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TMI Blog2025 (3) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery" used in Section 175 (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) of 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)" c. Issue such other Writ or direction as this Hon'ble Court deem fit to grant in the facts and circumstances of the present case." 2. Heard learned counsel for the petitioner, learned counsel for the respondents and perused the mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both. (5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services: Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax: Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax." Thus, the GST is to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such registered person. (ba) the details of input tax credit in respect of the said supply communicated to such registered person under Section 38 has not been restricted; (c) subject to the provisions of Section 41 [* * *], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and (d) he has furnished the return under Section 39: Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment: Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be paid by him along with interest payable under Section 50, in such manner as may be prescribed: Provided also that the recipien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to thirtieth day of November following the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier; or (ii) for the period from the date of cancellation of registration or the effective date of cancellation of registration, as the case may be, till the date of order of revocation of cancellation of registration, where such return is filed within thirty days from the date of order of revocation of cancellation of registration, whichever is later." From sub-section (1) of Section 16, it is apparent that only a registered person, as defined by Section 2 (94) of the CGST Act, can avail of ITC. A person who is registered under Section 25 of the CGST Act becomes a registered person. The availability of ITC is subject to such conditions and restrictions as may be prescribed. The word "prescribed" is defined to mean prescribed by the rules made under the CGST Act. Therefore, the entitlement to ITC is subject to conditions and restrictions as may be provided in the Rules framed under the CGST Act. ITC has to be availed in the manner laid down by Section 49. Sub-section (2) of Section 49 and other sub-sections deal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of said section for the month of March, 2019." The Finance Act, 2022, substituted the words "due date of furnishing return under Section 39 for the month of September" with "thirtieth day of November" with effect from 1st October 2022. Under Section 39 (1), every registered person other than an Input Service Distributor is required to furnish for every calendar month or part thereof a return of inward and outward supplies of goods or services or both, ITC availed, tax payable, tax paid, etc. The meaning of sub-section (4) of Section 16 as amended is that a registered person can avail of ITC in respect of any invoice or debit note for the supply of goods or services before 30th day of November following the end of the financial year to which such invoice or debit note pertains, or furnishing of annual return, whichever is earlier. 30. Section 17 deals with apportionment of credit and blocked credits. The provision regarding blocked credits is in sub-section (5) of Section 17. Sub-sections (5) and (6) of Section 17 read thus: "17................... (5) Notwithstanding anything contained in sub-section (1) of Section 16 and sub-section (1) of Section 18,input tax credit shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employer to provide the same to its employees under any law for the time being in force. (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 capitalisation, to the said immovable property; (e) goods or services or both on which tax has been paid under Section 10; (f) goods or services or both received by a non-resident taxable person except on goods imported by him; (fa) goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in Section 135 of the Companies Act, 2013 (18 of 2013); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;" Thus, in the case of works contract services supplied for the construction of immovable property, the benefit of ITC is not available. However, there are exceptions to clause (c). First is when goods or services, or both, are received by a taxable person for the construction of "plant and machinery", as defined in the explanation to Section 17. The second exception is where the works contract service supplied for the construction of immovable property is an input service for further supply of the works contract. 32. Clause (d) of Section 17 (5) is different from clause (c) in various aspects. Clause (d) seeks to exclude from the purview of sub-section (1) of Sections 16 and 18, goods or services or both received by a taxable person to construct an immovable property on his own account. There are two exceptions in clause (d) to the exclusion from ITC provided in the first part of Clause (d). The first exception is where goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is of "plant and machinery" as defined, the benefit of ITC will accrue. Similarly, under clause (d), if the construction is of a "plant or machinery", ITC will be available. 36. The Union legislature cannot levy taxes on lands and buildings as it is exclusively a State subject at itemno.49 in List II of Schedule VII of the Constitution of India. It is, therefore, necessary to consider the categories of services concerning land and buildings, which are within the purview of the CGST Act. Section 2 (102) defines service as meaning anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. Under the CGST Act, the supply of service is taxable. The scope of supply of services or goods is laid down in Section 7 of the CGST Act, which reads thus: "7. Scope of supply.-(1) For the purposes of this Act, the expression "supply" includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service. As far as lands and buildings are concerned, clauses (2) and (5) of Schedule II are relevant, which read thus: "2. Land and Building (a) any lease, tenancy, easement, licence to occupy land is a supply of services; (b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. . . . . . . . . . . . . . . . . . . . . . . 5. Supply of services The following shall be treated as supply of services, namely:- (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. Explanation.-For the purposes of this clause- (1) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non requirement of such certificate fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chever is earlier. Broadly speaking, if a building or a part thereof to which clause 5(b) is applicable is sold before it is ready for occupation, the construction thereof becomes a supply of service. Therefore, if a building is sold by accepting consideration before issuance of a completion certificate or before its first occupation, whichever is earlier, the construction thereof becomes a supply of service; 40. If there is a complex, building or civil structure constructed which is intended for sale to a buyer, wholly or partly, construction becomes a supply of service only if consideration for sale is received before the issuance of a completion certificate or after its first occupation, whichever is earlier. Thus, if the consideration for sale is paid after the competition certificate is issued or its first occupation, whichever is earlier, the sale transaction will not amount to the supply of service. However, no such distinction has been made in the case of lease, tenancy, or licence concerning land or letting of buildings. Even if the entire consideration for lease, tenancy or a licence to occupy land or a lease of a building is paid after the issuance of the completion ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by learned ASG, the legislature could have stepped in to correct it. However, that was not done. In such circumstances, it must be inferred that the legislature has intentionally used the expression "plant or machinery" in clause (d) as distinguished from the expression "plant and machinery", which has been used in several places. As the expression "plant or machinery" appears to be intentionally incorporated, it is not possible to accept the contention of the learned ASG that the word "or" in clause (d)should be read as "and". If the said contention is accepted, there will not be any difference between the expressions "plant and machinery" and "plant or machinery". This will defeat the legislative intent. 44. 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 legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty under the Central Excise Act, 1944 (Excise Act). The assessee was manufacturing parts and components for road and civil construction machinery and equipment like Asphalt Drum/Hot Mix Plants, etc. One of the questions examined by the Tribunal was whether the plants so manufactured could be termed as goods. The issue before this Court was whether setting up an Asphalt Drum / Hot Mix Plant by using duty-paid components amounts to the manufacture of excisable goods within the meaning of the Excise Act. It was argued before this Court that the plants in question did not satisfy the test of marketability and movability. This Court referred to the definition of movable property in Section 3(36) of the General Clauses Act, 1897, which defines movable property as property of every description except immovable property. The same enactment defines immovable property in Section 3(26), which is an inclusive definition which includes land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth. This Court considered the definition of the expression "attached to the earth" in Section 3 of the Transfer of Property Act,1882. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thereafter, in paragraphs 8 and 9, this Court held thus: "8. It cannot be denied that the business of a hotelier is carried on by adapting a building or premises in a suitable way to be used as a residential hotel where visitors come and stay and where there is arrangement for meals and other amenities are provided for their comfort and convenience. To have sanitary fittings etc. in a bathroom is one of the essential amenities or conveniences which are normally provided in any good hotel, in the present times. If the partitions in Jarrold case [(1887) 19 QB 647] could be treated as having been used for the purpose of the business of the trader, it is incomprehensible how sanitary fittings can be said to have no connection with the business of the hotelier. He can reasonably expect to get more custom and earn larger profit by charging higher rates for the use of rooms if the bathrooms have sanitary fittings and similar amenities. We are unable to see how the sanitary fittings in the bathrooms in a hotel will not be "plant" within Section 10(vi)(b) read with Section 10(5)when it is quite clear that the intention of the legislature was to give it a wide meaning and that is why, ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a distinction and differentiate by holding that a building which is specially designed and constructed for running a hotel or cinema would be covered by a "plant" and other buildings used for the same purpose would not get depreciation as "plant", even though such business is carried on in such premises. In our view, the Delhi High Court has in the case of R.C. Chemical Industry [1981] 9 Taxman 181/134 ITR 330 (Delhi) rightly observed that mere fact that manufacture of saccharine would be better carried on in a building having atmospheric controls would not convert the building from "the setting" to "the means" for carrying the business. Similarly, the Rajasthan High Court also in Lake Palace Hotels and Motels [1997] 226 ITR 561(Rajasthan) rightly observed that simply because some special fittings or controlling equipments are attached for the purpose of carrying on hotel business, it will not take it out of the category of building and make it a plant. In our view special fittings or equipments to control atmospheric effects would be plant, but not the building which houses such equipments. 62. Further for running almost all industries or for carrying on any trade or business b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way. Meaning thereby building for a hotel is not an apparatus or adjunct for running of a hotel. The Court did not proceed to hold that a building in which the hotel was run was itself a plant, otherwise the Court would not have gone into the question whether the sanitary fittings used in bathroom was plant. (3) For a building used for a hotel, specific provision is made granting additional depreciation under Section 32 (1) (v) of the Act. (4) Barclay, Curle & Co. case [(1969) 1 WLR 675 : (1969) 1 All ER 732 : [1970] 76 ITR 62 (HL) :1969 SC 30 : 45 TC 221 (HL)] decided by the House of Lords pertains to a dry dockyard which itself was functioning as a plant, that is to say, structure for the plant was constructed so that dry dock can operate. It operated as an essential part in the operations which took place in getting a ship into the dock, holding it securely and then returning it to the river. The dock as a complete unit contained a large amount of equipment without which the dry dock could not perform its function. (5) Even in England, courts have repeatedly held that the meaning to the word "plant" given in various decisions is artificial and imprecise in application, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial transformer foundation, cable duct system, outdoor yard structures and tail race channel. It explained that the process of generation started from letting in water from the reservoir into the penstocks and ducts which were the water conductor system into the turbines. Once electricity had been produced by generation, it had to be conducted, as it was not possible to store the same, and the process of generation continued until the electricity was led to the transmission towers. The water that was used for rotation of the turbines had to be removed and this was done through the tail race channel. For stepping up the electricity, transformers were used in the outdoor yard. The conduction of the electricity was through conductors held in ducts, called the cable duct system, which were specifically designed for the purpose. The case of the assessee, therefore, was that all these were part of the special engineering works that were an essential part of a generating plant and, therefore, it was entitled to have the same treated as a plant for the purposes of investment allowance. The Commissioner accepted the correctness of the assessee's case. He held that it was clear that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irements, it will qualify to be treated as a plant for the purposes of investment allowance." 51. We may note here that the decision in the case of Anand Theatres (supra) is by a Bench of two Hon'ble Judges. Thus, the decision of a larger Bench in the case of Karnataka Power Corpn. (supra) limits the applicability of the decision in the case of Anand Theatres (supra) to hotels or cinema theatres. Therefore, the decision in the case of Anand Theatres (supra) cannot be applied while considering the question of whether a mall or warehouse or a building other than a hotel or a cinema theatre can be said to be a "plant". 52. This Court has laid down the functionality test. This Court held that whether a building is a plant is a question of fact. This Court held that if it is found on facts that a building has been so planned and constructed as to serve an assessee's special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance. The word 'plant' used in a bracketed portion of Section 17 (5)(d) cannot be given the restricted meaning provided in the definition of "plant and machinery", which excludes land, buildings or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in setting up the immovable property, which is a plant. 56. In the main appeal, which is the subject matter of this group, the High Court has not decided whether the mall in question will satisfy the functionality test of being a plant. The reason is that the High Court has done the exercise of reading down the provision. Each mall is different. Therefore, in each case, fact-finding enquiry is contemplated. Thus, in the facts of the case, we will have to send the case back to the High Court to decide whether, on facts, the mall in question satisfies the functionality test so that it can be termed as a plant within the meaning of bracketed portion in Section 17 (5)(d). The same applies to warehouses or other buildings except hotels and cinema theatres. A developer may construct a mall predominantly to sell the premises therein after obtaining an occupation certificate. Therefore, it will be out of the purview of clause5(b) of Schedule II. Each case will have to be tested on merits as the question whether an immovable property or a building is a plant is a factual question to be decided. CONSTITUTIONAL VALIDITY CHALLENGE 57. Now, we turn to the issue of constitutional validit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is also essential to notice that the power of taxation is generally regarded as an essential attribute of sovereignty and constitutional provisions relating to the power of taxation are regarded not as grant of power but as limitation upon the power which would otherwise be practically without limit." 105.2. The same principle has been reiterated in Federation of Hotel & Restaurant Assn. of India v. Union of India [Federation of Hotel & Restaurant Assn. of India v. Union of India, (1989) 3 SCC 634], where M.N. Venkatachaliah, J. (as the learned Chief Justice then was), speaking for the Constitution Bench held : (SCC pp. 65859, paras 46-47) "46. It is now well settled that though taxing laws are not outside Article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc. for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the processed or split pulses and unprocessed or unsplit pulses is a reasonable classification. It is based on the use to which those goods can be put. Hence, in our opinion, the impugned classification is not violative of Article 14." 105.4. More recently in Union of India v. Nitdip Textile Processors (P) Ltd. [Union of India v. Nitdip Textile Processors (P) Ltd., (2012) 1 SCC 226], a two-Judge Bench observed : (SCC p. 255, para 67) "67. It has been laid down in a large number of decisions of this Court that a taxation statute, for the reasons of functional expediency and even otherwise, can pick and choose to tax some. A power to classify being extremely broad and based on diverse considerations of executive pragmatism, the judicature cannot rush in where even the legislature warily treads. All these operational restraints on judicial power must weigh more emphatically where the subject is taxation. Discrimination resulting from fortuitous circumstances arising out of particular situations, in which some of the taxpayers find themselves, is not hit by Article 14 if the legislation, as such, is of general application and does not single them out for harsh treatment. Advant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the change of scientific, commercial and economic conditions and ways of life new species of property, both tangible and intangible gaining enormous values have come into existence and new means of reaching and subjecting the same to contribute towards public finance are being developed, perfected and put into practical operation by the legislatures and courts of this country, of course within constitutional limitations." 109. The Court held that the principle of equality does not preclude the classification of property, trade, profession and events for taxation - subjecting one kind to one rate of taxation and another to a different rate. The State may exempt certain classes of property from any taxation at all and impose different specific taxes upon different species which it seeks to regulate. The Court held : (Spences Hotel case [Spences Hotel (P) Ltd. v. State of W.B., (1991) 2 SCC 154], SCC p. 171, para 27) "27. 'Perfect equality in taxation has been said time and again, to be impossible and unattainable. Approximation to it is all that can be had. Under any system of taxation, however, wisely and carefully framed, a disproportionate share of the public burdens w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and their collection. That is precisely the reason why courts are averse to entering the area of policy matters on fiscal issues. We are therefore unable to accept the challenge to the constitutional validity of Section 54 (3)." Paragraph 142 of the decision reads thus: "142. The above judicial precedents indicate that in the field of taxation, this Court has only intervened to read down or interpret a formula if the formula leads to absurd results or is unworkable. In the present case however, the formula is not ambiguous in nature or unworkable, nor is it opposed to the intent of the legislature in granting limited refund on accumulation of unutilised ITC. It is merely the case that the practical effect of the formula might result in certain inequities. The reading down of the formula as proposed by Mr Natarjan and Mr Sridharan by prescribing an order of utilisation would take this Court down the path of re crafting the formula and walk into the shoes of the executive or the legislature, which is impermissible. Accordingly, we shall refrain from replacing the wisdom of the legislature or its delegate with our own in such a case. However, given the anomalies pointed out by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of GST constitute a class by themselves. Clauses (c) and (d) of Section 17 (5) apply only to this class of cases. The right of ITC is conferred only by the Statute; therefore, unless there is a statutory provision, ITC cannot be enforced. It is a creation of a statute, and thus, no one can claim ITC as a matter of right unless it is expressly provided in the statute. It cannot be disputed that the legislature can always carve out exceptions to the entitlement of ITC under Section 16 of the CGST Act. 59. Therefore, the cases covered by clauses (c) and (d) of Section 17 (5) are entirely distinct from the other cases. This appears to be done to ensure the object of not encroaching upon the State's legislative powers under Entry 49 of List II. Therefore, it is not possible to accept the submission that the difference is not intelligible and has no nexus to the object sought to be achieved. Moreover, to decide why transactions covered by clauses (c) and (d) are separately classified, the Court will have to go into complex questions involving fiscal adjustments of diverse elements. The Court has no experience or expertise to embark upon the said exercise. 60. We fail to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishing of the return under Section 39 for the month of September". We fail to understand how sub-section (4) of Section 16 becomes discriminatory when the legislature says that a registered person shall not be entitled to take ITC in respect of any invoice or debit note for the supply of goods or services or both after the thirtieth day of November following the end of the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. It is not shown how the provision is arbitrary and discriminatory. The fact that the provisions could have been drafted in a better manner or more articulately is not sufficient to attract arbitrariness. 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 notarise. 65. Some of our conclusions can be summarised as under: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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