Constitutional Validity of Section 17(5)(c) and (d) Upheld

Constitutional Validity of Section 17(5)(c) and (d) Upheld with Functional Test Requiring Case-by-Case Fact Determination

Issue

Whether Clauses (c) and (d) of Section 17(5) of the CGST Act/DGST Act, 2017, which restrict Input Tax Credit (ITC) for works contract services and construction of immovable property, are unconstitutional.
Whether a proposed structure qualifies as a “plant” eligible for Input Tax Credit based on the functionality test.
Whether the period spent in pursuing bona fide writ proceedings can be excluded under Section 14 of the Limitation Act for filing statutory proceedings before the Adjudicating Authority.

Facts

Two connected writ petitions were filed before the High Court challenging the constitutional validity of Section 17(5)(c) and Section 17(5)(d) of the CGST/DGST Act, 2017.
The petitioners invoked the functionality test, contending that their proposed constructed structure constituted a “plant” and was thus eligible for Input Tax Credit.
One petitioner expressed apprehension that time elapsed during writ proceedings would bar them from claiming available benefits before statutory authorities due to limitation constraints.

Decision

The High Court held that the constitutional challenge to Section 17(5)(c) and (d) stood fully foreclosed and settled in favor of the Revenue by the Supreme Court’s decision in Chief Commissioner of Central GST v. Safari Retreats (P.) Ltd.
The Court observed that determining whether a structure qualifies as a “plant” under the functionality test requires an appreciation of specific facts on a case-to-case basis.
The Court granted liberty to the petitioners to approach the Adjudicating Authority, noting that Section 14 of the Limitation Act provides for the exclusion of time spent in bona fide proceedings, which should be considered pragmatically.

Key Takeaways

Constitutional Validity Settled: Clauses (c) and (d) of Section 17(5) restricting ITC on works contract and immovable property construction are valid law as affirmed by the Supreme Court in Safari Retreats.
Fact-Based Functionality Test: The “plant” exception under Section 17(5) cannot be decided as a blanket legal rule in writ proceedings; it depends on factual determination by adjudicating authorities for each specific building or structure.
Limitation Relief: Taxpayers who litigate constitutionality in good faith before High Courts can seek exclusion of that period under Section 14 of the Limitation Act when relegated back to statutory adjudicating authorities.

HIGH COURT OF DELHI

Riveria Commercial Developers Ltd.

Union of India

Anil Kshetarpal and Harish Vaidyanathan Shankar, JJ.

W.P.(C) Nos. 11633 of 2019 & 4683 of 2020
CM APPL. Nos.47813 of 2019, 16846 of 2020, 71248 of 2024, 5892 of 2025 & 46527 of 2026

AUGUST 10, 2026

Sujit Gosh, Taun Gulati, Sr. Advs., Ms. Mannat Waraich, Ajinkya Tiwari, Sparsh Bhargava, Ms. Vanshika Taneja, Aryan Singh and Ms. Aakanksha Bajoria, Advs. for the Petitioner. Vedansh Anand, Ms. Shiva Lakshmi, SPCs, Shivam Kumar, Jatin Kumar Gaur, Ms. Ayushi Srivastava, Arpan Narwal, Kushagra Malik, Ujjwal Tyagi, Prassant Kumar Sharma, Ms. Pankhuri Tiwari, Advs., Ms. Manisha Agarwal Narain, Amit Tiwari, CGSCs, Ms. Vaishali Gupta, PC and Harpreet Singh, SSC for the Respondent.

ORDER

1. This order shall dispose of two (02) connected Writ Petitions.

2. In essence, the principal relief being sought in both the Petitions is to strike down Clauses (c) and (d) of Section 17(5) (to be read as Impugned Provisions/IPs) of the Central Goods and Services Tax Act, 2017 [hereinafter referred to as ‘CGST’], with the Petitioner in W.P.(C) 4683/2020, raising an additional challenge against the validity of Circular No.28 (Flyer No.) dated 01.01.2018 (to be read as Impugned Circular/IC) issued by the Respondent No.4.

3. Notably, the challenge to the constitutional validity of the IPs has already been put to quietus by the Hon’ble Supreme Court in Chief Commissioner of Central GST v. Safari Retreats (P.) Ltd. (SC)/2024 INSC 756 wherein the IPs were held to be constitutionally valid. However, the Court while emphasizing upon the applicability of functionality test, observed that whether or not the proposed structure is a plant, would require appreciation of facts and shall differ on case-to-case basis.

4. In this regard, learned senior counsel representing the Petitioners submit that retrospective amendment carried out by the Government does not affect certain observations made by the Supreme Court.

W.P.(C) 11633/2019

5. Learned senior counsel representing the Petitioner submits that, on account of delay occasioned in pursuing the present proceedings, the Petitioner will not be permitted to claim benefits otherwise available to it.

6. Section 14 of the Limitation Act, 1963, inter alia, provides for exclusion of time spent in bona fide proceedings before a Court.

7. Accordingly, in this regard, the Petitioner, if so advised, will be at liberty to file an appropriate application before the Adjudicating Authority, which will be considered pragmatically in accordance with law.

W.P.(C) 4683/2020

8. As noticed hereinabove, the present Petition raises an additional challenge against the IC, which came to be issued prior to the judgment of the Hon’ble Supreme Court in Safari Retreats (P.) Ltd. (supra).

9. In view of the judgment passed by the Hon’ble Supreme Court, the IC has to be read in accordance therewith. However, such an exercise can only be carried out by the Adjudicating Authority upon appreciating of facts and circumstances of the present case.

10. Learned counsel representing the Respondents does not dispute that the judgment passed by the Supreme Court is to be applied and the IC has to be read accordingly.

11. In view of the aforesaid observations, both the Petitions, along with pending applications, are disposed of, while granting liberty to the Petitioners to approach the Adjudicating Authority in accordance with law.

12. A photocopy of the order passed today be kept in the connected matters.