The Gujarat High Court has stated that the input tax credit is qualified on GST paid on leasehold rights, as it is not blocked u/s 17(5) of the CGST Act, 2017. As this does not qualify as a construction activity, the restriction under the said section is not applicable.
Justice A.S. Supehia and Justice Pranav Trivedi said that the case was started without the proper authority, and because Section 17(5)(d) of the CGST Act was misunderstood.
An SCN has been quashed by the bench, which was issued u/s 74 of the CGST Act and ordered the unblocking of ITC of Rs 98.11 lakh, holding that the tax authorities had erroneously invoked provisions of blocked credit for construction activities.
The applicant, an Indian living abroad who is registered for GST, got the right to use an industrial plot in Ankleshwar and divided it into smaller parts before giving these rights to buyers.
GST has been filed on such transfers and claimed ITC by the applicant on various charges imposed via the Gujarat Industrial Development Corporation (GIDC), including administrative fees, transfer charges, and penalties, which were subject to GST.
The applicant in the FY2022-23 transferred two sub-plots for consideration and released GST liability of several crores.
A part of ITC was accidentally used; it was thereafter reversed via Form DRC-03, and the remaining ITC continued to lie unutilised in the electronic credit ledger.
Thereafter, the department issued a notice alleging an incorrect claim of ITC of Rs 98.11 lakh on the basis that the credit was blocked u/s 17(5)(d) of the CGST Act, which restricts ITC on goods or services used for the construction of immovable property.
The problem before the Court was whether the ITC taken on charges of the transfer of leasehold rights in industrial plots can be considered as blocked credit u/s 17(5)(d), and whether proceedings u/s 74 applicable in cases of fraud or suppression were justified.
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The Court said that Section 17(5)(d) applies to the construction of immovable property and not to transactions of the transfer of leasehold rights. It mentioned that the department failed to find that the applicant had performed any construction activity.
As per that, the bench stated that the provision of the blocked credit had been incorrectly invoked and that the SCN showed a non-application of mind.
The Court determined that the requirements for invoking Section 74 of the CGST Act, such as fraud, wilful misstatement, or suppression of fact,s were not present in this case. It mentioned that the applicant had earlier reversed the part of the Input Tax Credit that had been used and had released the tax obligation in cash.
The Court, in the absence of any proof of intentional wrongdoing, stated that invoking penal provisions u/s 74 was unjustified and without jurisdiction.
The SCN has been quashed by the Court on 28 October 2025 and asked the department to unblock the ITC of Rs 98.11 lakh within three weeks from receipt of the order.
| Case Title | Niket Bipinbhai Patel vs. Assistant Commissioner |
| R/Special Civil Application No. | 18068 of 2025 |
| For Petitioner | MR. Hardik V Vora |
| For Respondent | Deepak N Khanchandani |
| Gujarat High Court | Read Order |
