Chief Commissioner Of Central Goods And Service Tax & Ors. vs. M/S Safari Retreats Private LTD. & Ors.

Held

The Supreme Court upheld the constitutional validity of clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act, finding no ambiguity in their plain interpretation. The Court held that the expression 'plant or machinery' in Section 17(5)(d) cannot be equated with the broader definition of 'plant and machinery' in the explanation to Section 17. The determination of whether a building like a shopping mall qualifies as a 'plant' under Section 17(5)(d) is a factual question. The Court introduced a 'functionality test' to ascertain this: if the construction of a building is essential for carrying out the business activity, such as renting or leasing, and falls under Schedule II of the CGST Act, it can be considered a 'plant'. This would then exempt it from the exclusion under Section 17(5)(d), allowing ITC. The impugned judgment of the High Court was set aside, and the writ petitions were remanded to the High Court for a factual determination of whether the shopping mall satisfied the functionality test. The Court clarified that it could not make a final adjudication on this factual aspect and that each case must be decided on its merits using the functionality test.

Facts

The Supreme Court considered the constitutional validity of certain provisions of the Central Goods and Services Tax Act, 2017, specifically Section 17(5)(c) and (d), and Section 16(4). The petitioners challenged these provisions, arguing they were discriminatory and prevented them from availing Input Tax Credit (ITC) on GST paid for the construction of immovable properties, such as shopping malls, while they were liable to pay GST on rental income derived from these properties. The core dispute revolved around whether the construction of such properties could be considered 'plant or machinery' under Section 17(5)(d), thereby blocking ITC. The High Court had previously ruled in favour of the assessees, holding that if GST was payable on rental income, ITC on construction costs should be allowed. The Revenue appealed this decision.

Key Issues

1. Whether the definition of 'plant and machinery' in the explanation to Section 17 of the CGST Act, 2017, applies to the expression 'plant or machinery' used in Section 17(5)(d). 2. If the explanation does not apply, what is the meaning of the word 'plant' in Section 17(5)(d)? 3. Whether clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act are unconstitutional on grounds of discrimination and arbitrariness. Petitioner/Assessee Arguments: The petitioners contended that the exclusion of ITC for construction of immovable properties, while taxing rental income from them, was discriminatory. They argued that a shopping mall should be considered a 'plant' for the purpose of Section 17(5)(d), allowing them to claim ITC. They also challenged the constitutional validity of the said sections. Revenue/State Arguments: The Revenue argued that Section 17(5) overrides Section 16(1) and 16(4) of the CGST Act, and that the plain interpretation of the provisions does not lead to ambiguity. They maintained that the classification of immovable property as a separate class for GST purposes was reasonable and that the provisions were not discriminatory.