Dated 15th September, 2020

 
The taxability dispute on ocean freight has been finally decided by the Gujarat High Court, which held that taxing ocean freight is ultra vires and leads to double-taxation

Writ filed against denial of Input tax credit under Section 17(5)(c) & 17(5)(d) of CGST on the basis of constitutional validity and legality


Background

The topic of restriction of input tax credit in respect of an immovable property shall become highest litigative issue under GST regime. In our earlier alerts, we have covered impractical view given by an Advance Ruling Authority, disallowing input tax credit in relation to inputs and input services used for construction of commercial immovable property, which is subsequently used for renting.

However, we have the judgement of Hon’ble High Court of Orissa in a similar case1wherein the court has allowed availment of input tax credit (ITC) on goods and services used for construction of immovable property and used in the course or furtherance of business.

In addition to the above, we have the present case wherein the petitioner has challenged the constitutional validity and legality of Section 17(5)(c) and Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 and the Circular No.28 dated 1st January, 2018 before Delhi High Court.

Facts of the case

Petitioner has been denied the input tax credit of tax paid by it on works contract services as well as goods and services used in the construction of an immovable property (other than plant and machinery), despite such goods and services being used for purposes of business and to provide taxable supplies liable to GST.

Present writ petition has been filed challenging the Constitutional validity and legality of Section 17(5)(c) and Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 and the Delhi Goods and services Tax,2017 and the Circular No.28 dated 1st January, 2018.

Submission on behalf of the Petitioner

It was submitted by the petitioner that the relevant provisions and circular related to denial of ITC in case of works contract services are in violation of Article 14 of the Constitution and are a complete departure from the rationale and objective of introducing GST. Petitioner relied on the judgment of few cases here2

Provisions of Section 17(5)(c) & 17(5)(d) of the Central Goods and Services Tax Act,2017:

As per 17(5) of CGST Act 2017,

Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

(c) 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;

(d) 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.

Explanation.—For the purposes of clauses (c) and (d), the expression “construction” includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.

Writ petition accepted by Honorable Delhi High Court

It was mentioned that the counter affidavits are to be filled within a period of four weeks and decision will be taken then. The next hearing date has been listed on September 15, 2020.

1 Safari Retreats Private Limited v Chief Commissioner of Central Goods & Service Tax [W.P. (C) 20463 of 2018]

2Bamboo Hotel and Global Centre Pvt. Ltd. v UOI, W.P.(C) 5457/2019

Rivera Commercial Developers Limited v Union of India, W.P.(C) 11633/2019


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Twenty years of experience in tax practice. Specialist in structuring & planning and tax optimization under indirect tax. Lead eastern India indirect tax practice of Ernst & Young in past.