1. Challenge to the constitutional validity of Section 17(5)(c) and (d) of the CGST Act regarding Input Tax Credit for construction of immovable property intended for renting. (Para 1 , 2 )
Back
Next 
2024 Supreme(SC) 856
SUPREME COURT OF INDIA
ABHAY S OKA, SANJAY KAROL, JJ.
Chief Commissioner of Central Goods and Service Tax & Ors. – Appellants
Versus
M/s Safari Retreats Private Ltd. & Ors. – Respondents
CIVIL APPEAL NO. 2948 OF 2023, WRIT PETITION (CIVIL) NOS. 804 of 2022 & 1030 of 2022 CIVIL APPEAL NO. 2949 OF 2023, WRIT PETITION (CIVIL) NOS. 1036 of 2022 & 90 of 2023 WRIT PETITION (CIVIL) NO. 846 of 2023 and WRIT PETITION (CIVIL) NO. 847 of 2023
Decided on : 03-10-2024
Advocates appeared:
For the Appellant(s) : Mr. N.Venkatraman,ASG Mr. Arijit Prasad,Sr.Adv. Mr. Sonu Bhatnagar,Adv. Mr. Indrajit Prasad,Adv. Ms. Ankita Singh,Adv. Mr. Deepak Kumar,Adv. Mr. Mukesh Kumar Maroria, AOR Mr. Abhishek A Rastogi, Adv. Mr. Ajay Singh, Adv. Ms. Garima Gupta, Adv. Ms. Meenal Songire, Adv. Mr. Shubham Singh, AOR Mr. Arvind P Datar, Sr. Adv. Mr. Vipin Jain, Adv. Mr. Vinay Saraf, Adv. Mr. Vishal Agrawal, Adv. Mr. Sasi Prabhu, Adv. Mr. Ravi Bharuka, AOR Mr. Ankit Agarwal, Adv. Mr. Abhishek Deodhar, Adv. Mr. Rahul Unnikrishnan, Adv. Ms. Ritu Jain, Adv. Ms. Aditi Jain, Adv. Ms. Shrishti Agarwal, Adv. Mr. Rohit Agarwal, Adv. Ms. Tuhina, Adv. Ms. Priyanka Rathi, Adv. Ms. Ashwini Chandrasekaran, Adv. Ms. Shubhangi Gupta, Adv. Mr. Pallav Mongia, AOR Mr. Abhishek A Rastogi, Adv. Mr. Nikhil Jain, AOR Ms. Pooja M Rastogi, Adv. Ms. Meenal Songire, Adv. Ms. Divya Jain, Adv. Ms. Divyasha Mathur, Adv. Mr. Sujit Ghosh, Sr. Adv. Ms. Mannat Waraich, AOR Ms. Anshika Aggarwal, Adv.
For the Respondent(s): Mr. N.Venkatraman,ASG Mr. Arijit Prasad,Sr.Adv. Mr. Sonu Bhatnagar,Adv. Mr. Indrajit Prasad,Adv. Ms. Ankita Singh,Adv. Mr. Deepak Kumar,Adv. Mr. Gurmeet Singh Makker, AOR Mr. Mukesh Kumar Maroria, AOR Mr. Abhratosh Majumdar, Sr. Adv. Mr. S. Sukumaran, Adv. Mr. Avra Mazumdar, Adv. Mr. Ramesh Patodia,Adv. Mr. Anand Sukumar, Adv. Mrs. Megha Kapoor, Adv. Mr. Bhupesh Kumar Pathak, Adv. Mrs. Ruche Anand, Adv. Ms. Meera Mathur, AOR Mr. Suvendu Suvasis Dash, AOR Mr. Prasenjeet Mohapatra, AOR Mr. D. L. Chidananda, AOR Mr. Naresh Jain, Adv. Mrs. Arti Agrawal, Adv. Mr. Mahaveer Jain, Adv. Mrs. Neha Anchlia, Adv. Mr. Alok Kumar, Adv. Mrs. Ujjawala Chaturvedi, Adv. Mr. Rishabh Jain, Adv. Mr. Rameshwar Prasad Goyal, AOR Mr. Abhratosh Majumdar, Sr. Adv. Mr. Avra Mazumder, Adv. Mr. Anand Sukumar, AOR Mr. S. Sukumaran, Adv. Mr. Bhupesh Pathak, Adv. Mrs. Ruche Anand, Adv. Mr. J K. Mittal, Adv. Mr. Mukesh Choudhary, Adv. Ms. Vandana Mittal, Adv. Mr. Nagarkatti Kartik Uday, AOR Mr. Arvind P Datar, Sr. Adv. Mr. Vipin Jain, Adv. Mr. Vinay Saraf, Adv. Mr. Vishal Agrawal, Adv. Mr. Sasi Prabhu, Adv. Mr. Ravi Bharuka, AOR Mr. Ankit Agarwal, Adv. Mr. Abhishek Deodhar, Adv. Mr. Rahul Unnikrishnan, Adv. Mr. Shrishti Agarwal, Adv. Mr. Rohit Agarwal, Adv. Mr. Abhishek A Rastogi, Adv. Mr. Nikhil Jain, AOR Ms. Pooja M Rastogi, Adv. Ms. Meenal Songire, Adv. Ms. Divya Jain, Adv. Ms. Divyasha Mathur, Adv. Mr. V Raghuraman, Sr. Adv. Mr. Cr Raghavendra, Adv. Mr. J Bhanu Murthy, Adv. Mrs. Sandhya Raghuraman, Adv. Mr. Shivam Batra, AOR Mr Rahul Jain, AOR Mr. Vikas Mehta, AOR Mr. Naresh Jain, Adv. Mrs. Arti Agrawal, Adv. Mrs. Neha Anchlia, Adv. Mr. Alok Kumar, Adv. Mr. Rishabh Jain, Adv.
For the Appellant(s) : Mr. N.Venkatraman,ASG Mr. Arijit Prasad,Sr.Adv. Mr. Sonu Bhatnagar,Adv. Mr. Indrajit Prasad,Adv. Ms. Ankita Singh,Adv. Mr. Deepak Kumar,Adv. Mr. Mukesh Kumar Maroria, AOR Mr. Abhishek A Rastogi, Adv. Mr. Ajay Singh, Adv. Ms. Garima Gupta, Adv. Ms. Meenal Songire, Adv. Mr. Shubham Singh, AOR Mr. Arvind P Datar, Sr. Adv. Mr. Vipin Jain, Adv. Mr. Vinay Saraf, Adv. Mr. Vishal Agrawal, Adv. Mr. Sasi Prabhu, Adv. Mr. Ravi Bharuka, AOR Mr. Ankit Agarwal, Adv. Mr. Abhishek Deodhar, Adv. Mr. Rahul Unnikrishnan, Adv. Ms. Ritu Jain, Adv. Ms. Aditi Jain, Adv. Ms. Shrishti Agarwal, Adv. Mr. Rohit Agarwal, Adv. Ms. Tuhina, Adv. Ms. Priyanka Rathi, Adv. Ms. Ashwini Chandrasekaran, Adv. Ms. Shubhangi Gupta, Adv. Mr. Pallav Mongia, AOR Mr. Abhishek A Rastogi, Adv. Mr. Nikhil Jain, AOR Ms. Pooja M Rastogi, Adv. Ms. Meenal Songire, Adv. Ms. Divya Jain, Adv. Ms. Divyasha Mathur, Adv. Mr. Sujit Ghosh, Sr. Adv. Ms. Mannat Waraich, AOR Ms. Anshika Aggarwal, Adv.
For the Respondent(s): Mr. N.Venkatraman,ASG Mr. Arijit Prasad,Sr.Adv. Mr. Sonu Bhatnagar,Adv. Mr. Indrajit Prasad,Adv. Ms. Ankita Singh,Adv. Mr. Deepak Kumar,Adv. Mr. Gurmeet Singh Makker, AOR Mr. Mukesh Kumar Maroria, AOR Mr. Abhratosh Majumdar, Sr. Adv. Mr. S. Sukumaran, Adv. Mr. Avra Mazumdar, Adv. Mr. Ramesh Patodia,Adv. Mr. Anand Sukumar, Adv. Mrs. Megha Kapoor, Adv. Mr. Bhupesh Kumar Pathak, Adv. Mrs. Ruche Anand, Adv. Ms. Meera Mathur, AOR Mr. Suvendu Suvasis Dash, AOR Mr. Prasenjeet Mohapatra, AOR Mr. D. L. Chidananda, AOR Mr. Naresh Jain, Adv. Mrs. Arti Agrawal, Adv. Mr. Mahaveer Jain, Adv. Mrs. Neha Anchlia, Adv. Mr. Alok Kumar, Adv. Mrs. Ujjawala Chaturvedi, Adv. Mr. Rishabh Jain, Adv. Mr. Rameshwar Prasad Goyal, AOR Mr. Abhratosh Majumdar, Sr. Adv. Mr. Avra Mazumder, Adv. Mr. Anand Sukumar, AOR Mr. S. Sukumaran, Adv. Mr. Bhupesh Pathak, Adv. Mrs. Ruche Anand, Adv. Mr. J K. Mittal, Adv. Mr. Mukesh Choudhary, Adv. Ms. Vandana Mittal, Adv. Mr. Nagarkatti Kartik Uday, AOR Mr. Arvind P Datar, Sr. Adv. Mr. Vipin Jain, Adv. Mr. Vinay Saraf, Adv. Mr. Vishal Agrawal, Adv. Mr. Sasi Prabhu, Adv. Mr. Ravi Bharuka, AOR Mr. Ankit Agarwal, Adv. Mr. Abhishek Deodhar, Adv. Mr. Rahul Unnikrishnan, Adv. Mr. Shrishti Agarwal, Adv. Mr. Rohit Agarwal, Adv. Mr. Abhishek A Rastogi, Adv. Mr. Nikhil Jain, AOR Ms. Pooja M Rastogi, Adv. Ms. Meenal Songire, Adv. Ms. Divya Jain, Adv. Ms. Divyasha Mathur, Adv. Mr. V Raghuraman, Sr. Adv. Mr. Cr Raghavendra, Adv. Mr. J Bhanu Murthy, Adv. Mrs. Sandhya Raghuraman, Adv. Mr. Shivam Batra, AOR Mr Rahul Jain, AOR Mr. Vikas Mehta, AOR Mr. Naresh Jain, Adv. Mrs. Arti Agrawal, Adv. Mrs. Neha Anchlia, Adv. Mr. Alok Kumar, Adv. Mr. Rishabh Jain, Adv.
Important Points
Clauses (c) and (d) of Section 17(5) of the CGST Act are constitutional, allowing for reasonable classification regarding input tax credit for construction of immovable property.
Subject
Taxation Law - Goods and Services Tax
Act Referred
CENTRAL GOODS AND SERVICES TAX ACT : S.16(1), S.16(3), S.16(4), S.17(5)(c), S.17(5)(d), S.2(94), S.25, S.29(5), S.7, S.7(1)(a)
COMPANIES ACT : S.135
CONSTITUTION OF INDIA : Art.366(29a)(b), Art.14, Art.19(1)(g), Art.246(a), Art.279(a), Art.300(a), Art.366
FINANCE ACT : S.41
GENERAL CLAUSES ACT : S.3(36)
INCOME TAX ACT : S.10(5), S.10(vi)(b), S.32
TRANSFER OF PROPERTY ACT : S.3
COMPANIES ACT : S.135
CONSTITUTION OF INDIA : Art.366(29a)(b), Art.14, Art.19(1)(g), Art.246(a), Art.279(a), Art.300(a), Art.366
FINANCE ACT : S.41
GENERAL CLAUSES ACT : S.3(36)
INCOME TAX ACT : S.10(5), S.10(vi)(b), S.32
TRANSFER OF PROPERTY ACT : S.3
Headnote
(A) Central Goods and Services Tax Act, 2017 - Section 17(5) - Constitutional validity - Clauses (c) and (d) challenged for excluding input tax credit (ITC) on construction of immovable property - High Court held that ITC must be allowed if GST is paid on rental income - Supreme Court remands for factual determination of whether a mall qualifies as 'plant' under Section 17(5)(d). (Paras 1, 4, 66)
(B) Taxation - Classification - The legislature enjoys wide latitude in classifying persons and transactions for taxation - Clauses (c) and (d) of Section 17(5) do not violate Article 14 as they are based on intelligible differentia with rational nexus to the object of GST. (Paras 57, 60)
Facts of the case:
The first respondent constructed a shopping mall and sought to avail ITC on GST paid for construction, which was denied under Section 17(5)(d). The High Court ruled in favor of the first respondent, leading to appeals.
Findings of Court:
The Supreme Court upheld the High Court's interpretation but remanded for factual determination on whether the mall constitutes a 'plant'.
Issues: The main issues were the interpretation of 'plant or machinery' and the constitutional validity of clauses (c) and (d) of Section 17(5).
Ratio Decidendi: The court emphasized the need for a functionality test to determine if a building qualifies as a 'plant' for ITC purposes, highlighting the legislative intent behind the GST framework.
Result: Appeals partly allowed; matter remanded for further factual inquiry.
(B) Taxation - Classification - The legislature enjoys wide latitude in classifying persons and transactions for taxation - Clauses (c) and (d) of Section 17(5) do not violate Article 14 as they are based on intelligible differentia with rational nexus to the object of GST. (Paras 57, 60)
Facts of the case:
The first respondent constructed a shopping mall and sought to avail ITC on GST paid for construction, which was denied under Section 17(5)(d). The High Court ruled in favor of the first respondent, leading to appeals.
Findings of Court:
The Supreme Court upheld the High Court's interpretation but remanded for factual determination on whether the mall constitutes a 'plant'.
Issues: The main issues were the interpretation of 'plant or machinery' and the constitutional validity of clauses (c) and (d) of Section 17(5).
Ratio Decidendi: The court emphasized the need for a functionality test to determine if a building qualifies as a 'plant' for ITC purposes, highlighting the legislative intent behind the GST framework.
Result: Appeals partly allowed; matter remanded for further factual inquiry.
Legal Category Hierarchy
- taxation law
- constitutional law
Table of Contents
2. Assessees challenge the constitutional validity of blocked credits for immovable property; Revenue contends ITC is a statutory right and the classification is based on intelligible differentia. (Para 7 , 8 , 9 , 14 , 15 , 16 )
3. The court distinguished plant or machinery from plant and machinery, applying the functionality test to determine if a building constitutes a plant for ITC eligibility. (Para 42 , 43 , 44 , 46 , 51 , 52 )
4. The expression plant or machinery in Section 17(5)(d) is not governed by the restrictive explanation; buildings may qualify as plants based on a factual functionality test. (Para 44 , 52 , 65 )
5. Constitutional validity upheld; matters remanded to High Court to determine if the specific immovable properties satisfy the functionality test to be classified as plants. (Para 65 , 66 )
6. Does the definition of plant and machinery in the explanation to Section 17 apply to the expression plant or machinery in Section 17(5)(d)?
No. The court held that the legislature intentionally used the word or in Section 17(5)(d) to distinguish it from the expression plant and machinery used elsewhere. Consequently, the restrictive definition provided in the explanation does not apply to plant or machinery. (Para 43 , 44 )
7. Can a building or immovable property be considered a plant for the purpose of availing Input Tax Credit under Section 17(5)(d)?
Yes. Whether a building is a plant is a factual question. Applying the functionality test, if a building is planned and constructed to serve the assessee's special technical requirements essential for the business, it may qualify as a plant and thus be eligible for ITC. (Para 50 , 52 , 65 )
8. Are clauses (c) and (d) of Section 17(5) of the CGST Act unconstitutional for violating Article 14?
No. The court held that the legislature enjoys wide latitude in fiscal policy. The classification of immovable property is based on an intelligible differentia with a rational nexus to the object of the Act, and is not discriminatory. (Para 58 , 59 , 60 )
9. Is the time limit for claiming Input Tax Credit under Section 16(4) of the CGST Act discriminatory or arbitrary?
No. The court found that the provision is not arbitrary or discriminatory, as the legislature is entitled to prescribe a time limit for the availment of statutory credits. (Para 63 )
JUDGMENT :
ABHAY S. OKA, J.
FACTUAL ASPECTS
1. The issues which broadly arise in this group of matters concern clauses (c) and (d) of sub-section (5) of Section 17 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”). There is a challenge to the constitutional validity of the said provision. There is a prayer for reading down the said provision.
2. In Civil Appeal Nos. 2948 and 2949 of 2023, the first respondent is engaged in the construction of a shopping mall for the purpose of letting out premises in the malls to different tenants. Vast quantities of material, inputs and services are required for the construction of the malls in the form of cement, sand, steel, aluminium, wires, plywood, paint, lifts, escalators, air-conditioning plants, electrical equipment, transformers, building automation systems etc., and also consultancy services, architectural services, legal and other professional services, engineering services and other services including the services of a special team of international designers specialised in the construction of Malls. These goods and services used in the construction of the mall are taxable under the CGST Act. It is the case of the first respondent that it has accumulated input credit of GST amounting to more than Rs. 34 crores by the purchase/supply of goods and services consumed and used in the construction of the shopping mall. At the same time, the first respondent's letting out of units in the shopping mall attracts CGST based on the rent received by the first respondent since it amounts to the supply of service under the CGST Act. Therefore, the first respondent was desirous of availing the Input Tax Credit (ITC) accumulated against the rental income received by it upon letting out the mall premises.
According to the first respondent, when it approached the concerned authorities, it was advised to deposit GST on rent without deducting ITC because of the exception carved out by Section 17(5)(d).
3. The first respondent filed a writ petition before the High Court of Orissa seeking a declaration that Section 17(5)(d) of the CGST Act and the corresponding provisions of the Orissa Goods and Services Act, 2017 do not apply to the construction of immovable property intended for letting out on rent. A prayer in the alternative was made that in the event it is held that the bar under Section 17(5)(d) is applicable even to the construction of immovable property intended for letting out, a declaration be issued that Section 17(5)(d) is violative of Articles 14 and 19 (1)(g) of the Constitution of India. A consequential prayer was made to issue a writ of mandamus to enjoin the present appellants, who were respondents in the writ petition, to grant the benefit of ITC to the first and second respondents.
4. By the impugned judgment dated 17th April 2019, the High Court held that in view of the decision of this Court in the case of Eicher Motors Limited & Anr. v. Union of India & Ors., (1999) 2 SCC 361, Section 17(5)(d) was required to be read down as the very purpose of ITC is to benefit the assessee. The High Court held that if the assessee is required to pay GST on the rental income from the mall, it is entitled to ITC on the GST paid on the construction of the mall. It was held that the narrow interpretation given by the Department to Section 17(5)(d) would frustrate the very object of the Act. Civil Appeal No. 2949 of 2023 takes exception to the same judgment.
5. In the Writ Petitions, the petitioners contend that due to the restrictions imposed by Section 17(5)(c) and Section 17(5)(d) of the CGST Act, they are unable to avail the credit on GST paid on goods and services used in the construction of factory premises, buildings etc against the GST received by them for the renting/leasing/letting out etc. of the premises. GST is being recovered on the supply of goods and services used in the construction of commercial office buildings, and GST is also being recovered on rentals collected. Accordingl
