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Some GST stories don’t start with suspense, but they end with one tight twist. Here’s a case where a taxpayer arrived with confidence, quoting Supreme Court logic and the famous Safari Retreats judgment. They believed the door to Input Tax Credit was open.

But GST law had already changed… quietly, decisively.

And when the law changes, even the Supreme Court’s reasoning can’t save the day.

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Summary

This blog explains the Advance Ruling in M/s Agratas Energy Storage Solutions Pvt. Ltd. (2025-VIL-179-AAR). Agratas, a Tata Group company, leased 321 acres of land from the Government of Gujarat to construct a battery-cell manufacturing plant. They paid GST on annual lease rental under Reverse Charge and asked whether they could claim Input Tax Credit (ITC).

They asked four questions—before construction, after construction, during repairs, and even for vacant land.

The Authority examined Section 17(5)(d), earlier AAR rulings (Bayer Vapi & GACL-NALCO), and even the Supreme Court’s view in Safari Retreats. But the key twist was the 2025 legislative amendment, applied retrospectively, which shut down the Safari Retreats interpretation entirely.

Final outcome: ITC is not available in any scenario.

No exceptions, no proportionate credit, no indirect relief.

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Facts of the Case

Agratas Energy Storage Solutions Pvt. Ltd., a wholly owned subsidiary of Tata Sons, is setting up a factory for manufacturing battery cells for motor vehicles. For this purpose, they signed a 50-year lease with the Government of Gujarat for a vast plot in Sanand GIDC, Ahmedabad. The lease covers 321 acres, running from 26 June 2024 to 25 June 2074.

The land was leased strictly for industrial use—construction, building, erection, repair, and related activities. Annual lease rent was payable at 6% of the market price, increasing every five years.

Under GST law, such long-term land lease by the Government is a taxable service. Agratas had to pay GST on the lease rental under the Reverse Charge Mechanism.

But they needed clarity.

Could they take ITC on this GST?

And would the answer change depending on the stage of construction?

So, they asked the Authority for Advance Ruling four very specific questions.

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Legal Issue

The core question in simple English:

Is GST paid on annual lease rent for land—used for constructing an immovable property—eligible for Input Tax Credit, or is it blocked under Section 17(5)(d)?

This issue spilled over into four sub-questions:

• Before construction

• After construction

• During repairs

• For vacant land

All tied to the same Section 17(5)(d) puzzle.

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Arguments Presented

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Applicant’s Arguments

Agratas made several thoughtful points:

• The word “for construction” should mean services directly used in construction, like cement or contractors—not land lease.

• Land is not consumed in construction; it merely hosts the activity.

• Upfront premium for long-term leases is exempt, but annual lease rent is taxable—denying ITC creates mismatch.

• Vacant land isn’t used for construction, so ITC shouldn’t be blocked there.

• Repairs and renovations happen post-construction, breaking the “for construction” link.

• They cited the Supreme Court’s Safari Retreats judgment to argue for a functional interpretation.

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Authority’s Viewpoint

The AAR referred to earlier rulings like Bayer Vapi and GACL-NALCO, where similar claims were rejected.

It focused on the purpose of the lease—industrial construction—and the legal meaning of “for,” supported by Supreme Court case law.

And then came the knockout factor:

The 2025 amendment that replaced “plant or machinery” with “plant and machinery”, retrospectively from 01.07.2017, eliminating the Safari Retreats escape window.

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Authority’s Ruling (Decision of the Authority)

Delivered on 03 November 2025, the Authority gave direct, unambiguous answers to all four questions.

Below is the ruling in clean, simple English, as the Authority expressed it.

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🟦 Q1. Is ITC available on GST paid on annual lease rental of land used for constructing a factory building?

Answer: No.

The lease service is for construction of an immovable property.

Section 17(5)(d) blocks ITC in such cases.

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🟦 Q2. Is ITC available before construction begins or after construction is completed?

(i) Before construction?

Answer: No.

The land was leased specifically for industrial construction.

The purpose does not change before construction starts.

(ii) After construction?

Answer: No.

Even after completion, the original purpose of the lease remains tied to construction.

So the ITC block continues.

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🟦 Q3. Is ITC available when repairs, maintenance, or renovation occur?

Answer: No.

The Explanation to Section 17(5) includes repairs, renovations, additions, alterations, and reconstructions within the meaning of “construction” when capitalised.

Therefore, ITC continues to be blocked.

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🟦 Q4. Is ITC available on lease rent for the vacant portion of the land?

Answer: No.

The entire plot was leased for industrial purposes.

Vacant areas still form part of the industrial project.

GST law does not allow proportionate ITC based on land usage.

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Legal Reasoning (Human Explanation)

Sometimes GST feels like reading a map upside down in the dark. Here, the Authority shone a flashlight on one word: “for.”

Agratas tried to argue:

“Lease is not directly used in construction.”

But the Authority explained the legal meaning:

“For” means purpose, not direct consumption.

If your purpose in taking the land is to build a factory, then the lease service is “for construction.”

And once that purpose is established, Section 17(5)(d) slams the brakes on ITC.

And Safari Retreats?

That hope melted because the Legislature amended the law retroactively.

The door the Supreme Court opened… the amendment quietly sealed.

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Important Takeaways for Business Owners

1. ITC on land lease used for construction is blocked.

No matter how indirect it feels, the purpose controls the outcome.

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2. Repairs, renovations, and alterations also block ITC.

If capitalised, they fall straight under “construction.”

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3. Vacant land doesn’t save ITC.

GST doesn’t allow proportionate land-based ITC allocation.

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4. Safari Retreats is no longer a shield.

The amendment ended that chapter.

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5. Purpose matters more than timing.

Whether before or after construction, the ITC restriction stays the same.

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Why This Matters

This ruling affects every large industrial project that leases land for construction. It sets a strong position:

If the land is tied to the construction of an immovable property, ITC on lease rental cannot slip through Section 17(5)(d).

It also reinforces a bigger truth —

When the Legislature amends the law, courts’ interpretations must bow to the new text.

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Conclusion

The Agratas ruling is a reminder that in GST, hope isn’t always enough. Safari Retreats gave a ray of optimism to taxpayers seeking ITC on immovable property. But the Legislature closed that path long before Agratas reached the AAR.

Still, clarity is better than confusion.

A clear “no” lets you plan better than a maybe.

At GST DOST, our job is to bring that clarity to your desk — so you never take a GST decision in the dark.

“📞 Need help with a similar ITC or construction-related GST issue?  Contact GST DOST for personalised guidance.

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FAQ

Q1. What was the core dispute in this case?

A: Whether ITC was available on GST paid under RCM on annual lease rental for industrial land used to construct a factory.

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Q2. What did the Authority decide?

A: ITC is not available in any scenario—before construction, after construction, repairs, or vacant areas.

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Q3. Does Safari Retreats still help taxpayers?

A: Not anymore. The 2025 amendment to Section 17(5)(d) closed that route.

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Q4. Can ITC be claimed proportionately on vacant land?

A: No. GST does not allow proportionate ITC based on land usage.

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Q5. Can a business claim ITC on land leased for constructing a factory?

A: No. The GST paid on such lease rentals is fully blocked under Section 17(5)(d) of the CGST Act.

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References

• Agratas Energy Storage Solutions Pvt. Ltd., Advance Ruling No. GUJ/GAAR/R/2025/46, dated 03.11.2025 — 2025-VIL-179-AAR.

• Section 17(5)(d), CGST Act, 2017.

• Re: Bayer Vapi Pvt. Ltd., 2023-VIL-177-AAR.

• Re: GACL-NALCO Alkalies & Chemicals Pvt. Ltd., 2021-VIL-432-AAR.

• Oblum Electrical Industries Pvt. Ltd., 1997 (94) ELT 449 (SC).

 

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Written by CA Vikash Dhanania | Reviewed by GST DOST Legal Research Team | Updated on 13/11/2025
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