M/S Sr Constructions vs. Union Of INDIA And Ors

Held

The Court held that the petitioner fulfilled all conditions of work contracts as they were providing works contract services under a contract for the construction of a hotel building, which involves the transfer of property in goods. The hotel itself is an immovable property. The petitioner was providing works contract services to the owner of the hotel, not for their own use. Therefore, in providing taxable works contract services for the construction of the hotel, the petitioner is entitled to claim Input Tax Credit on the goods and services utilized for providing these taxable services. The Court found that the petitioner does not fall within the definition of Section 17(5)(c) of the CGST Act, 2017. Consequently, the demand raised and the penalty imposed under Section 74(1) of the CGST Act, 2017, were deemed ultra vires and contrary to law. The impugned order dated 01.02.2022, which affirmed the adjudicating authority's order, was set aside and quashed.

Facts

The petitioner, M/s SR Constructions, a construction company, challenged an order dated 01.02.2022 by the Additional Commissioner (Appeals), CGST, Guwahati. The petitioner had a works contract for constructing a hotel for M/s Hotel Polo Pvt. Ltd., involving procurement of materials and sub-contractor services. They paid GST on inward supplies and claimed Input Tax Credit (ITC). The revenue authorities initiated proceedings under Section 74(1) of the CGST Act, proposing to deny ITC amounting to Rs. 1,42,33,194/- on the ground that it was availed on works contract services for the construction of an immovable property, violating Section 17(5) of the CGST Act. A Show Cause Notice was issued on 30.09.2019. The petitioner filed an explanation, and the adjudicating authority passed an order on 13.10.2020. The petitioner's appeal to the Additional Commissioner (Appeals) was dismissed, leading to the present writ petition.

Key Issues

1. Whether the petitioner is entitled to avail Input Tax Credit (ITC) on works contract services for the construction of a hotel building, despite Section 17(5)(c) of the CGST Act, 2017. Petitioner's arguments: The petitioner contended that the appellate authority's observation that ITC is not applicable to them in respect of the subject works contract services was illogical and lacked reasoning. They argued that a demand notice cannot be confirmed without specifying charges and the exact statutory provisions. The denial of ITC was based on the premise that it was availed on works contract services for construction of immovable property, in violation of Section 17(5)(c). Revenue's arguments: The respondents argued that the impugned adjudication order was lawful, and the appellate authority correctly agreed with the findings of the lower adjudicating authority. They asserted that the charges and provisions were clearly mentioned in the adjudication order, making the petitioner liable to pay the demanded amount under ITC.