Case Law Details
Sankalp In & Anr. Vs Union of India & Ors. (Gujarat High Court)
Gujarat High Court heard the petition filed by Sankalp In & Anr. challenging the validity of Section 17(5)(c)(d) of the Central Goods and Services Tax (CGST) Act, 2017. The petitioners argued against the restrictions imposed on input tax credit (ITC) under these provisions. However, their arguments were based on the Supreme Court’s recent ruling in Chief Commissioner of Central Goods and Service Tax & Ors. v. M/s. Safari Retreats Private Limited & Ors. (Civil Appeal No. 2948 of 2023), where the Apex Court upheld the constitutional validity of these provisions. The Supreme Court clarified that there was no ambiguity in the interpretation of Section 17(5) and that the clauses (c) and (d) were valid. Given this ruling, the petitioners expressed their intent to approach the respondent authority to determine whether Section 17(5)(d) applied to their case.
The Supreme Court had also ruled that the classification of a building, such as a mall or warehouse, as a “plant” for ITC eligibility must be determined based on its role in the taxpayer’s business. Applying the functionality test, it must be established whether the construction of an immovable property is essential for supplying services, such as leasing or renting. If the structure qualifies as a plant, it would not be excluded from ITC under Section 17(5)(d). Based on this, the Supreme Court remanded a related case to the Orissa High Court for further examination. Consequently, the Gujarat High Court disposed of the present petition, granting the petitioners the liberty to comply with the show cause notice on merits as per the Supreme Court’s ruling. The court discharged the notice and vacated any interim relief previously granted.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned Advocate Mr. Uchit N. Sheth for the petitioners; learned Senior Standing Counsel Mr. Karan G. Sanghani for the respondent No.1 and learned advocate Mr. Utkarsh Sharma for the respondent Nos. 3 and 4.
2. Learned advocate Mr. Uchit N. Sheth for the petitioners submitted that the petitioners have challenged the vires of Section 17(5)(c)(d) of the Central Goods & Service Tax Act, 2017 (hereinafter referred to as “CGST Act, 2017”)
3. Learned advocate Mr. Uchit Sheth submitted that the Hon’ble Apex Court in case of Chief Commissioner of Central Goods and Service Tax & Ors. M/s. Safari Retreats Private Limited and others in Civil Appeal No. 2948 of 2023 rendered on 3rd October, 2024 has held that the aforesaid provisions are not ultra- vires. The Apex Court has upheld the constitutional validity of Clauses (c) and (d) of the Section 17(5). It was therefore, submitted that the petitioners would like to approach the respondent-authority to demonstrate whether the provision of Section 17(5)(d) would be applicable in the facts of the case so as to adjudicate the show cause notice as per the directions issued by the Apex Court in the aforesaid decision.
4. The Hon’ble Apex Court in the aforesaid decision has held as under :-
“64. As we are upholding the constitutional validity of clauses (c) and (d) of Section 17(5), and as held earlier, its plain interpretation does not lead to any ambiguity, the question of reading down the provisions does not arise.
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.
5. In view of the above decision, the petition is disposed of with a liberty to the petitioners to comply with the impugned show cause notice on merits as per the directions issued by the Hon’ble Apex Court in the aforesaid decision.
Notice is discharged. Interim relief, if any, stands vacated.
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