Challenge to Constitutional Validity of Section 17(5)(c) and (d) of CGST Act Dismissed in Light of Supreme Court Decision

Issue: Whether the constitutional validity of Section 17(5)(c) and (d) of the CGST Act, which deals with the apportionment of input tax credit and blocked credits, can be challenged.

Facts:

The petitioners filed a writ petition challenging the constitutional validity of Section 17(5)(c) and (d) of the CGST Act.

Decision:

The court referred to the Supreme Court decision in Chief Commissioner of Central Goods and Service Tax & Ors. Vs. M/s. Safari Retreats Private Limited and others, where the constitutional validity of Section 17(5)(c) and (d) was upheld.
Following the Supreme Court precedent, the court dismissed the writ petition.
However, the petitioners were granted liberty to comply with the impugned show cause notice on merits, as per the directions issued by the Supreme Court in the Safari Retreats case.

Key Takeaways:

This case reaffirms the constitutional validity of Section 17(5)(c) and (d) of the CGST Act, as upheld by the Supreme Court.
The decision emphasizes the importance of following judicial precedents and the principle of stare decisis, which requires lower courts to adhere to higher court rulings.
The dismissal of the writ petition clarifies that the provisions related to apportionment of input tax credit and blocked credits are legally sound and enforceable.

HIGH COURT OF GUJARAT

Sankalp in

Union of India

BHARGAV D. KARIA, and D.N. Ray, JJ.

R/SPECIAL CIVIL APPLICATION NO. 13606 of 2023

OCTOBER 25, 2024

Uchit N Sheth, for the Petitioner. Karan G Sanghani, and Utkarsh R Sharma for the Respondent.

ORDER

Bhargav D. Karia, J. – Heard learned Advocate Mr.Uchit N.Sheth for the petitioners; learned Senior Standing Counsel Mr.Karan G.Sanghani for the respondent No.1 and learned advocate Mr.Utkarsh Sharma for the respondent Nos. 3 and 4.

2. Learned advocate Mr.Uchit N. Sheth for the petitioners submitted that the petitioners have challenged the vires of Section 17(5)(c)(d) of the Central Goods & Service Tax Act, 2017 (hereinafter referred to as “CGST Act, 2017”)

3. Learned advocate Mr. Uchit Sheth submitted that the Hon’ble Apex Court in case of Chief Commissioner of Central Goods and Service Tax & Ors. v. M/s. Safari Retreats Private Limited and others in Civil Appeal No. 2948 of 2023 rendered on 3^rd October, 2024 has held that the aforesaid provisions are not ultravires. The Apex Court has upheld the constitutional validity of Clauses (c) and (d) of the Section 17(5). It was therefore, submitted that the petitioners would like to approach the respondent-authority to demonstrate whether the provision of Section 17(5)(d) would be applicable in the facts of the case so as to adjudicate the show cause notice as per the directions issued by the Apex Court in the aforesaid decision.

4. The Hon’ble Apex Court in the aforesaid decision has held as under :-

“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 not arise.

65. Some of our conclusions can be summarised as under:

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;

The expression “plant or machinery” used in Section 17(5)(d) cannot be given the same meaning as the expression “plant and machinery” defined by the explanation to Section 17;

The question whether a mall, warehouse or any building other than a hotel or a cinema theatre can be classified as a plant within the meaning of the expression “plant or machinery” used in Section 17(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) to subsection (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).

66. In the light of what we have held above, by setting aside the impugned judgment in Civil Appeal Nos. 2948 and 2949 of 2023, the writ petitions are remanded to the High Court of Orissa for limited purposes of deciding whether, in the facts of the case, the shopping mall is a “plant” in terms of clause (d) of Section 17(5). Appeals are partly allowed in above terms.

67. While deciding these cases, we cannot make any final adjudication on the question of whether the construction of immovable property carried out by the petitioners in Writ Petitions amounts to plant, and each case will have to be decided on its merit by applying the functionality test in terms of this judgment. The issue must be decided in appropriate proceedings in which adjudication can be made on facts. The petitioners are free to adopt appropriate proceedings or raise the issue in appropriate proceedings.

5. In view of the above decision, the petition is disposed of with a liberty to the petitioners to comply with the impugned show cause notice on merits as per the directions issued by the Hon’ble Apex Court in the aforesaid decision.