Denial of ITC on GST Paid for Long-Term Lease of Industrial Land

The Gujarat Appellate Authority for Advance Ruling delivered a significant ruling on the scope of blocked input tax credit under Section 17(5)(d) of the CGST Act, 2017 in the context of long-term industrial land leases. 

The Appellate Authority upheld the Advance Ruling denying Input Tax Credit (“ITC”) of GST paid under reverse charge on annual lease rentals paid to the Government of Gujarat for industrial land used for construction of a battery manufacturing facility. 

The Appellate Authority held that lease rentals paid for land used for construction of an immovable property are squarely hit by Section 17(5)(d) of the CGST Act irrespective of:

• the manner or periodicity of payment; 

• whether the payment is made before commencement of construction; 

• whether part of the land remains vacant; or 

• whether the lease rentals relate to repairs, maintenance or renovation activities. 

The ruling is particularly important for manufacturing entities, industrial parks, renewable energy projects, and large-scale infrastructure investments involving government-leased industrial land.