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TMI Blog2024 (10) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... s from ITC. Exclusion of the category of works contracts by clause (c) will not, per se, defeat the object of the CGST Act. Whether the explanation that lays down the meaning of the expression plant and machinery in Section 17 will apply to the expression plant or machinery used in Section 17 (5)(d)? - HELD THAT:- The explanation to Section 17 defines plant and machinery . The explanation seeks to define the expression plant and machinery used in Chapter V and Chapter VI. In Chapter VI, the expression plant and machinery appears in several places, but the expression plant or machinery is found only in Section 17(5)(d). If the legislature intended to give the expression plant or machinery the same meaning as plant and machinery as defined in the explanation, the legislature would not have specifically used the expression plant or machinery in Section 17(5)(d). The legislature has made this distinction consciously. Therefore, the expression plant and machinery and plant or machinery cannot be given the same meaning. It may also be noted here that the expression plant or machinery is used in dealing with a peculiar case of goods or services being received by a taxable person for the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dv. Mr. Vinay Saraf, Adv. Mr. Vishal Agrawal, Adv. Mr. Sasi Prabhu, Adv. Mr. Ravi Bharuka, AOR Mr. Ankit Agarwal, Adv. Mr. Abhishek Deodhar, Adv. Mr. Rahul Unnikrishnan, Adv. Ms. Ritu Jain, Adv. Ms. Aditi Jain, Adv. Ms. Shrishti Agarwal, Adv. Mr. Rohit Agarwal, Adv. Ms. Tuhina, Adv. Ms. Priyanka Rathi, Adv. Ms. Ashwini Chandrasekaran, Adv. Ms. Shubhangi Gupta, Adv. Mr. Pallav Mongia, AOR Mr. Abhishek A Rastogi, Adv. Mr. Nikhil Jain, AOR Ms. Pooja M Rastogi, Adv. Ms. Meenal Songire, Adv. Ms. Divya Jain, Adv. Ms. Divyasha Mathur, Adv. Mr. Sujit Ghosh, Sr. Adv. Ms. Mannat Waraich, AOR Ms. Anshika Aggarwal , Adv For the Respondent : Mr. N.Venkatraman,ASG Mr. Arijit Prasad,Sr.Adv. Mr. Sonu Bhatnagar,Adv. Mr. Indrajit Prasad,Adv. Ms. Ankita Singh,Adv. Mr. Deepak Kumar,Adv. Mr. Gurmeet Singh Makker, AOR Mr. Mukesh Kumar Maroria, AOR Mr. Abhratosh Majumdar, Sr. Adv. Mr. S. Sukumaran, Adv. Mr. Avra Mazumdar, Adv. Mr. Ramesh Patodia,Adv. Mr. Anand Sukumar, Adv. Mrs. Megha Kapoor, Adv. Mr. Bhupesh Kumar Pathak, Adv. Mrs. Ruche Anand, Adv. Ms. Meera Mathur, AOR Mr. Suvendu Suvasis Dash, AOR Mr. Prasenjeet Mohapatra, AOR Mr. D. L. Chidananda, AOR Mr. Naresh Jain, Adv. Mrs. Arti Agrawal, Adv. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). 3. 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 decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition (C) No. 1036 of 2023 challenging the constitutional validity of clauses (c) and (d) of Section 17(5). There is a prayer to read down the clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act; and f. Writ Petition (C) No. 1030 of 2022 containing similar prayers SUBMISSIONS ON BEHALF OF ASSESSEES 6. Very detailed submissions have been made by the parties to the civil appeals, intervenors and parties to the writ petitions. We find that the submissions made by the learned counsel for the assessees and the intervenors are repetitive. There are a large number of decisions relied upon, whether relevant or irrelevant. Brevity is the hallmark of good advocacy. It would be ideal if parties on one side file joint written submissions. The Judges and lawyers are humans. Sometimes, bulky compilations and submissions can be counterproductive. 7. Assessees have submitted that clauses (c) and (d) and sub-section (5) of Section 17 are violative of Articles 14, 19(1)(g) and 300A of the Constitution of India. The submissions concerning the challenge to constitutional validity can be summarised as follows: a. Section 17(5)(d) is violative of Article 14 since it classifies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artificial and non-existent in the eyes of the law. As intelligible differentia does not exist, the first condition of the twin test can be said to be satisfied; c. Break in the credit chain is also not a differentia, since, in the assessees' case, unlike in the case of assessees selling immovable properties, there is no break in the credit chain. The break arises when the recipient uses the supplier's output to make non-taxable transactions for which GST is not payable by the recipient. In such a case, credit cannot be utilised in the subsequent leg of the transaction from where the break in the chain took place. Several illustrations have been given in support of this submission. It was submitted that there is no break in the chain at any of the levels, starting from the subcontractor to the main contractor and the petitioner, since all three entities are liable to output GST, and therefore, in such a case, denial of credit cannot be justified; d. It is submitted that even assuming that coming into existence of an immovable property is an intelligible differentia, it has no nexus with the objects of the CGST Act. The reason is that denying credit in such cases essentially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an "wild latitude". On the twin test of reasonable classification, reliance was placed on various decisions, including those in the case of R.K Garg v. Union of India and Ors. (1981) 4 SCC 675, Twyford Tea Co. Ltd. and Anr. v. State of Kerala and Anr. (1970) 1 SCC 189, Union of India and Ors. v. Nitdip Textile Processors Pvt. Ltd. and Anr. (2012) 1 SCC 226. Varying standards of review under the doctrine of classification are typically applied to economic and non-economic legislation, with the rational basis test being applied to economic legislation. Various decisions were relied upon dealing with the wide latitude doctrine in relation to economic legislations. Reliance was placed on the Government of Andhra Pradesh and Ors. v. P. Laxmi Devi (2008) 4 SCC 720, Assistant Commissioner of Urban Land Tax and Ors. v. Buckingham and Carnatic Co. Ltd., Etc. (1969) 2 SCC 55, Jindal Stainless Ltd. and Anr. v. State of Haryana and Ors. (2017) 12 SCC 1 and State of Tamil Nadu and Anr. v. National South Indian River Interlinking Agriculturist Association (2021) 15 SCC 534. The true import of the legislative provision is to be understood from the plain reading of the provision and not on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as per which ITC is denied to assessees on construction expenditure, results in the cascading effect of taxes and denial of credit for business expenditure, which is in direct contradiction of the objects of GST Law as elaborated previously. It is submitted that ITC cannot be denied solely because immovable properties are created in the assessee's business. The primary condition for availing of ITC is the nexus between the assessee's input and output business activities, which exists in the assessee's case. Direct corelation with input services or output services is not necessary to avail of the benefit of ITC. c. It is submitted that the phrase "on its own account" should be read down and given a purposive construction instead of a myopic one. The phrase should be deemed to mean when construction is done for personal use and not for services, i.e., credit should be denied only when goods and services are utilised for the construction of immovable property for his own purposes, like an office building or factory building. In such a case, no further GST on the sale of such a building occurs and, therefore, a chain of taxability breaks. However, when such immovable property i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to this can be summarised as follows: • Section 17, being an exception to the general rule under Section 16, must be construed strictly. The expression "plant and machinery" has been used at least ten times in Chapters V and VI of the CGST Act, and the expression "plant or machinery" occurs only once in Section 17(5)(d). Therefore, the intention of the legislature to treat the expression "plant or machinery" differently from the expression "plant and machinery" is apparent. • In the model GST law, which the GST Council Secretariat circulated in November 2016 for inviting suggestions and comments, the expression "plant and machinery" was used both in clauses (c) and (d) of Section 17(5). However, while enacting the law, the legislature has advisedly used the expression "plant and machinery" in clause (c) and "plant or machinery" in clause (d) of Section 17(5). Therefore, the intention of the legislature cannot be brushed aside by contending that the use of the word "or" in Section 17(5)(d) is a mistake of the legislature. • The expression "plant or machinery" has not been defined under the CGST Act. The definition of "plant and machinery" provided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich business is carried on. However, if it merely serves as a setting in which business is carried on, it will not qualify as a 'plant'. • Since buildings have been specifically excluded from the definition of "plant and machinery" in the explanation to sub-section (5) of Section 17, the word 'plant' in the expression 'plant or machinery' must be taken in its natural sense, which will include buildings. • In support of the submission that a shopping mall could be treated as a plant, which will fall in the exception carved out to Section 17(5)(d), reliance was placed on the decision of this Court in the case of CIT, Trivandrum v. Anand Theatres (2000) 5 SCC 393 wherein it was held that when a building is specially designed and constructed with some special features to attract the customers, the building could be treated as a plant. In the case of Commissioner of Income Tax, Karnataka v. Karnataka Power Corporation (2002) 9 SCC 571, this Court held that an electricity power generating station building would have to be treated as a plant as it would satisfy the functional test or test of essentiality. This Court further held that the judgment in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, whichever is earlier. Therefore, ITC accrued on construction of immovable property can be availed against these services. Miscellaneous Submissions 10. It is submitted that even though sub-Section (5) of Section 17 starts with the non-obstante clause, it cannot be said that the legislature intended to override Section 16(1) in its entirety. It is submitted that the non-obstante clause in Section 17(5) cannot cut down the construction or restrict the scope of operation of Section 16(1). Reliance was placed on a decision of this Court in the case of R.S. Raghunath v. State of Karnataka & Anr. (1992) 1 SCC 335; 11. It is pointed out that Section 17(5)(c) carves out an exception only for works contracts, assuming that this is the only category of service where there is no breakage in the chain of taxable supplies. It is submitted that while Section 17(5)(c) allows ITC on works contracts for contractors, ITC has been blocked for other developers; 12. The classification sought to be invoked by the Revenue leads to invidious discrimination within the provision in as much as credit has been allowed for the construction of immovable plant and machinery during the execution of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Tax Officer, now upgraded as Assistant Commissioner (CT) & Ors. (2019) 13 SCC 225 and in particular, what is held in paragraphs 34, 37, 38 and 40. c. In response to the principles for examining the constitutional validity of taxation statutes, he submitted that the test of vice of discrimination in a taxing statute is less rigorous. He submitted that the Parliament is entitled to make policy choices and adopt appropriate classifications given the latitude that our Constitutional jurisprudence allows in the matters involving tax legislation. The principle of equality does not preclude the classification of property, credit, profession and events for taxation. He submitted that it is settled law, as held in the case of Hari Krishna Bhargav v. Union of India & Anr (1966) 2 SCR 22 that a taxing statute is not open to challenge on the ground that the tax is harsh or excessive. He refuted a submission that clauses (c) and (d) of Section 17(5) are fraud on the Constitution or that they are manifestly arbitrary. He invited our attention to a decision of the Constitution Bench in the case of Joseph Shine v. Union of India (2019) 3 SCC 39 and, in particular, what is held in paragraphs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevance. There is no concept of ITC in the Income Tax Act. The scheme of the Act is completely different. He further submitted that if the assessee's submission that a shopping mall or warehouse is treated as a plant is accepted, it would amount to hostile discrimination. c. Tax on goods cannot be extended to immovable property. However, taxation on services can be raised even on using immovable properties for rendition of services. He submitted that when it comes to sales tax or VAT on goods, a consistent view taken by this Court is that the sale would include the sale of goods and not the sale of immovables. He submitted that malls, hotels, office buildings, etc., are immovable properties; therefore, GST cannot be levied. He relied upon the earlier decisions of this Court arising out of the Central Excise Act, 1944. According to him, those plants and machinery which are deeply rooted in the earth and cannot be relocated without sufficient damage are immovable goods. However, he accepted that renting an immovable property amounts to a supply of service, which is taxable under the CGST Act. d. While dealing with the case of a shopping mall, he submitted that since a shopping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract" in Article 366 (29A)(b) of the Constitution, he submitted that what is taxed cannot be a taxation on the immovable property. GIST OF REJOINDER 17. By way of rejoinder, the learned counsel representing assessees submitted that the legislature intentionally used the expression "plant or machinery" in only one place, and the legislative intention has to be adhered to. 18. It was submitted that in certain cases, CENVAT credit was allowed for the construction of buildings. That is the view taken by the Tribunals/High Courts. 19. Concerning the apprehension of misusing GST expressed by the learned ASG, it was submitted that even if the argument of the assessees is accepted, the ITC on goods or services used to construct a warehouse or mall is only to a limited extent of GST payable on rental activity. It was, therefore, submitted that the definition of "plant or machinery" will not apply to "plant and machinery". 20. The learned counsel submitted that there is no conflict between Section 17(5)(d) and Section 16(3). He submitted that Section 16(3) applies to "plant and machinery" and not to "plant or machinery". He submitted that even assuming that Section 16(3) applies to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de "plant and machinery". He submitted that what emerges from steel, cement, etc., are immovable goods, which would be excluded from GST. Since no GST is payable on immovable property, ITC is not available. BROAD ISSUES FOR CONSIDERATION 24. Considering the submissions made by the parties, the following main questions arise for consideration: (i) Whether the definition of "plant and machinery" in the explanation appended to Section 17 of the CGST Act applies to the expression "plant or machinery" used in clause (d) of sub-section (5) of Section 17? (ii) If it is held that the explanation does not apply to "plant or machinery", what is the meaning of the word "plant"? and (iii) Whether clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act are unconstitutional? RULES REGARDING THE INTERPRETATION OF TAXING STATUTES 25. Regarding the interpretation of taxation statutes, the parties have relied on several decisions. The law laid down on this aspect is fairly well-settled. 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection.-- (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. (2) The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel Civil Appeal No.2948 of 2023 etc. Page 35 of 91 shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council. (3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him 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. (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-- (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; (aa) the details of the invoice or debit note referred to in clause (a) has 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; (b) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return, whichever is earlier: Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under Section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under subCivil Appeal No.2948 of 2023 etc. Page 40 of 91 section (1) of Section 37 till the due date for furnishing the details under sub-section (1) of said section for the month of March, 2019. (5) Notwithstanding anything contained in sub-section (4), in respect of an invoice or debit note for supply of goods or services or both pertaining to the Financial Years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed up to the thirtieth day of November, 2021. (6) Where registration of a registered person is cancelled under Section 29 and subsequently the cancellation of registration is revoked by any order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 16 is of some relevance as it provides that if a registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income Tax Act, 1961, he is disentitled to ITC on the said tax component. In short, a registered person will not be entitled to ITC on the tax component of the cost of capital goods and plant and machinery if he claims depreciation on the said tax component under the Income Tax Act. The object is that a registered person does not take advantage of both depreciation and ITC. 29. Now we come to sub-Section (4) of Section 16. Before the amendment made by the Finance Act, 2022, the sub-section read thus: "16. .. .. .. .. .. .. .. .. .. (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. Provided that the registered person shall be entitled to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such vessels; or (D) imparting training on flying such aircraft; (ii) for transportation of goods; (ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa): Provided that the input tax credit in respect of such services shall be available-- (i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein; (ii) where received by a taxable person engaged-- (I) in the manufacture of such motor vehicles, vessels or aircraft; or (II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him; (b) the following supply of goods or services or both-- (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance: Provided that the input tax credit in respect of such goods or service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward 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." (emphasis added) Section 17(5) begins with a non-obstante clause. A nonobstante clause is a device used by the legislature that is usually employed to give an overriding effect to certain provisions over some contrary provisions that may be found in the same or some other enactments. Such a clause is used to indicate that the said provision should prevail despite anything to the contrary in the provisions mentioned in the non-obstante clause. It is pertinent to note that in view of the non-obstante clause used at the beginning of sub-section (5), it seeks to override both sub-section (1) of Section 16 and sub-section (1) of Section 18. As noted earlier, sub-section (1) of Section 16 lays down the eligibility and conditions for taking ITC. Subsection (1) of Section 18 deals with the availability of ITC in special circumstances. Therefore, in the cases covered by subsection (5), ITC is not available. In a sense, sub-section (5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on lease or license. 33. Section 17(5) incorporates an explanation which provides that the word "construction" used in clauses (c) and (d) includes reconstruction, renovation, additions, alterations or repairs, to the extent of capitalisation, to the immovable property. Thus, a very wide meaning has been assigned to the expression "construction" by the said explanation. 34. There is hardly a similarity between clauses (c) and (d) of Section 17(5) except for the fact that both clauses apply as an exception to sub-section (1) of Section 16. Perhaps the only other similarity is that both apply to the construction of an immovable property. Clause (c) uses the expression "plant and machinery", which is specifically defined in the explanation. Clause (d) uses an expression of "plant or machinery", which is not specifically defined. 35. Now, what is material is the explanation to Section 17, which reads thus: "Explanation.--For the purposes of this Chapter and Chapter VI, 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 inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or transactions inter se shall be deemed to take place from one such person to another; (b) import of services for a consideration whether or not in the course or furtherance of business; and (c) the activities specified in Schedule I, made or agreed to be made without a consideration; (1-A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. (2) Notwithstanding anything contained in sub-section (1),-- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of subsections (1), (1-A) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as-- (a) a supply of goods and not as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and (f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration." 38. Clause 5(b) of Schedule II has to be read with the provisions of Schedule III, which has a title: "Activities or transactions which shall be treated neither as a supply of goods nor a supply of services". Clause (5) of Schedule III reads thus: "5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building." 39. Analysis of the provisions of Section 7 read with Schedule II and III shows that: a. Any lease, tenancy, easement or licence to occupy land is a supply of services. Clause 2(a) is not qualified by the purpose of the use. But the sale of a land is not a supply of service; b. Any lease or letting out of buildings for business or commerce, wholly or partly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope to give any meaning to clause (c) of Section 17(5) other than its plain and natural meaning. The expression "plant and machinery" has been specifically defined in the explanation of Section 17. Works contract service has been defined under the CGST Act. We cannot add anything to clause (c) or subtract anything from clause (c). ITC is a creation of legislature. Therefore, it can exclude specific categories of goods or services from ITC. Exclusion of the category of works contracts by clause (c) will not, per se¸, defeat the object of the CGST Act. MEANING OF THE EXPRESSION "PLANT OR MACHINERY" IN CLAUSE (d) OF SECTION 17(5) 42. The question is whether the explanation that lays down the meaning of the expression "plant and machinery" in Section 17 will apply to the expression "plant or machinery" used in Section 17 (5)(d). 43. Learned ASG himself accepted that the expression "plant and machinery" appears at ten different places in Chapters V (Input Tax Credit) and VI (Tax Invoice, Credit and Debit Notes) of the CGST Act. According to him, the expression "plant or machinery" appears only in clause (d) of Section 17(5). His submission is that the use of the word "or" in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of business. Therefore, if the expression "plant or machinery" is given the same meaning as the expression "plant and machinery" as per the definition contained in the explanation to Section 17, we will be doing violence to the words used in the statute. While interpreting taxing statutes, it is not a function of the Court to supply the deficiencies. 45. Now, the question which arises is what meaning should be given to the expression "plant or machinery". When the legislature uses the expression "plant and machinery," only a plant will not be covered by the definition unless there is an element of machinery or vice versa. This expression cannot be read as "plant or machinery". That is so clear from the explanation in Section 17, which says that plant and machinery means apparatus, equipment and machinery fixed to the earth by foundation or structural support that are used for making outward supply of goods or services or both. The expression includes such foundation and structural support fixed to the earth. However, the definition excludes land, buildings or any other civil structure. 46. The expression "plant or machinery" has a different connotation. It can be either a pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Taj Mahal Hotel18 was pressed into service. The assessee was running a hotel. The issue arose in a cognate enactment in the sense in the enactment providing for levy of income-tax. The issue referred to the opinion of the High Court was whether sanitary fittings and pipelines installed in the hotel constituted a 'plant' within the meaning of Section 10(5) of the Income Tax Act, 1922. The definition of plant in Section 10(5) of the Income Tax Act, 1922 provided that 'plant' includes vehicles, scientific apparatus, surgical equipment, and books purchased for the purposes of business, profession or vocation. The Court considered whether the word plant should be given a broader meaning. In paragraph 6 of the said decision, this Court held thus: "6. Now it is well settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of everyday use. Popular sense means "that sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it". In the present case, Section 10(5) enlarges the definition of the word "plant" by including in it the words which have already been mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in Webster's Third New International Dictionary: "Land, buildings, machinery, apparatus and fixtures employed in carrying on trade or other industrial business...." ( emphasis added ) 49. The next decision in the line is in the case of Anand Theatres19. This was a case where the issue was whether a building which is used as a hotel or a cinema theatre can be considered as apparatus or a tool for running a business so that it can be termed as a plant and depreciation can be allowed on the same under the Income Tax Act, 1961. This Court dealt with Section 32, which provided for granting depreciation to buildings, machinery, and plants. This Court extensively referred to its earlier decision in the case of Taj Mahal Hotel18 and other decisions of this Court and High Courts. This Court decided the question of whether a building used for running a hotel or cinema business could be held to be a plant. This Court considered British decisions on the point. Paragraphs 61 to 63 of the decision are material, which read thus: "61. Further, there are hotels of all kinds and hotel business can be carried on in all kinds of buildings, may be pucca or kuccha constructions. A buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etting a ship into the dock, holding it squarely and then returning it to the river. Building is more durable. If the contention of the assessee is accepted, virtually all such buildings would be considered to be a plant and the distinction which the legislature has made between "building" and "machinery" or "plant" would be obliterated. 63. Learned counsel for the assessee submitted that the words "plant" and "building" are not mutually exclusive. "Plant" may include building in a certain set of circumstances and, therefore, applying the functional tests the assessee would be entitled to depreciation under the head "it is more beneficial to it". He submitted that in the modern era, theatre building and hotel building are integral part of operation for carrying out such business and, therefore, such building should be considered as a "plant". Ultimately, in paragraph 67, this Court held thus: "67. In the result, it is held that the building used for running of a hotel or carrying on cinema business cannot be held to be a plant because: (1) The scheme of Section 32, as discussed above, clearly envisages separate depreciation for a building, machinery and plant, furniture a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and similarly a hospital building for infectious diseases which might require a special layout and other features also remains a premises and is not a plant. It is to be added that all these decisions are based upon the interpretation of the phrase "machinery or plant" under Section 41 of the Finance Act, 1971 which was applicable and there appears no such distinction for grant of allowance on different heads as provided under Section 32 of the Income Tax Act. (7) To differentiate a building for grant of additional depreciation by holding it to be a "plant" in one case where the building is specially designed and constructed with some special features to attract the customers and a building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable." 50. Another decision on the point is in the case of Victory Aqua Farm Ltd. 21, wherein the issue before this Court was whether a natural pond used by the assessee, which was specially designed for rearing prawns, could be a plant within the meaning of Section 32 of the Income Tax Act, 1961. This Court heavily relied upon the decision of a three-judge Bench of this Court in the case of Karn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been drawn by learned counsel for the Revenue to the judgment of this Court in CIT v. Anand Theatres [(2000) 5 SCC 393 : (2000) 244 ITR 192] . He submits that, in that judgment, this Court has held that, except in exceptional cases, the building in which the plant is situated must be distinguished from the plant and that, therefore, the assessee's generating station building was not to be treated as a plant for the purposes of investment allowance. 8. It is difficult to read the judgment in the case of Anand Theatres [(2000) 5 SCC 393 : (2000) 244 ITR 192] so broadly. The question before the Court was whether a building that was used as a hotel or a cinema theatre could be given depreciation on the basis that it was a "plant" and it was in relation to that question that the Court considered a host of authorities of this country and England and came to the conclusion that a building which was used as a hotel or a cinema theatre could not be given depreciation on the basis that it was a plant. We must add that the Court said: (SCC p. 430, para 67) "67. (7) To differentiate a building for grant of additional depreciation by holding it to be a 'plant' in one case where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices. As discussed earlier, Schedule II of the CGST Act recognises the activity of renting or leasing buildings as a supply of service. Even the activity of the construction of a building intended for sale is a supply of service if the total consideration is accepted before the completion certificate is granted. Therefore, if a building qualifies to be a plant, ITC can be availed against the supply of services in the form of renting or leasing the building or premises, provided the other terms and conditions of the CGST Act and Rules framed thereunder are fulfilled. Therefore, the argument regarding breaking the chain cannot be accepted in its entirety. However, if the construction of a building by the recipient of service is for his own use, the chain will break, and therefore, ITC would not be available. 54. One of the arguments of learned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fundamental principle that a discriminatory provision under tax legislation is not per se invalid. A cause of invalidity arises where equals are treated as unequally and unequals are treated as equals. Both under the Constitution and the CGST Act, goods and services and input goods and input services are not treated as one and the same and they are distinct species. 105. Parliament engrafted a provision for refund Section 54(3). In enacting such a provision, Parliament is entitled to make policy choices and adopt appropriate classifications, given the latitude which our constitutional jurisprudence allows it in matters involving tax legislation and to provide for exemptions, concessions and benefits on terms, as it considers appropriate. The consistent line of precedent of this Court emphasises certain basic precepts which govern both judicial review and judicial interpretation of tax legislation. These precepts are: 105.1. Selecting the objects to be taxed, determining the quantum of tax, legislating for the conditions for the levy and the socio-economic goals which a tax must achieve are matters of legislative policy. M. Hidayatullah, C.J., speaking for the Constitution Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. But this alone is not sufficient. Differentia must have a rational nexus with the object sought to be achieved by the law. The State, in the exercise of its governmental power, has, of necessity, to make laws operating differently in relation to different groups or classes of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognised that no precise or set formulae or doctrinaire tests or precise scientific principles of exclusion or inclusion are to be applied. The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience." 105.3. In matters of classification, involving fiscal legislation, the legislature is permitted a larger discretion so long as there is no transgression of the fundamental principle underlying the doctrine of classification. In Hiralal Rattanlal [Hiralal Rattanlal v. State of U.P., (1973) 1 SCC 216 : 1973 SCC (Tax) 307] , K.S. Hegde, J., speaking for a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Chief Justice then was) held that : (SCC p. 708, para 20) "20. … It is now well settled that a very wide latitude is available to the legislature in the matter of classification of objects, persons and things for purposes of taxation. It must need to be so, having regard to the complexities involved in the formulation of a taxation policy. Taxation is not now a mere source of raising money to defray expenses of Government. It is a recognised fiscal tool to achieve fiscal and social objectives. The differentia of classification presupposes and proceeds on the premise that it distinguishes and keeps apart as a distinct class hotels with higher economic status reflected in one of the indicia of such economic superiority. The presumption of constitutionality has not been dislodged by the petitioners by demonstrating how even hotels, not brought into the class, have also equal or higher chargeable receipts and how the assumption of economic superiority of hotels to which the Act is applied is erroneous or irrelevant." 108. In Spences Hotel (P) Ltd. v. State of W.B. [Spences Hotel (P) Ltd. v. State of W.B., (1991) 2 SCC 154] , a two-Judge Bench, speaking through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equality of taxation', in all the aspects in which the human mind can view it, is a baseless dream.' 110. Parliament while enacting the provisions of Section 54(3), legislated within the fold of the GST regime to prescribe a refund. While doing so, it has confined the grant of refund in terms of the first proviso to Section 54(3) to the two categories which are governed by clauses (i) and (ii). A claim to refund is governed by statute. There is no constitutional entitlement to seek a refund. Parliament has in clause (i) of the first proviso allowed a refund of the unutilised ITC in the case of zero-rated supplies made without payment of tax. Under clause (ii) of the first proviso, Parliament has envisaged a refund of unutilised ITC, where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies. When there is neither a constitutional guarantee nor a statutory entitlement to refund, the submission that goods and services must necessarily be treated on a par on a matter of a refund of unutilised ITC cannot be accepted. Such an interpretation, if carried to its logical conclusion would involve unforeseen consequences, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to be achieved by the legislature. The taxation laws are no exception to the application of this principle of equality enshrined in Article 14 of the Constitution of India. However, it is well settled that the legislature enjoys very wide latitude in the matter of classification of objects, persons and things for the purpose of taxation in view of inherent complexity of fiscal adjustment of diverse elements. The power of the legislature to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reasonable ways. Even so, large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the court will be reluctant and perhaps ill-equipped to investigate." ( emphasis added ) Apart from these decisions, there are other binding decisions which hold that the laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. In the present case, the legislature was dealing with a complex issue. Therefore, greater freedom and greater play in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been alleged, it is not elaborated by the assessees how such a violation is made out. 62. While dealing with a taxing statute, it can always be said that, ideally, a particular provision ought not to have been incorporated or ought to have been incorporated with a modification. Even if this can be said, per se, the particular provision does not become unconstitutional. The Court cannot impose its views on the legislature. 63. Now, we come to the challenge to sub-section (4) of Section 16 of the CGST Act, which reads thus: "16. Eligibility and conditions for taking input tax credit.-- .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the thirtieth day of November following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier: Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under Section 39 for the month of September, 2018 till the due date of furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). 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. 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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