Court :
High Court of Madhya Pradesh
Brief :
The Hon'ble High Court of Madhya Pradesh in the case of M/s Chirtantan Enterprises LLP v. Commissioner CGST and Central Excise [Writ Petition No. 29788 of 2024 dated October 15, 2024] dismissed the writ petition relying on the landmark case of Chief Commissioner of Central Goods and Services & Ors. v. M/s. Safari Retreats Private Limited & Ors. [Civil Appeal No. 2948 of 2023 dated October 03, 2024] wherein the Apex Court upheld the validity of Section 17(5)(c) and 17(5)(d) of the Central Goods and Services Tax Act, 2017 ("the CGST Act"), rejecting the constitutional challenge. It clarified that "plant or machinery" in Section 17(5)(d) cannot be interpreted the same way as in the explanation to Section 17(5)(c) of the CGST Act. Further, construction of a mall, warehouse, or building can be classified as a "plant" depends on the registered person's business and the building's role in that business. Buildings constructed for services like renting or leasing may qualify as a plant, subject to a functionality test. Thus, the Court remanded cases where the High Court had read down the provision and called for factual analysis in other cases.
Citation :
Writ Petition No. 29788 of 2024 dated October 15, 2024
The Hon'ble High Court of Madhya Pradesh in the case of M/s Chirtantan Enterprises LLP v. Commissioner CGST and Central Excise [Writ Petition No. 29788 of 2024 dated October 15, 2024] dismissed the writ petition relying on the landmark case of Chief Commissioner of Central Goods and Services & Ors. v. M/s. Safari Retreats Private Limited & Ors. [Civil Appeal No. 2948 of 2023 dated October 03, 2024] wherein the Apex Court upheld the validity of Section 17(5)(c) and 17(5)(d) of the Central Goods and Services Tax Act, 2017 ("the CGST Act"), rejecting the constitutional challenge. It clarified that "plant or machinery" in Section 17(5)(d) cannot be interpreted the same way as in the explanation to Section 17(5)(c) of the CGST Act. Further, construction of a mall, warehouse, or building can be classified as a "plant" depends on the registered person's business and the building's role in that business. Buildings constructed for services like renting or leasing may qualify as a plant, subject to a functionality test. Thus, the Court remanded cases where the High Court had read down the provision and called for factual analysis in other cases.
Facts:
M/s Chirtantan Enterprises LLP ("the Petitioner") wasengaged in construction of building and rental or leasing services involving own or leased non-residential property. The Petitioner had constructed a building on own land for the purpose of giving it on lease to M/s Shishukunj Knowledge Society for running a school. For the purpose of construction of building, various goods were purchased. The Petitioner availed the Input Tax Credit ("ITC") charged on the purchase/supply of such goods consumed and used in the construction of the school building.
The Petitioner received summon dated February 11, 2022 and February 18, 2022 from the office of Directorate General of GST Intelligence ("DGGI") for production of account statements, details of ITC availed, reconciliation sheet for outward supply, ITC availed and ITC utilized.
In compliance of the aforesaid summon, GM Accounts appeared and recorded his statement and the Petitioner was made to reverse the ITC availed on civil work through FORM DRC-03 on the same day under protest to the tune of Rs.6,68,44,378/- of the financial year 2019-20, 2020-21 and 2021-22. Thereafter, the Petitioner was served with the letter dated February 21, 2023 ("the Impugned SCN") for payment of penalty and interest at the rate applicable on Rs.6,68,44,378/- by Commissioner CGST and Central Excise ("the Respondent"). The Petitioner submitted a detailed reply to the Impugned SCN objecting the recovery of GST.
Hence, in apprehension of the adverse order being passed by the Respondent, the Petitioner filed the present writ petition stating that the Petitioner is entitled to avail the ITC under Section 17(5)(c) & (d) of the CGST Act.
Issue:
Whether ITC can be availed on construction of commercial property?
Held:
The Hon'ble High Court of Madhya Pradesh in Writ Petition No. 29788 of 2024 held as under:
Our Comments:
Section 17 of the CGST Act governs "Apportionment of credit and blocked credits". Section 17(5) of the CGST Act provides a list of transactions where credit is not allowed. Section 17(5)(c) of the CGST states that works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service and Section 17(5)(c) of the CGST Act states that goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
For the same purpose, explanation is also provided where "construction" is defined for the purpose of Section 17(5)(c) and (d) of the CGST Act. It states that the expression "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
Furthermore, Section 17(5)(c) of the CGST Act provides explanation for Chapter V an VI, where the expression "plant and machinery" means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
The constitutional validity of Section 17(5)(c) and 17(5)(d) read with Section 16(4) of the CGST Act is in favor of the Revenue Department.
The ITC is not a fundamental or constitutional right, it is a statutory right. It is also a vested right, if it qualifies certain conditions.
Eligibility and conditions are specified under Section 16 of the CGST Act, which are as follows:
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under CGST Act, or such other tax paying documents as may be prescribed;
(b) the details of the invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37 of the CGST Act;
(c) he has received the goods or services or both.
Explanation. -For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services--
However, where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take ITC upon receipt of the last lot or instalment:
However, where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of 108 from the date of issue of invoice by the supplier, an amount equal to the ITC availed by the recipient shall be paid by him along with interest payable under section 50 of the CGST Act, in such manner as may be prescribed:
Further, the recipient shall be entitled to avail ITC on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon.
Meaning of "Plant and Machinery" is defined in Explanation to Section 17(5)(C) of the CGST Act. However, the meaning of "Plant or Machinery" is not defined under the GST Act.
Construction of immovable property, if it is qualified as a 'Plant' then credit is allowed.
In pari materia case ofALD Automotive Pvt. Ltd. v. Commercial Tax Officer [(2019) 13 SCC 225] wherein the Hon'ble Supreme Court held that denial of ITC was justified on the ground that it is not a fundamental or constitutional right, rather, ITC is a statutory right and in absence of the right under the statute, the Court cannot issue a mandamus to grant ITC.
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