Facts of the Case:

In this case, the Appellant was engaged in the manufacture and supply of industrial and medical gases, acquired leasehold rights for a period of 72 years over a parcel of land along with existing sheds/superstructures on which GST was charged. The said land was intended to be used for setting up an Air Separation Plant (ASP) for manufacturing gases. The Appellant sought an advance ruling on the admissibility of Input Tax Credit (ITC) on GST paid for such leasehold rights.

The Authority for Advance Ruling (AAR) and subsequently the Appellate Authority for Advance Ruling (AAAR) denied ITC by invoking Section 17(5)(d) of the CGST Act. Aggrieved, the Appellant approached the Madras High Court, which remanded the matter for fresh consideration, directing examination of whether the ASP is movable or immovable and whether it qualifies as “plant and machinery.”

Issue: Whether ITC of GST paid on transfer of leasehold rights in land (used for setting up an Air Separation Plant) is admissible, or whether such credit is blocked under Section 17(5)(d) of the CGST Act on the ground that it relates to construction of immovable property on own account; and further, whether the Air Separation Plant qualifies as “plant and machinery” so as to fall within the exception to the restriction.

Held That:

The Appellate Authority held that ITC is not admissible and stands blocked under Section 17(5)(d) of the CGST Act. It was observed that the transfer of leasehold rights in land was integrally connected with the setting up of the manufacturing facility and therefore constituted a service received “for construction” of an immovable property on the Appellant’s own account. The cost incurred towards such leasehold rights formed part of the capitalised value of the Air Separation Plant.

On the nature of the property, the Authority applied the tests laid down by the Supreme Court in the Bharti Airtel case and concluded that the Air Separation Plant is an immovable property, as it is installed on long-term leased land (72 years) for permanent beneficial enjoyment, is not capable of being shifted as a whole, and consists of integrated, tailor-made components not marketable independently.

Further, the Authority held that the Air Separation Plant does not qualify as “plant and machinery” under the Explanation to Section 17, since it is not a mere apparatus, equipment, or machinery, but a comprehensive manufacturing facility involving civil structures and integrated systems. Consequently, the exception to Section 17(5)(d) was held inapplicable, and ITC remained blocked.

This ruling reinforces that leasehold rights in land can be treated as an input for construction where such acquisition is intrinsically linked to setting up a manufacturing facility, especially when the cost is capitalised.

Case Name: In Re: M/s. Inox Air Products Private Limited dated 18.03.2026

To read the complete judgement 2026 Taxo.online 796