Case Law Details
J.K. Lakshmi Cement Ltd. Vs Union of India (Chhattisgarh High Court)
J.K. Lakshmi Cement Ltd. filed a writ petition before the Chhattisgarh High Court challenging the constitutional validity of clauses (c) and (d) of Section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017. These clauses pertain to restrictions on claiming input tax credit (ITC) on certain goods and services, including those related to construction activities. The petitioner argued that these provisions were unconstitutional, but the government advocate pointed out that the issue had already been settled by the Supreme Court in the case of Chief Commissioner of Central Goods and Service Tax and others v. M/s Safari Retreats Private Ltd..
The Chhattisgarh High Court acknowledged the Supreme Court’s decision, which upheld the validity of clauses (c) and (d) of Section 17(5). The Supreme Court’s ruling had already addressed the constitutional challenge, declaring that the clauses were intra vires (constitutional) and not invalid. However, the Supreme Court also left open the question of whether immovable property, such as buildings, could be classified as “plant” for the purposes of Section 17(5)(d) of the CGST Act, based on a functionality test. This test determines if the property serves an essential role in the business activities of the taxpayer.
While dismissing the challenge to the constitutional validity of the provisions, the Chhattisgarh High Court allowed the petitioner to raise the issue of whether the construction of immovable property by J.K. Lakshmi Cement could be considered “plant” under the functionality test. The court emphasized that this issue should be decided on a case-by-case basis and urged the petitioner to pursue appropriate legal proceedings to address the matter. The judgment clarifies that the petitioner can bring up the issue in future proceedings, ensuring that the case is adjudicated based on the facts and circumstances.
Ultimately, the Chhattisgarh High Court disposed of the writ petition, granting the petitioner the liberty to challenge the classification of construction as “plant” in the appropriate legal forum. No costs were awarded in this case.
FULL TEXT OF THE JUDGMENT/ORDER OF CHHATTISGARH HIGH COURT
1. The petitioner herein has filed this writ petition challenging the constitutional validity of clauses (c) & (d) of Section 17(5) of the Central Goods and Services Tax Act, 2017 (for short, ‘the CGST’ Act).
2. At the outset, Mr. Rahul Tamaskar, learned Government Advocate appearing for the State / respondents No.2 & 3, submits that the constitutional validity of clauses (c) & (d) of Section 17(5) of the CGST Act has been adjudicated by the Supreme Court in the matter of Chief Commissioner of Central Goods and Service Tax and others v. M/s Safari Retreats Private Ltd. and others1.
3. However, Mr. N. Naha Roy, learned counsel appearing for the petitioner, submits that the constitutional validity of the above provisions has already been adjudicated by the Supreme Court and held to be intra vires, therefore, the petitioner be granted liberty to raise the issue with regard to paragraph 10.2 of the writ petition i.e. his case is covered under Section 17(5)(d) of the CGST Act, (other than plant or machinery) and as such, he be given liberty to raise the issue in appropriate proceeding as granted by their Lordships of the Supreme Court in the aforesaid judgment.
4. The learned Deputy Solicitor General of India and the learned State counsel have not opposed the submission of learned counsel for the petitioner.
5. We have heard learned counsel for the parties and considered their submissions and also went through the material available on record carefully and meticulously as well.
6. The Supreme Court in M/s Safari Retreats Private Ltd.’s case (supra) has considered the issue and held clauses (c) & (d) of Section 17(5) of the CGST Act to be intra vires and not unconstitutional, and observed in paragraphs 65 to 68 as under: –
“65. Some of our conclusions can be summarised as under:
a. The challenge to the constitutional validity of clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act is not established;
b. The expression “plant or machinery” used in Section 17(5)(d) cannot be given the same meaning as the expression “plant and machinery” defined by the explanation to Section 17;
c. The question whether a mall, warehouse or any building other than a hotel or a cinema theatre can be classified as a plant within the meaning of the expression “plant or machinery” used in Section 17(5)(d) is a factual question which has to be determined keeping in mind the business of the registered person and the role that building plays in the said business. If the construction of a building was essential for carrying out the activity of supplying services, such as renting or giving on lease or other transactions in respect of the building or a part thereof, which are covered by clauses (2) and (5) of Schedule II of the CGST Act, the building could be held to be a plant. Then, it is taken out of the exception carved out by clause (d) of Section 17(5) to sub-section (1) of Section 16. Functionality test will have to be applied to decide whether a building is a plant. Therefore, by using the functionality test, in each case, on facts, in the light of what we have held earlier, it will have to be decided whether the construction of an immovable property is a “plant” for the purposes of clause (d) of Section 17(5).
66. In the light of what we have held above, by setting aside the impugned judgment in Civil Appeal Nos.2948 and 2949 of 2023, the writ petitions are remanded to the High Court of Orissa for limited purposes of deciding whether, in the facts of the case, the shopping mall is a “plant” in terms of clause (d) of Section 17(5). Appeals are partly allowed in above terms.
67. While deciding these cases, we cannot make any final adjudication on the question of whether the construction of immovable property carried out by the petitioners in Writ Petitions amounts to plant, and each case will have to be decided on its merit by applying the functionality test in terms of this judgment. The issue must be decided in appropriate proceedings in which adjudication can be made on facts. The petitioners are free to adopt appropriate proceedings or raise the issue in appropriate proceedings.
68. The writ petitions are rejected subject to the interpretation of clause (d) of sub-section (5) of Section 17 of the CGST Act made by us.”
7. However, their Lordships in M/s Safari Retreats Private Ltd.’s case (supra) further held that the question whether the construction of immovable property carried out by the petitioners therein amounts to plant has to be decided on its merit by applying the functionality test in terms of the judgment passed in the aforesaid case. Their Lordships also held that the issue must be decided in appropriate proceedings in which adjudication can be made on facts and granted liberty to the petitioners therein to adopt appropriate proceedings or raise the issue in appropriate
8. In that view of the matter, while dismissing the present writ petition qua the constitutional validity of clauses (c) & (d) of Section 17(5) of the CGST Act, liberty is reserved in favour of the petitioner to raise the issue whether the construction of immovable property carried out by the petitioner amounts to plant within the meaning of Section 17(5)(d) (plant) of Act of 2017. The petitioner is free to adopt appropriate proceedings or raise the issue in appropriate proceedings, in accordance with law.
9. With the aforesaid observation and direction, the writ petition stands finally disposed of. No order as to cost(s).
Notes:
1 2024 INSC 756
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