Professional Update

(Goods and Service Tax Case laws)

        D.B. Civil Writ 11634/2024 (Supreme Court HC)

Chief Commissioner of Central Goods and Service Tax & Ors.

vs

M/s Safari Retreats Private Ltd. & Ors.

Ratio Decidendi

The Hon’ble Supreme Court held that the ITC on building construction may be availed, if the building is used for providing a rental Services and “not for its own account”. The Supreme court summaries the principles of reading the statues.

Facts

Petitioner challenges the constitutional validity of the provision of section 17(5)(c ) and 17(5)(d) of the CGST Act. The petitioner has built a shopping mall which will be used for earning rent, which is a taxable service. The petitioner argues that the providing rent is a taxable service and therefore, ITC should be allowed, as non-allowance of the ITC would break the chain of taxability and hence, the very purpose of the CGST Act would get defeated. The building used for providing the rental services would not come under the meaning of “On own use”, as prescribed under the CGST Act. The revenue argues that the wide latitude or more elbow room is providing while enacting a fiscal legislature. The “Plant or machinery” in section 17(5)(d) should be read as “Plant & machinery”. The definition of “Plant & machinery” should be applicable to “Plant or machinery” as well.

Issue

Whether the ITC could be allowed in the construction of the shopping mall, if the said building is used for providing the rental services.

Held.

Supreme High Court has upheld the constitutional validity of the provision of section 17(5)(c ) and 17(5)(d) of the CGST Act.

The Supreme court held that the legislature has consciously put the words “Plant or Machinery” in section 17(5)(d) of the CGST Act. The wording “Plant and Machinery” is used 10 times in chapter V and VI of the CGST act, but the wording “Plant or Machinery” is being used single time in the Act.

The one of the purpose of the GST Act is to provide the seamless flow of the credit so that the cascading effect could be avoided.

The Supreme Court summarise the following principles.

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)

The Hon’ble Supreme court further summarise the principles of reading the tax statues.

The principles governing the interpretation of the taxation statutes can be summarised as follows:

a. A taxing statute must be read as it is with no additions and no subtractions on the grounds of legislative intendment or otherwise;

b. If the language of a taxing provision is plain, the consequence of giving effect to it may lead to some absurd result is not a factor to be considered when interpreting the provisions. It is for the legislature to step in and remove the absurdity;

c. While dealing with a taxing provision, the principle of strict interpretation should be applied;

d. If two interpretations of a statutory provision are possible, the Court ordinarily would interpret the provision in favour of a taxpayer and against the revenue;

e. In interpreting a taxing statute, equitable considerations are entirely out of place;

f. A taxing provision cannot be interpreted on any presumption or assumption;

g. A taxing statute has to be interpreted in the light of what is clearly expressed. The Court cannot imply anything which is not expressed. Moreover, the Court cannot import provisions in the statute to supply any deficiency;

h. There is nothing unjust in the taxpayer escaping if the letter of the law fails to catch him on account of the legislature’s failure to express itself clearly;

i. If literal interpretation is manifestly unjust, which produces a result not intended by the legislature, only in such a case can the Court modify the language;

 j. Equity and taxation are strangers. But if construction results in equity rather than injustice, such construction should be preferred;

k. It is not a function of the Court in the fiscal arena to compel the Parliament to go further and do more;

l. When a word used in a taxing statute is to be construed and has not been specifically defined, it should not be interpreted in accordance with its definition in another statute that does not deal with a cognate subject. It should be understood in its commercial sense. Unless defined in the statute itself, the words and expressions in a taxing statute have to be construed in the sense in which the persons dealing with them understand, that is, as per the trade understanding, commercial and technical practice and usage.

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CA Manoj Garg

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