2022 (3) TMI 1153 - HC - GST

Restriction on Input Tax Credit (ITC) - Constitutional validity of Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 - vires of Articles 14, 19(1)(g), 300A and 265 respectively of the Constitution of India or not - HELD THAT - It appears on plain reading of the provision in question that the input tax credit has not been made available in respect of the 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 - Sub-section (5)(d) of Section-17 has provided an explanation. According to the explanation, the expression construction would include re-construction, renovation, additions or alterations or repairs, to the extent of capitalization of the said immovable property. It has been brought to our notice that the very same provision of the Act, 2017 was made a subject matter of challenge before the High Court of Orissa in the case of M/S. SAFARI RETREATS PRIVATE LIMITED AND ANOTHER VERSUS CHIEF COMMISSIONER OF CENTRAL GOODS SERVICE TAX OTHERS 2019 (5) TMI 1278 - ORISSA HIGH COURT wherein, the High Court declined to declare Section-17(5)(d) of the Act as ultravires, but thought fit to read it down. Let Notice be issued to the respondents, returnable on 06.04.2022. Notice shall also be issued to the learned Attorney General of India. Notice to the respondents nos.1, 2 and 3 respectively shall be served by E-mail.

Summary

Issues Involved:
Challenge to the constitutional validity of Section-17(5)(d) of the Central Goods and Services Tax Act, 2017.

Analysis:

1. The petitioner sought to challenge the constitutional validity of Section-17(5)(d) of the Central Goods and Services Tax Act, 2017, arguing that it is ultravires the Articles 14, 19(1)(g), 300A, and 265 of the Constitution of India. The provision in question restricts input tax credit for goods or services used in the construction of an immovable property on one's own account. The explanation provided under the section clarifies that "construction" includes various activities related to immovable property capitalization.

2. Reference was made to a similar case before the High Court of Orissa where Section-17(5)(d) was challenged. The Orissa High Court, in the case of M/s. Safari Retreats Private Limited, declined to declare the provision ultravires but opted to read it down. The court emphasized that the purpose of input tax credit is to benefit the assessee and highlighted the importance of allowing credit on GST paid on rental income from investments subjected to GST.

3. Another related petition is pending before the Gujarat High Court in the case of R.R. Kable Limited Vs. Union of India. The court issued notices to the respondents, returnable on a specified date, and also to the Attorney General of India. The matter is scheduled to be heard along with the pending petition. Additionally, the court directed the petitioner to furnish a set of the entire paper-book to the Assistant Solicitor General of India, Mr. Devang Vyas, for reference.

This detailed analysis covers the challenge to the constitutional validity of Section-17(5)(d) of the Central Goods and Services Tax Act, 2017, along with references to relevant precedents and ongoing related cases before the High Court of Gujarat.