Case Law Details
Chirantan Enterprises LLP Vs Commissioner CGST And Central Excise (Madhya Pradesh High Court)
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”) was engaged 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:
- Relied on, M/s Safari Retreats Private Ltd (supra). wherein the Hon’ble Supreme Court held that each mall is different, therefore, in each case fact finding enquiry is contemplated. The matter was remanded back to decide, whether, on facts, the mall in question satisfied the functionality test so that it can be termed as ‘a plant’ in Section 17(5)(d) of the CGST Act. The same applies to warehouses or other buildings except hotels and cinema theatres. The Apex Court has held that if the building in which the premises are situated qualifies for the definition of plant, ITC can be allowed on goods and services used in setting up the immovable property, which is a plant.
- Held that, the Petitioner was required to satisfy, whether the building in question qualifies for the definition of ‘plant’ in order to avail the ITC, but the Petitioner instead of submitting all these necessary documents chosen not to appear before the authority and directly approached the present Court. Now the final order has been passed, which has not been challenged in this petition. The Petitioner had a remedy to file an appeal against the said order. The Petitioner is free to file an appeal before the Appellate Authority, wherein the Petitioner may file all the necessary documents. Hence, the writ petition was dismissed.
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:
- Every registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, specified in section 49, be entitled to take ITC on any supply of goods or services or both which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
- Notwithstanding anything contained in this section, no registered person shall be entitled to the ITC in respect of any supply of goods or services or both to him unless,––
- 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;
- 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;
- 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––
1. Where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
2. Where the services are provided by the supplier to any person on the direction of and on account of such registered person. The details of ITC in respect of the said supply communicated to such registered person under section 38 of the CGST Act has not been restricted;
3. As per Section 41 of the CGST Act, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
4. He has furnished the FORM GSTR-01.
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 of ALD 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.
FULL TEXT OF THE JUDGMENT/ORDER OF MADHYA PRADESH HIGH COURT
Heard on the question of admission and interim relief.
2. Petitioner has filed this present petition challenging the validity of show-cause notice No.22/DGGI/RUI/JD/GST/2023-24 dated 11.7.2023 issued by the respondent.
3. Facts of the case, in brief, are that the petitioner is engaged in construction of building and rental “Rental or leasing services involving own or leased non-residential property”. The petitioner is having GST Registration No.23AAOFC4350R1Z0. The petitioner has 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 namely bricks, cement, electrical equipment, hardware, RMC, sanitary, steel, stone, tile, sand, paint, doors etc. were purchased. The petitioner availed the Input Tax Credit (ITC) charged on the purchase/supply of the aforesaid goods consumed and used in the construction of the said school building.
4. The petitioner received summon dated 11.2.2022 and 18.2.2022 from the office of Directorate General of GST Intelligence 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, Shri Anil Kumar Somani, GM Accounts appeared and recorded his statement and the petitioner was made to reverse the ITC availed on civil work through DRC-03 on the same day. The petitioner reversed the ITC 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 21.2.2023 for payment of penalty and interest at the rate applicable on Rs.6,68,44,378/-. In compliance of the said summon, the statement of CEO of the petitioner was recorded on 9.3.2023. Petitioner submitted a detailed reply to the show-cause notice objecting the recovery of GST. In apprehension of the adverse order being passed by the respondent, the petitioner rushed to this Court by filing this petition stating that the petitioner is entitled to avail the Input Tax Credit under Section 17(5)(c) & (d) of the CGST Act.
5. The writ petition came up for hearing on 1.10.2024. Shri Prasanna Prasad Advocate appeared on advance notice on behalf of the respondent and sought one day time to seek instructions from the respondent. 2.10.2024 was the holiday. Therefore, the writ petition was directed to be listed on 3.10.2024. On 3.10.2024 Shri Prasad informed this Court that the final order has already been passed on 30.9.2024. Shri Bhati, learned counsel appearing for the petitioner sought two day’s time to produce the copy of the judgment to be passed by the Apex court on a similar issue. The petitioner filed the copy of judgment passed by the Apex Court in Civil Appeal No.2948/2023 (Chief Commissioner of Central Goods and Services Tax and others Vs. M/s Safari Retreats Private Ltd. and others).
6. Shri P. Prasad, learned counsel has filed copy of adjudication order bearing No. GEXCOM/ADJN/GST/JC/148/2024/Adjn/O/o Commr-Indore dated 30.9.2024 along with an application for taking additional documents on record and submitted that the petitioner is now having remedy to file appeal against the said order and the petition is liable to be dismissed.
7. Shri N.S. Bhati, learned counsel for the petitioner submits that the petitioner constructed a building for leasing out to M/s Shishukunj Knowledge Society for running school, therefore, the petitioner is entitled for ITC under Clause (c) & (d) of sub-section 5 of Section 17 of the CGST Act, as held by the Apex Court in the case of M/s Safari Retreats Private Ltd. (supra). Therefore, the impugned order be quashed.
8. The petitioner has only made statement in Para-2 of the writ petition that the petitioner has constructed a building on own land for the purpose of giving it on lease to M/s Shishukunj Knowledge Society for running school. No document has been filed to establish that any lease deed or rent deed has been executed between the petitioner and M/s Shishukunj Knowledge Society before starting construction of building or after construction of building. The learned adjudicating authority in its final order mentioned that notices were issued for giving opportunity of personal hearing to the petitioner, but no one appeared on behalf of the noticee to attend the personal hearing on a given date. The noticee neither appeared on the stipulated date, only submitted a reply as mentioned above in their defence and further approached to the High Court by way of this writ petition. (see Para 5.2 of the order).
9. The matter of M/s Safari Retreats Private Ltd. (supra) is relating to the construction of the mall. The Apex Court has held that each mall is different, therefore, in each case fact finding enquiry is contemplated. The High Court has not decided whether the mall in question will satisfy the functionality test of being a plant. The matter has been remanded back to decide, whether, on facts, the mall in question satisfies the functionality test so that it can be termed as a plant within the meaning of bracketed portion in Section 17(5)(d). The same applies to warehouses or other buildings except hotels and cinema theatres. The Apex Court has held that if the building in which the premises are situated qualifies for the definition of plant, ITC can be allowed on goods and services used in setting up the immovable property, which is a plant. Para 54, 55 & 56 are reproduced below:-
“54. One of the arguments of leaned ASG was that if different meanings were given to the words “plant and machinery” and “plant or machinery”, it could result in discriminatory treatment. Clause (c) of Section 17(5) operates in a completely different field, as it applies only to works contract services supplied for the construction of immovable property. Clause (d) deals with services received by a taxable person for the construction of an immovable property on his own account. As clauses (c) and (d) operates in substantially different areas, the argument of ASG relying on discrimination cannot be accepted.
55. Under the CGST Act, as observed earlier, renting or leasing immovable property is deemed to be a supply of service, and it can be taxed as output supply. Therefore, if the building in which the premises are situated qualifies for the definition of plant, ITC can be allowed on goods and services used in setting up the immovable property, which is a plant.
56. In the main appeal, which is the subject matter of this group, the High Court has not decided whether the mall in question will satisfy the functionality test of being a plant. The reason is that the High Court has done the exercise of reading down the provision. Each mall is different. Therefore, in each case, fact-finding enquiry is contemplated. Thus, in the facts of the case, we will have to send the case back to the High Court to decide whether, on facts, the mall in question satisfies the functionality test so that it can be termed as a plant within the meaning of bracketed portion in Section 17(5)(d). The same applies to warehouses or other buildings except hotels and cinema theatres. A developer may construct a mall predominantly to sell the premises therein after obtaining an occupation certificate. Therefore, it will be out of the purview of clause 5(b) of Schedule II. Each case will have to be tested on merits as the question whether an immovable property or a building is a plant is a factual question to be decided.”
10. Therefore, the petitioner was required to satisfy adjudicating authority, whether the building in question qualifies for the definition of plant in order to avail the ITC, but the petitioner instead of submitting all these necessary documents chosen not to appear before the authority and directly approached this Court. Now the final order has been passed, which has not been challenged in this petition. The petitioner is having remedy to file an appeal against the said order. The petitioner is free to file an appeal before the appellate authority, wherein the petitioner may file all the necessary documents and rely on the law laid down by the Apex Court in the case of M/s Safari Retreats Private Ltd. (supra).
11. The petition is accordingly dismissed with the aforesaid liberty.
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