance Ruling decided that businesses cannot claim Input Tax Credit on GST paid for land lease rentals used for construction.
- Ruling
- GUJ/GAAR/R/2025/46 dated 03.11.2025
- Dated
- 03 Nov 2025
- Authority
- 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
- Agratas Energy Storage asked if GST on land lease rentals is claimable.
- The Authority ruled that this Input Tax Credit is blocked under Section 17(5)(d).
- The restriction applies to all periods, including pre-construction and vacant land.
In short
Agratas Energy Storage Solution Pvt Ltd asked the Gujarat Authority for Advance Ruling (GAAR) if they could claim Input Tax Credit (ITC) on the GST paid for a long-term industrial land lease. The company argued that these lease costs were necessary for their battery manufacturing business. The Authority examined whether the lease was linked to the construction of an immovable property, specifically a factory building.
What has changed
How it worked before
Businesses were often uncertain if lease rentals for industrial land qualified for ITC, as the law regarding 'construction of immovable property' is complex and subject to varying interpretations.
What has changed
The Authority ruled that because the land lease is for the purpose of constructing a factory, the GST paid on those rentals is blocked under Section 17(5)(d) of the CGST Act. This means businesses cannot recover the GST paid on these lease payments as credit, regardless of whether the land is vacant, under construction, or fully developed.
Who this affects
Manufacturing businesses and industrial companies that lease land for factory construction and pay GST under the Reverse Charge Mechanism.
An example
Imagine a textile company leases land to build a new weaving unit. They pay GST on the lease under the Reverse Charge Mechanism and consider claiming it as ITC. Based on this ruling, the company would likely be denied that credit because the lease is tied to the construction of their factory building.
What you should do
Review your current tax filings to ensure you are not claiming ITC on land lease rentals. Remember that an Advance Ruling only binds the company that asked and its specific tax office; it is not a universal law for all businesses. If you are in a similar situation, consult with your tax advisor to assess your specific risk before changing your accounting practices.
If you do nothing
If you claim this credit and your local tax officer disagrees, you may face a demand for the tax amount plus interest and penalties. Relying on a ruling that does not apply to your specific case can lead to costly litigation. Always verify your position with a professional rather than assuming a ruling sets a precedent for your own business.
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.
- Reverse Charge Mechanism
- A system where the person receiving the service pays the tax directly to the government instead of the service provider.
- Immovable Property
- Property that cannot be moved, such as land, buildings, or structures attached to the earth.
The ruling in detail
Authority for Advance Ruling
M/s. Agratas Energy Storage Solutions Pvt Ltd.
GUJ/GAAR/R/2025/46 dated 03.11.2025 · Gujarat
Questions before the authority
- Whether the Applicant would be eligible to avail the ITC of the GST charged on the lease rental, where the factory building would be constructed on lease land?
- Without prejudice to the above, whether the ITC of GST charged on the lease rental paid would be available in the following periods: (i) For the period prior to initiation of the construction of the factory building (ii) For the period after construction of the factory building
- Without prejudice to the above, whether ITC of GST paid on lease rental would be available when the repairs, maintenance and renovation activities are undertaken on the factory building?
- Without prejudice to the above, whether ITC of GST paid on lease rental would be available with respect to the area of the land on which no immovable property is constructed i.e. vacant portion of the land?
Facts
The applicant is a newly set up company and a wholly owned subsidiary of Tata Sons, engaged in manufacturing battery cells for motor vehicles. They have entered into a 50-year lease agreement with the Government of Gujarat for approximately 321 acres of land for industrial purposes. The applicant is liable to pay annual lease rentals and discharge GST under the Reverse Charge Mechanism.
Ruling
| Question | What the authority ruled |
|---|---|
| ITC on lease rental for factory construction | No Blocked under Section 17(5)(d) |
| ITC on lease rental prior to construction | No Blocked under Section 17(5)(d) |
| ITC on lease rental after construction | No Blocked under Section 17(5)(d) |
| ITC on lease rental for repairs and maintenance | No Blocked under Section 17(5)(d) |
| ITC on lease rental for vacant land portion | No Blocked under Section 17(5)(d) |
The Authority ruled that the applicant is not eligible to avail Input Tax Credit (ITC) of the GST paid under the Reverse Charge Mechanism on the lease rentals. This denial applies to all scenarios, including the period prior to construction, the period after construction, during repairs and maintenance, and for the vacant portion of the land. The Authority concluded that the lease of land is for the construction of immovable property, which is blocked under the relevant GST provisions.
Reasoning
The Authority relied on Section 17(5)(d) of the CGST Act, which blocks ITC on goods or services received by a taxable person for the construction of an immovable property on their own account. It interpreted the term 'for' as indicating a purpose, concluding that the lease was specifically for the construction of a factory. The Authority further noted that the definition of 'construction' includes repairs and renovation, and that 'plant and machinery' excludes land. Consequently, it held that the **entire lease transaction is blocked** regardless of the timing or the specific portion of the land.
Provisions relied on
- Section 7 of the CGST Act
- Section 2(102) of the CGST Act
- Section 9(3) of the CGST Act
- Section 16(1) of the CGST Act
- Section 17(5)(c) of the CGST Act
- Section 17(5)(d) of the CGST Act
- Notification No. 13/2017-Central Tax (Rate)
For the practitioner
This ruling confirms that **ITC on lease rentals** paid for land used for industrial construction is **blocked under Section 17(5)(d)**. It settles that this restriction applies broadly, covering pre-construction, post-construction, and vacant land periods. Practitioners should note that the Authority maintains a strict interpretation that land is not 'plant and machinery' and that the lease is inextricably linked to the construction purpose.
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/AAR/46_agratas_energy_storage_solutions_private_limited_compressed.pdf
Legibility of the scan, as read: high.
Prepared 15-10-2026.
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