Deepak Nitrite’s ₹17.86-Crore ITC Notice Over GIDC Leasehold Rights Quashed As Gujarat HC Finds No Construction To Trigger GST Credit Bar

Deepak Fertilizers and Petrochemicals Corporation Ltd. held leasehold rights over industrial plots allotted by GIDC.

The petitioner acquired those rights, and subsequently assigned them to its wholly owned subsidiary, Deepak Chem Tech Ltd., for consideration.

The petitioner collected GST of ₹23,02,08,146 from the subsidiary and deposited it with the Government.

The tax authorities alleged that the petitioner had wrongly availed input tax credit (ITC) on the acquisition of the leasehold rights, treating it as blocked credit under Section 17(5)(d) of the CGST Act.

They issued show-cause notices under Section 74, including the notice dated 22 March 2024 challenged in the lead petition.

The connected petition challenged a further show-cause notice dated 7 June 2024.

Section 7(1)(a) of the CGST Act defines the scope of “supply”; Section 9 provides for levy of GST; and Schedule II, paragraph 5(b), read with Schedule III, paragraph 5, governs the treatment of transactions concerning land and buildings.

Relying on Gujarat Chamber of Commerce and Industry & Ors. v. Union of India & Ors., (2025) 170 taxmann.com 251 (Guj.), the Court applied the rule that assignment or transfer for consideration of leasehold rights in a GIDC plot transfers benefits arising from immovable property and is not a taxable supply under the provisions considered.

Section 17(5)(d) blocks ITC for goods or services received for construction of immovable property on the taxable person’s own account; the Court held that the provision presupposes a taxable inward supply and concerns construction-related expenditure.

Section 74(1) applies where tax or ITC is involved by reason of fraud, wilful misstatement, or suppression of facts.

The Court also relied on its decisions in Special Civil Application No. 6623, dated 3 September 2026, and Special Civil Application No. 18068 of 2025, dated 10 February 2026.

Applying the cited authorities, the Court treated the assignment of GIDC leasehold rights as a transaction concerning benefits arising from immovable property, rather than a taxable supply.

It therefore concluded that the revenue could not invoke Section 17(5)(d) merely by alleging blocked credit: the petitioner had not undertaken construction activity, and the provision did not apply absent the relevant taxable inward supply and construction-related expenditure.

The Court further found no basis on the facts to invoke Section 74 for fraud, wilful misstatement, or suppression, noting that the petitioner had collected and deposited GST on the subsequent assignment.

It allowed both petitions and quashed and set aside the show-cause notices dated 22 March 2024 and 7 June 2024.

Rule was made absolute, with no order as to costs.