Construction for Leasing Not for Own Use – ITC Claim Valid
Chief Commissioner of Central Goods and Service Tax & Ors.
Vs
Safari Retreats Private Ltd. & Ors. (Supreme Court)
Appeal Number : Civil Appeal No. 2948 of 2023
Date of Judgement : 03.10.2024
The Apex Court clarified that ITC is available for such buildings. Apex Court held that construction of such building cannot be said to be on taxable person’s “own account” if it is intended to be sold or given on lease or license. Therefore, in case of construction of such building, qualifying as a plant and intended to be rented out, ITC is available.
BACKGROUND
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. 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).
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.
Important Paras
Para 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.
Para 65. Some of our conclusions can be summarised as under:
- 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;
- 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;
- 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 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).
Para 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.
Para 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.
