In the Safari Retreats Judgement, the Supreme Court remanded the matter to the high court to decide whether the construction of an immovable property is a “plant” for the purposes of claiming Input Tax Credit (ITC).
The assessees stated that due to the restrictions imposed by Section 17(5)(c) and Section 17(5)(d) of the CGST Act, they are unable to avail the credit on GST paid on goods and services used in the construction of factory premises, buildings etc against the GST received by them for the renting/leasing/letting out etc. of the premises. GST is being recovered on the supply of goods and services used in the construction of commercial office buildings, and GST is also being recovered on rentals collected. The assessees prayed for the grant of the benefit of ITC. The prayers of the assessessees were allowed by the Orissa High Court, which was challenged by the department before the Supreme Court.
Table of Contents
Issue Raised In Safari Retreats
- 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 Section 17 (5)(d)?
- If it is held that the explanation does not apply to “plant or machinery”, what is the meaning of the word “plant”?
- Whether clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act are unconstitutional?
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 Section 17 (5)(d)?
MEANING OF THE EXPRESSION “PLANT OR MACHINERY” IN CLAUSE (d) OF SECTION 17(5)
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 the department, the expression “plant or machinery” appears only in clause (d) of Section 17(5). The department contended that the use of the word “or” in clause (d) is a mistake of the legislature.
To counter this, it was submitted that in the Model GST Law, which the GST Council Secretariat circulated in November 2016 to invite suggestions and comments from the public, the expression ‘plant and machinery’ was used in clauses (c) and (d).
However, while enacting the CGST Act, the legislature has consciously chosen to use the expression “plant or machinery” only in clause (d). The impugned judgment in the main Civil Appeal is more than five years old.
The writ petition in which the impugned decision was rendered is a six-year-old writ petition. If it was a drafting mistake, as suggested by the Department, the legislature could have stepped in to correct it. However, that was not done.
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 department that the word “or” in clause (d) should be read as “and”. If the 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.
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 construction of an immovable property on his own account, even when such goods or services or both are used in the course of furtherance 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, it will amount to violence to the words used in the statute. While interpreting taxing statutes, it is not a function of the Court to supply the deficiencies.
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.
If it is held that the explanation does not apply to “plant or machinery”, what is the meaning of the word “plant”?
The expression “plant or machinery” has a different connotation. It can be either a plant or machinery. Section 17(5)(d) deals with the construction of an immovable property. The very fact that the expression “immovable property other than “plants or machinery” is used shows that there could be a plant that is an immovable property. As the word ‘plant’ has not been defined under the CGST Act or the rules framed thereunder, its ordinary meaning in commercial terms will have to be attached to it.
The court held that 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 clause 5(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.
Whether clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act are unconstitutional?
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 joints has to be allowed to the legislature.
Essentially, the challenge to constitutional validity is that, in the present case, the provisions do not meet the test of reasonable classification, which is a part of Article 14 of the Constitution of India. To satisfy the test, there must be an intelligible differentia forming the basis of the classification, and the differentia should have a rational nexus with the object of legislation.
The department contended that immovable property and immovable goods for the 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.
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.
The words “thirtieth day of November” were substituted with effect from 1st October 2022 for the words “due date of furnishing 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,” the court said.
The court upheld 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 not arise.
What is the Supreme Court ruling in Chief Commissioner Of Central Goods And Service Tax And Ors. Versus M/S Safari Retreats Private Limited And Ors.?
In the Safari Retreat Judgement, the Supreme Court remanded the matter to the high court to decide whether the construction of an immovable property is a “plant” for the purposes of claiming Input Tax Credit (ITC).
Case Title: Chief Commissioner Of Central Goods And Service Tax And Ors. Versus M/S Safari Retreats Private Limited And Ors.
Case No.: C.A. No. 2948/2023 XI-A
Counsel For Petitioner: Mukesh Kumar Maroria
Counsel For Respondent: Meera Mathur
Click Here To Read Detailed Case Study Including Orissa High Court Judgement
