BEFORE THE AUTHORITY FOR ADVANCE
RULINGS FOR THE STATE OF UTTARAKHAND
(Goods and Services Tax)
Present:
Shri Anurag Mishra(Member)
Shri Saurabh Kant Shukla (Member)
In
Application No:07/2020-21
Pandey, Kahipur Road, Ramnagar,
Uttarakhand
Note Under Section. 100(1) of the Uttarakhand Goods and Services Tax Act, 2017. an appeal against this ruling lies before the appellate authority for advance ruling constituted under section- 99 of the Uttarakhand Goods and Services Tax Act, 2017, within a period of 30 days from the date of service of this order.
AUTHORITY FOR ADVANCE RULING
GOODS & SERVICE TAX
UTTARAKHAND
RULING
1. This proceeding is initiated in view of the directions contained in the order dated 11.11.2020 passed by the Appellate Authority for Advance Ruling for the State of Uttarakhand Goods & Service Tax against appeal no. UKGSTARA 02/03/14-08-2020/2020-21 filed by M/s. Vardhan Holidays, Village-Shivlalpur Pandey, Kahipur Road, Ramnagar, Uttarakhand (here in after referred to as 'the applicant') having Registration No. 05AAOFV8927H1ZL.
2. The applicant had filed an application under Sub-Section (1) of Section 97 of the CGST/SGST Act, 2017 (herein after referred to as "the Act") and the rules made there under for seeking advance ruling on the following question:-
a) Whether input credit on goods/services received for construction of hotel building is available;
b) Whether input credit on work contract service received for construction of hotel building is available;
c) Whether input credit on goods/services received for construction of banquet hall which is rented further to customer is available;
d) Whether input credit on work contract service received for construction of banquet hall which is rented further to customer is available;
e) Whether the expression "plant & machinery" would include hotel/banquet building' under section 17 and accordingly input credit on work contract service or any goods/service received for construction of such hotel/banquet hall is available;
f) Whether specified goods viz. lifts, sanitary items, underground cables etc. fall under the expression "plant & machinery" & whether input credit on the same and freight paid to GTA on such items under RCM, Repair & maintenance of aforesaid specified goods and Architect services etc. is available.
3. Advance Ruling under GST means a decision provided by the authority or the appellate authority to an applicant on matters or on questions specified in subsection (2) of Section 97 or sub-section (1) of Section 100 in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.
4. As per the said sub-section (2) of Section 97 of the Act advance ruling can be sought by an applicant in respect of:-
(a) Classification of any goods or services or both
(b) Applicability of a notification issued under the provisions of this Act,
(c) Determination of time and value of supply of goods or services or both,
(d) Admissibility of input tax credit of tax paid or deemed to have been paid
(e) Determination of the liability to pay tax on any goods or services or both
(f) Whether the applicant is required to be registered
(g) Whether any particular thing done by the applicant with respect to any goods or services or both amount to or results in a supply of goods or services or both within the meaning of that term.
5. Since applicant has sough advance ruling on admissibility of input tax credit of Tax paid or deemed to have been Paid therefore in terms of said Section 97(2)(d) of the Act, the application filed by the applicant was admitted.
6. In view of Section 98(2) of the Act, this Authority for Advance Ruling issued a notice to the applicant requiring them to show cause as to why their application should not be rejected on the ground that on the similar questions an appeal was already pending before the Hon'ble High Court of Uttarakhand m case of M/s Rosewood Hospitality Pvt. Ltd., Rosewood Apartment, Hotel Amazon Tower, B.Oaxe Riviera, IIE Pantnagar, Rudrapur, Udham Singh Nagar. The applicant was also granted opportunity of personal hearing which was attended by them.
7. During the course of hearing held on 15.06.2020, Shri Ashwarya Sharma, Advocate reiterated their submissions filed vide letter dated 26.05.2020 and also submitted that the appeal in the matter of CCE Vs Safari Retreats (P) Ltd & Others was only admitted by the Hon'ble Supreme Court and there was not stay of said judgment and accordingly the decision of Hon hie Odisha High Court was binding precedent as on date.
8. On going through the submissions put forth by the applicant and provisions of the Section 98(2) of the Act, this Authority of Advance Ruling vide Ruling No.03/2020-21 dated 08.7.2020 rejected the application of the applicant being the matter sub-judice.
9. Being aggrieved with the above order, the applicant preferred an appeal before the Appellate Authority for Advance Ruling for the State of Uttarakhand Goods & Service Tax on 14.08.2020 on following grounds:-
a. The impugned ruling dated 08.07.2020 of the Authority for Advance Ruling of the State of Uttarakhand is a non-speaking order and violates the principles of natural justice. The Authority for Advance Ruling has passed impugned ruling without any discussion regarding applicability of submission made by the appellant and without appreciation of facts and law including the judicial precedents quoted relied upon by the appellant.
b. Appellant contended that the only ground on which the application can be rejected is when proceedings are pending or decided, as the case may be, in case of the Applicant, which means Appellant and no other person. That, in the impugned order, the Authority for Advance Ruling gravely erred in interpreting the expression 'an applicant'.
c. That entire concept of Advance Ruling is Taxpayer/ assessee specific and the expression 'an applicant' anywhere in the relevant provisions carries the meaning the person/ entity, who has sought the Advance Ruling' which in the instant case is Appellant and not any other person, this interpretation further finds force in the fact that the binding nature of ruling passed by the Authority for Advance Ruling is restricted to the applicant who sought the ruling and no other person can be forced to follow the said ruling who is not an applicant unlike judgments or rulings passed by Hon'ble Tribunals or High Courts, which are applicable throughout the State as binding precedents.
d. That, rejection of Application on the basis of a sub-judice matter (pending in the case of M/s Rosewood) and considering the same as judicial discipline, is totally misplaced.
e. The issues raised by them before the AAR have already been decided by Hon'ble High Court Odisha in the case of Ms Safari Retreats (P) Ltd and since no stay against the said order has been granted so the said order is binding on lower formations.
f. that the referred Writ application of Ms Rosewood Hospitality (P)Ltd. was not presented before the AAR and therefore rejection of their application was arbitrary.
10. The Appellate Authority for Advance Ruling for the State of Uttarakhand Goods & Service Tax in its findings has observed as follows:-
"At the very outset, we are unable to accept the appellant's contentions about the interpretation of the term "an applicant" used in Section 98(2) of CGST Act 2017. English has two articles, the and a/an. The is used to refer to specific or particular nouns: a/an is used to modify non-specific or non-particular nouns. The is called definite article and a/an is called the indefinite article. The use of the article 'an' before the noun applicant is meant to denote non-specific In other words, the term "an applicant' has to mean any applicant and not a particular applicant Thus, the interpretation of an applicant made by the AAR in their Ruling cannot be faulted. However, having said that we find that the impugned Ruling is nonspeaking and appears to be based on hearsay since Learned AAR have not discussed anywhere about having gone through the referred writ application of M/s Rosewood Hospitality (P) Ltd. and the basis of their inference that the issues raised by the appellant are covered by the said writ. In fact, in spite of being pointed out by the appellant about the show cause notice mentioning only two issues in common with the writ, it appears that the applicant was summarily rejected without in depth scrutiny.
We, therefore, are of the view that the Learned AAR are required to examine referred cases and all the six issues individually on merits and pass a detailed speaking order If they are not sub-judice."
11. Thus in view of above findings Appellate Authority for Advance Ruling has passed the following order vide Ruling no.02/2020-21 dated 11.11.2020:
The Ruling no. 03/2020-21 dated 08.07.2020 is set aside and the matter is remanded for fresh consideration.
12. On a careful reading of the Ruling of the Appellate Authority for Advance Ruling, we find that in the said Ruling it was observed that in the earlier Ruling, this Authority had not discussed anywhere about having gone through the referred writ application of M/s Rosewood Hospitality (P) Ltd. and the basis of their inference that the issues raised by the appellant are covered by the said writ and it was required from this Authority to examine referred cases and all the six issues individually on merits and pass a detailed speaking order if they are not sub-judice.
13. In view of above Ruling, these proceedings are initiated again. Now in compliance of the said Ruling dated 11.11.2020 we will first go through the writ application of M/s Rosewood Hospitality (P) Ltd.
14. In its Civil Misc. Writ Petition No. 1898/2019, M/s Rosewood Hospitality (P) Ltd. (hereinafter referred to as "the petitioner") has challenged the vires of the provisions contained in Section 17 (5) (c) & 17 (5) (d) of the Central Goods and Services Tax Act, 2017 (the CGST Act) and the provisions contained in Section 17(5)(c) & 17(5)(d) of the Uttarakhand Goods and Services Tax Act, 2017 (the UKGST Act) respectively for being ultra vires Article 14 of the Constitution of India in so much as it denies the Petitioners and like persons from availing input tax credit (ITC) of the Central Goods and Services tax (CGST), Uttarakhand Goods and Services Tax (SGST/UKGST) and the Integrated Goods and Services Tax (IGST) paid by the Petitioner upon procuring goods and services to be used for construction of immovable property to be used in the course or furtherance of business. The petitioner has further submitted as follows:
The Petitioner is in the business of owning and managing 3-star or 4-star apartment/ hotels. The Petitioners have set up their first property in Pantnagar (Rudrapur), Uttarakhand with 64 studio and one-bedroom apartments. The Petitioner enters into contracts with nearby industries and corporates for letting out their rooms for short term as well as long stays. All facilities of a 3-star or 4-star hotel are offered at each property in addition to large size rooms along with a fully equipped pantry in each room. The activity undertaken by the Petitioner is taxable under Goods and Services Tax (GST). In the course of furtherance of its objectives, the Petitioner has undertaken effective steps towards setting up two wings at Bhimtal which are to be used by them for provision of taxable output supply liable to GST.
The construction of the two wings is undertaken by the Petitioner on its own account, for furtherance of Petitioner's business. For construction of these wings, the Petitioner has availed services from a works contractor who is undertaking construction of the immovable property for the Petitioner which is to be used by them in the course or furtherance of business. The Petitioner also procures multiple goods and services including the works contract service from various suppliers during construction of immovable property. The services so procured are used directly by the Petitioner in completion of construction of the immovable property.
Petitioner also procures numerous goods and Services likely to be used by them in relation to construction i.e. to make the room ready for occupation. The immovable property so constructed and completed as per standards the Petitioner is required to maintain, is then used by the Petitioner in course or furtherance of his business.
The Petitioner is specifically concerned with Section 17(5)(c) and Section 17(5)(d) of the CGST and UKGST Acts (Impugned Provisions).
By virtue of the restrictions contained in Impugned Provisions under the CGST and UKGST Act, the input tax credit available on procurement of goods and services or both including works contract service used for the construction of immovable property by the Petitioner stands denied. This denial of credit disregards the fact that the inputs/ input services procured by the Petitioner and used for construction of immovable property would be used by the Petitioner in the course of furtherance of their business. Overlooking the given end use or the immovable property so constructed, FTC on the procurement of goods and services including works contract stands denied to the Petitioner and similar class of persons.
These commercial premises are used by the Petitioner in the course or furtherance of business. Provisions contained in section 16 of the CGST Act and the UKGST Act provide for availment of input tax credit of goods and services used in the course or furtherance of business. However, the Impugned Provisions also known as Blocked Credits restrict availment of such TTC in respect of the goods and services including Works contract services availed by the Petitioner which are going to be used in construction of an immovable property when such property is to be used for providing taxable outward supply that is in the course or furtherance of business.
Furthermore, the Petitioner submits that construction of commercial real estate premises is a long-drawn process spanning over three to four years or more. Over the course of construction, the Petitioner will receive input of considerable goods and services to undertake the construction process. By virtue the Impugned Provisions, the Petitioner will not be eligible to avail the input tax credit paid by it during the course of construction of such property. When the Petitioner starts providing taxable output service from the premise, they will be forced to pay the liability towards their outward supply in cash This shall have an impact on the overall financial health of the Petitioner which could also hinder his future viability on implementing such projects wherein the credits stand restricted.
The Petitioner wishes to submit that the High Court of Orissa In Safari Retreats Private limited W P. (C) 20463/2018, challenge the Impugned Provisions has permitted availment of ITC to the Petitioner in order to account of such denial. The High Court while deciding the writ petition has gone in detail with regards to the intention of the Impugned Provisions and the way these Impugned Provisions need to be deduced and analysed.
Because the restriction of benefits as prescribed under the provisions of Section 16 of the CGST Act and UKGST Act as notified is without any logic, unreasonable, irrational and against the established tenets of law. The restriction applies to construction undertaken on own account even when used in course or furtherance of business. A developer of a real estate project is permitted to avail credit of the GST paid on inputs and input services as the construction is undertaken on account of others. The notification prescribes a reduced rate of tax where no ITC is availed. However, construction when undertaken on own accord qualifies under the Impugned Provisions restricting the input tax credit on inputs and input services used in course or furtherance of business. Comparing both the above mentioned situations, it could be said that the basis provisions contained in the Impugned Provisions one person (developer) is eligible for input tax credit whereas the other is restricted. Consequently, it could be said that such restriction is ambiguous and vague and without any intelligible differentia.
Accordingly, the Impugned Provisions fail at the essential test laid down under Article 14 which guarantees non arbitrariness of state action. Article 14 of the Constitution exemplifies the principle of 'non-discrimination'.
Consequently, the provisions prescribed under section 17(5)(c) and 17(5)(d) of the CGST Act and UKGST Act are liable to be set aside.
It is submitted by the Petitioner that inputs and input services including works contract service received by the Petitioner for construction of an immovable property to be used in the course or furtherance of business should be permitted. As the same is being used by the Petitioner for making a further taxable supply of service in the present case, denial of credit by treating these commercial premises at par with residential property is arbitrary as the end use of both the property is different. The objective in both instances differ making such distinction manifestly discriminatory and arbitrary. Further, as clearly evident from the statement of objects and reasons of the CGST Act detailed above, the GST regime seeks to create a more uniform system of taxation in India and seeks to remedy, inter alia, the cascading of taxes by providing input tax credit to taxpayers.
It is submitted that Section 17(S)(c) of the CGST Act and UKGST Act creates unjust discrimination between the Petitioner and a works contractor who receives works contract services as an input service for further supply of works contract services. The Petitioner, if it is commercially expedient to do so, may engage contractors for construction of immovable property. Services provided by such contractors are the form of works contract services. By virtue of Section 17(5)(c) of the CGST Act and UKGST Act, the Petitioner will be denied ITC on works contract services received by it. However, Section 17(5)(c) carves out an exception whereby input tax credit is available on works contract services received as an input service for further supply of works contract services. By virtue of the same, if the contractor were to engage a sub-contractor, the contractor will be eligible to avail input tax credit on the invoice raised by the subcontractor. Thus, in the same chain of flow of services, the Petitioner is denied input tax credit while the same is available to the contractor. The hardship to the Petitioner is compounded by the fact that the Petitioner is subject to 28% GST while provision of works contract services is subject to a levy of 18% GST. Despite the Petitioner contributing more to revenue, it has denied the benefit of availing input tax credit.
In the present case there is no rationale brought out by the Respondents behind denying input tax credit to the Petitioner. It is submitted that input tax credit is available on works contract services utilized as an input for further provision of output service i.e. works contract services. In a similar vein, the Petitioner too utilizes works contract services and provides an output of hospitality services.
The Petitioner wishes to highlight that the Impugned Provisions denying the input credit make an arbitrary distinction between Plant and machinery and Civil works and installations therein, even though both these are used for furtherance of business and generating taxable revenue in business, and neither of these are held for sale as such The Impugned Provisions allow ITC for one asset i.e. Plant & Machinery and deny ITC for the other asset i.e. Civil works used in construction resulting in immovable property. Such differential treatment is a result of the specific wording contained in the Impugned Provisions reading as "immoveable property (other than Plant and Machinery). The Petitioner submits that such distinction is arbitrary, without any intelligible differentia, and without any nexus to the object to be served. Both the assets are to be used for undertaking a taxable supply liable for GST. Consequently, ITC must be allowed in respect of both without any such arbitrary distinction.
The Petitioner is using inputs and works contract services for construction of a hotel to be used by the Petitioner in providing taxable supply of services. Construction of a hotel is essential to the Petitioner to provide the output of hospitality services. There is a legitimate expectation that input tax credit will be available to the Petitioner in the new regime as the same intended to reduce tax cascading present in the earlier laws.
15. While going through the aforesaid appeal of M/s Rosewood Hospitality (P) Ltd., we have observed that the said petitioner was availing the service of a works contractor for construction of their studio apartments/hotels for the purpose of short term or long term stay of their customers and this case is covered under Section 17(5)(c) of the Act where ITC is not available in respect of the works contract services when supplied for construction of an immovable property (other than plant or machinery). The petitioner has also expressed their concern in respect of Section 17(5)(d) of the Act as they have received inputs as well as input services for construction of their aforesaid properties. Section 17(5)(d) of the Act does also not allow availing of 1TC in respect of the goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account.
16. Now let us see whether issues raised by the applicant are covered by aforesaid writ petition. The applicant in their application has raised following questions:-
a) Whether input credit on goods/ services received for construction of hotel building is available;
e) Whether the expression "plant & machinery" would include 'hotel/banquet building' under section 17 and accordingly input credit on work contract service or any goods/service received for construction of such hotel/banquet hall is available;
f) Whether specified goods viz. Lifts, sanitary items, underground cables etc. fall under the expression "plant & machinery" & whether input credit on the same and freight paid to GTA on such items under RCM, Repair & maintenance of aforesaid specified goods and Architect services etc. is available.
Here we find that first four questions are similar to the points as mentioned by M/s Rosewood Hospitality (P) Ltd. in their writ petition. Last two questions are not the part of that petition.
17. To proceed further the applicant was again granted an opportunity of personal hearing on 28.01.2021. During the course of hearing, the authorized representative Shri Ashwarya Sharma, Advocate has requested that their original application dated 06.02.2020 filed vide ARN no. AD050220000991R may be considered before deciding the matter.
Contention of the applicant:
18. M/s Vardhan Holidays whose place of business is located at Vill. Shivlalpur Pandey, Kashipur Road, Ramnagar (Uttarakhand) is a service provider and carries the business inter-alia of supply of accommodation, restaurant and renting of immoveable property (banquet hall) services to its customers.
The property of the Applicant i.e, hotel including restaurant and banquet hall is still under construction phase and till now only one portion of the property in in running condition. Thus, in order to provide its output services Applicant purchase/would purchase huge quantities of materials and other inputs in the form of cement, sand, steel, aluminium, wires, plywood, paint, lifts, air-conditioning units, electrical equipment's etc. and also take services in the form of consultancy service, architectural services, engineering service and other services including interior designer services all of which are sina-qua-non for the purpose of construction and installation of plant and machinery at Applicant's premises and therefore the Applicant has to purchase/receive these goods and services for completing the said construction and provide its output services. Majority of the goods and services which are purchased/received for such construction are taxable under the Central Goods and Services Tax Act, 2017 ('Central Act') and the Uttarakhand Goods and Services Tax Act, 2017 ('State Act') and/or the Integrated Goods and Services Tax Act, 2017 ('Integrated Act'), as the case may be and the Applicant has to incur huge cost on these purchases/expenses which also includes huge amount of Central Goods and Services Tax ('CGST')/State Goods and Services Tax on such ('SOST) and Integrated Goods and Services Tax purchases/expenses.
Therefore, in view of section 16, Applicant being a registered person under GST is statutorily entitled to avail benefit of taking credit of input tax charged on supply of goods and services which are consumed or utilized for the construction of the aforesaid property and set off the same against CGST/SGST payable on output services provided by it to its customers from such property as there is no break in the supply chain and receipt of consideration for output services and the tax payable thereon are the direct and inevitable consequence of the construction of the property and installation of plant and machinery and the payment of GST on inputs goods and services which have been consumed and utilized for the construction of the property is admissible to the Applicant.
As per section 17(5)(c) and (d) it is clear beyond doubt that Input Credit of goods or services is blocked only when the same are used for construction of immoveable property by the registered person on his own account and not otherwise. Thus, the important words are 'on his own account'.
The words 'on his own account' used in section 17(5)(d) are of utmost importance in order to understand the scope of blocked credit in the current context as Input Credit of only those goods or services are blocked which are used for construction of immoveable property by the taxable person on his own account. In this regard, reliance is placed on the decision of the Apex Court in the matter of Grasim Industries Ltd vs. Collector of Customs, Bombay-2002-TIOL-497-SC-CUS-LB wherein the Apex Court while dealing with the provisions of Customs Act, 1962 observed as follows:-
"No words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. It is said that every statute is an edict of the legislature. The elementary principle of interpreting any word while considering a statute is to gather the mens or sentential legis of the legislature. "
That basic purpose and principle behind introduction of GST was:-
a. to reduce prices of goods and services; and
b. remove cascading effect of tax on tax
Reliance is placed on the decision of the Supreme Court in New India Sugar Mills Ltd v. Commissioner of Sales Tax, Bihar-AIR 1963 SC 1207 in which the Court held as follows:-
"It is a recognized rule of interpretation of statutes that expressions used therein should ordinarily be understood in a sense in which they best harmonize with the object of the Legislature. "
Similar view was adopted by the Court in plethora of other cases which includes inter-alia the following:-
1. Kanwar Singh v. Delhi Administration- AIR 1965 SC 871
2. Motor Owners Insurance Co Ltd v. JK Modi- AIR 1981 SC 2059
3. Ambica Quarry Works v. State of Gujarat- AIR 1987 SC 1073
It is settled law that the provisions of a Statute should not be interpreted in a manner so as to make any one word or provision as otiose or a dead letter. In this regard reliance is placed on the below mentioned decisions of the constitutional courts:-
1. Quebec Railway, Light, Heat & Power Co. Vs Vandry- AIR1920 PC 181
2. Union of India vs Hansoli Devi- AIR 2002 SC 3240
3. Ghanshyamdas vs Regional Asstt. Comm. Sales Tax-AIR 1964 SC 766
4. Chloro Controls India Pvt Ltd. vs Severn Trent Water Purification Inc. & Ors.-2013 1 SCC 641
5. Deputy Chief Controller of Imports and Exports, New Delhi vs. Kosalram and Others-[(1970) 3 SCC 82]
The words 'on his own account* used in section 17(5) (d) should be understood to mean to apply to only those situations wherein the benefits of immoveable property are enjoyed by the person himself who builds the immoveable property and to no other case. In other words, where the immoveable property is constructed for enjoyment by the third person i.e. other than the person who builds the property, then the benefit of Input Credit shall not be denied to such person who build or constructs it as he is not enjoying the benefit of immoveable property and thus didn't constructed the said property on his own account.
This view is clear in terms of Press Releases issued by the Government in this regard on 8th Dec, 2018. The text of the same is reproduced below:
Press Release dated. 8th December, 2018
Effective tax rate on complex, building, flat etc.
It is brought to the notice of buyers of constructed property that there is no GST on sale of complex/ building and ready to move-in flats where sale takes place after issue of completion certificate by the competent authority. GST is applicable on sale of under construction property or ready to move-in flats where completion certificate has not been issued at the time of sale.
Extending the intent of the above press release to the facts of the current case and also applying the ratio of the judicial precedents mentioned supra it is submitted that benefit of Input Credit shall not be denied to the Applicant as the Applicant is not constructing the Hotel/Banquet Mon his own account" but for the benefit and usage of the customers for which the Applicant would also charge the applicable GST from its customers. It is submitted that the words "on his own account" should not be confused with the ownership of the property rather it should be understood with the beneficial enjoyment of the property concerned.
In view of the above, the restriction of Input Credit under section 17(5)(d) operates only if the resultant construction is for the recipient's enjoyment. If the immovable property after construction is to be enjoyed by somebody else, then the person receiving goods or services for such construction is entitled to avail such Input Credit. Accordingly, the Applicant should be allowed to claim benefit of Input Credit for goods or services which are used for construction of hotel/banquet hall building on this ground alone.
It is a cardinal principle of interpretation of Statutes that whenever there is ambiguity in understanding the meaning of a particular word or expression in a statute or multiple interpretations are possible, then such interpretation is to be adopted which helps in achieving the true intention of the legislature. In this regard reliance is paid on the following decisions:-
1. Sneh Enterprises v. CCE, New Delhi- 2006 202 ET SC
2. Workmen of Dimakuchi Tea Estate v. Management of Dimakuchi Tea Estate-AIR 1958 SC 353
3. New India Sugar Mills Ltd u. Commissioner of Sales Tax, Bihar-AIR 1963 SC 207
4. Union of India vs. Suksha International 6b Nutan Gems &Anr- 2010-TIOL-111-SC-CUS
5. Srinathji Ispat Ltd. Vs. Commissioner of Central Excise and Services Tax, Ghaziabad- 2015-TIOL-2355-CESTAT-DEL
6. Commissioner of Customs (Preventive), Mumbai vs. M/s M Ambalal 6b Co-20 10-TIOL-111-SC-CUS
7. Collector of Central Excise Etc vs The Himalayan Cooperative Milk Product Union Limited Etc- AIR 1963 SC 1207
8. Commissioner of Sales Tax vs Industrial Coal Enterprises- (1999) 2 SSC 607
The primary section for granting Input Credit under GST is section 16 which provides for the eligibility of taking Input Credit, and as per which there is no doubt regarding the eligibility of Applicant to take Input Credit on all goods or services which are used or intended to be used in the course or furtherance of its business. It is only due to the interpretation of section 17(5) that there arises a doubt on eligibility of taking Input Credit on goods or services or both which are used for construction of immoveable property. In this regard, it is submitted that though section 17 (5) starts with a non-obstante clause over section 16(1), yet it does not imply that it would override section 16 in all conditions.
It is submitted that the interpretation of a non-obstante clause used in a particular provision is no more res-integra and has been settled by the Court in a catena of cases. In this regard, reliance is placed on the below mentioned cases:-
1. In Dominion of India vs Shrinbai A. Irani-AIR 1954 SC 596
2. Aswini Kumar Ghosh vs Arabinda Bose-AIR 1952 SC 369
3. PEK Kalliani Amma vs K. Devi-AIR 1996 SC 1963
Applying, the ratio of the above-mentioned cases to the facts of the present case, it can be seen that section 17(5) and more particularly 17(5)(c) and (d) would not blanketly over-ride section 16(1) in all cases. The over-riding effect to section 17(5) would be given only when there is conflict with section 16(1) and till the time such conflict can be avoided by way of interpretation there is no requirement of over-riding the later.
The Applicant submits that the question regarding availability of Input Credit on goods or services or both received for the construction of an immoveable property which is further let out is no more res-integra and is already settled by the recent landmark decision of the Odisha High Court in the matter of M/s Safari Retreats Pvt Ltd and Another vs. Chief Commissioner of Central Goods and Service Tax and Others- 2019-TIOL-1088-HC-ORISSA-GST wherein while reading down the provisions of section 17 (5) (d), the High Court allowed Input Credit of goods or services or both received by the Petitioner Company used for construction of a Mall (Immoveable Property) which was later rented out to various persons. While allowing the benefit of Input Credit on goods or services used for construction of mall the High Court held as follows:-
"While considering the provisions of Section 17(5)d), the narrow construction of interpretation put forward by the Department is frustrating the very objective of the Act, in as much as the petitioner in that case has to pay huge amount without any basis. Further, the petitioner would have paid GST if it disposed of the property after the completion certificate is granted and in case the property is sold prior to completion certificate, he would not be required to pay GST. But here he is retaining the property and is not using for his own purpose but he is letting out the property on which he is covered under the GST, but still he has to pay huge amount of GST, to which he is not liable. In that view, of the matter, in our considered opinion the provision of Section 17(5)(d) is to be read down and the narrow restriction as imposed, reading of the provision by the Department, is not required to be accepted, in as much as keeping in mind the language used in (1999) 2 SCC 361 =2002-TIOL-149-SC-CX-LB (supra), the very purpose of the credit is to give benefit to the assessee. In that view of the matter, if the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, it is required to have the input credit on the GST, which is required to pay under Section 17(5)(d) of the CGST Act."
A similar petition is also filed in the Punjab and Haryana High Court in the matter of DLF Cyber City Developers Ltd vs Union of India And Others-2019-TIOL-2770-HC-P&H-GST seeking for similar relief. The said petition is admitted by the Hon'ble High Court and the matter is currently sub-judice.
It is submitted that in the above judgement the High Court has clearly made a distinction between immovable property retained for self-use and immovable property let out and used by others and has accordingly allowed Input Credit of GST paid on construction of the immovable property that is let out and used by the person, other than the person who has undertaken the construction.
The ratio of the decision in Safari Retreats supra is squarely applicable to the facts of the current case in as much in the said case the Petitioner was providing renting of immoveable property services i.e. providing space in mall constructed by it on rental basis to various shop owners and in the Applicant's case the banquet hall and hotel rooms are rented out to the customers to be used by them for which they pay the rental charge of room or banquet to the Applicant. In view of the same Input Credit on goods or services or both received by the Applicant for construction of immoveable property i.e. Hotel Building and Banquet Hall shall be allowed.
The doctrine of 'stare decisis' i.e. to stand by decided matters provides that the judicial precedents of higher courts are bound to be followed by the lower courts and tribunals. In this regard, reliance is placed on the decision of the Bombay High Court in the matter of Commissioner of Income Tax, Vidarbha v. Smt Godavari devi Saraf- 2003-TIOL-1136-HC-MUM-IT wherein it was clearly held that until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the particular State, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land and the Tribunal is bound to follows that.
Similarly, the Supreme Court in Assistant Collector of Central Excise, Chandan Nagar v. Dunlop India Limited And Other-2002-TIOL-156-SV-CX- LB observed as follows:-
"The better wisdom of the Court below must yield to the higher wisdom of the Court above. We hope it will never be necessary for us to say so again that in the hierarchical system of Courts which exists in our country, it is necessary for each lower tier, including the High Court, to accept loyally the decisions of the higher tiers".
It is submitted that the judgment in Safari Retreats (supra), reading down Section 17(5)(d) of the Central Act, which being a parliamentary legislation, will apply throughout the territory of India, unless and until the same is stayed by the Supreme Court or there is any contrary decision for the same from the jurisdictional High Court. It is now settled law that once an authority higher than the Tribunal has expressed an opinion on an issue, the Tribunal has to respectfully follow the same even though that decision may be of a non-jurisdictional High Court.
So far as the business of providing Hotel Accommodation or Banquet Hall Services is concerned the same cannot be provided without construction of building and construction of building holds the paramount importance in providing such services and the Applicant in the instant case would not be in a position to conduct his business operations without the said building. Therefore, in the facts of the current case and the context of business operations involved, one can safely arrive at the conclusion that said building is cleanly covered by the expression 'equipment', 'machinery' and 'apparatus'. Reliance is also placed on the meaning of the term 'plant and machinery' provided under Notification F. No. 2(2)/2017-SP8 dated 23-Apr-2018 issued to provide Industrial Development Scheme for Himachal Pradesh (HP) & Uttarakhand 2017 issued by the Government of India to boost industrialization in the said states. As per para 4.4 of the said Scheme, the term plant and machinery is defined to include inter-alia cost of construction of building. The relevant porn is reproduced below.
... 4.4 Plant and Machinery for the service sector industrial unit shall include cost of construction of building and all other durable physical assets basic to the running of that particular service industry but exclude cost of land and consumables, disposables or any other item charged to revenue.
It is submitted that the above Scheme is also issued by the Government of India and the same recognizes building as plant and machinery for the service sector units. It can be seen that the term building is required to be understood in the context and object of the Input Credit Scheme provided under the GST laws and the object sought to be achieved through the said provisions and not merely as a building simplicitor. Following case laws are relied upon:-
1. Yarmouth vs France -[1887] 19 QBD 647
2. IRC vs Barclay, Curie & Co. Ltd.- [1970] 76 ITR 62 (HL)
Reliance is further placed on the decision of the Calcutta High Court in the matter of S.P. Jaiswal Estates (P.) Ltd. vs CIT- (1995) 216 ITR 145 wherein it was held that the hotel building owned by the assessee and used for the purpose of carrying on its hotel business was an apparatus with which the assessee's hotel business was carried on and therefore, the hotel building was to be treated as 'plant'. Following judgments are also relied upon:-
1. Commissioner of Income Tax vs Hotel Luciya- 2003-TIOL-458-HC-KERALA-IT-LB
2. M/s Sirmour Hotels Pvt Ltd vs Deputy Commissioner of Income Tax- 2018-TIOL-484-ITAT-CHD
3. Landbase India Ltd vs Assistant Commissioner of Income Tax- 2019-TIOL-1937-ITAT-DEL
4. M/s Cachet Pharmaceuticals Pvt Ltd vs Commissioner of Income Tax-1, Patna and others- 2016-TIOL-785-HC-PATNA IT
5. Niko Resources Ltd vs Assistant Commissioner of Income Tax- 2016-TIOL-3243-HC-AHM-IT
Thus, a building simply accommodating machinery or other apparatus to run a factory is different from the hotel building, which is specially designed, suiting to the hotel requirements. So, specially erected building cannot be said to be a mere setting or premises. No hotel can function without a suitable building satisfying the norms of hotel. Accordingly, the Input Credit of goods or services received by the Applicant in setting up of his hotel/banquet building should be allowed as the same is nothing but plant and machinery for the Applicant. Following case laws is also relied upon:
M/s Vodafone Essar South Ltd vs Commissioner of Central Excise- 2019-TIOL-3037-CESTAT-ALL
Applicant is eligible to claim Input Credit for Specified Goods and Services namely Sanitary items, Underground cables, Electrical Boards & switches, Lift, Repair & maintenance of these specified goods, Freight paid against GTA on Purchase of these goods and Interior design & Architect service on two grounds, firstly these goods or services are not used for construction of any immoveable property and secondly they are very well covered under the meaning of the term "plant and machinery" and these not hit by the bar Imposed under section 17(5)(c) and/or (d) or the Central Act.
That the term 'Immovable property' is not defined under the Central Act, therefore, the definition of Immovable property an given in section 3 clause (26) of the General Clauses Act, 1897 has to be taken as per which 'Immoveable property' is defined to include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. Further, the term 'attached to earth' is defined under the Transfer of Property Act, 1882 an follows:-
'attached to the earth" means -
(a) rooted in the earth, us in the case of trees and shrubs;
(b) imbedded in the earth, as in the case of walls or buildings; or
(c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached
The fact that the Specified Goods would be capable of being dismantled and re-erected at any other place itself leads to the conclusion that the said Specified Goods fails the 'permanency test'. Reliance is placed on the landmark decision of the English Court in the matter of Wake vs Halt -(1883)8 App Cas 195 and also on the following judgments:-
1. Vodafone Mobile Services Ltd and Others Vs Commissioner of Service Tax, Delhi and Others- 2018-TIOL-2409-HC-DEL-ST
2. M/s Hotel Leela Ventures Ltd vs Commissioner Audit, Central Excise and CGST Jodhpur- 2018-TIOL-2498-CESTAT-DEL
3. Re Vindhya Telelinks Ltd- Advance Ruling No. 06/2018-19 dated 28th August, 2018
That the ratio of the above-mentioned case and also the Ruling given by the Authority itself is squarely applicable to the facts of the current case. The Applicant is entitled to take Input Credit on Specified Goods which are received as chattels and the eligibility of credit is to be seen at the time of receipt of such goods. Merely because later such Specified Goods are attached to a wall for support purpose would not make them ineligible for taking Input Credit as the same cannot be said to be received for construction of any immoveable property. Following case laws are also relied upon:-
a. Commissioner of Central Excise and Service Tax vs India Cements Ltd-2014 (310) E.L.T. 636 MAD
b. Commissioner of Central Excise Jaipur vs Rajasthan Spinning and Weaving Mills Ltd 2010 (255) E.L.T. 481 SC
c. Saraswati Sugar Mill vs Commissioner of Central Excise Delhi III-2011 (270) E.L.T. 465 SC
That if any article or goods are used by a person in his business without which it would not be possible to conduct the business operations, the same would definitely fall within the meaning of the term apparatus, equipment or machinery and thus be considered as "plant and machinery'. Accordingly, in so far as the business of providing Hotel Accommodation or Renting of Banquet Hall Services is concerned the same cannot be provided without such Specified Goods and thus installation of such goods is extremely important and integral in providing such services and the Applicant in the instant case would not be in a position to conduct his business operations without the said goods. Therefore, in the facts of the current case and the context of business operations involved, one can safely arrive at the conclusion that said Specified Goods are clearly covered by the expression 'equipment', 'machinery' and 'apparatus' used in the definition of the expression plant and machinery'.
Contention of the Concerned Officer (Mrs. Preeti Manral, Dy. Commissioner, SGST):
19. Applicant M/S VARDHAN HOLIDAYS (GSTIN-05AAOFV8927H1ZL) is primarily engaged in the hospitality sector and carries on business inter-alia of supply of accommodation, restaurant and renting of immovable property (banquet hall) services to its customers. Applicant has filed application seeking Advance Ruling on admissibility of input tax credit on goods and/or services received for construction of Hotel Building, Banquet hall etc.
In this regard it is submitted that Section (17) (5) (d) bars a taxable person, from taking input tax credit for construction of immovable property (as in the subject case) which is on his own account, even when such goods or services or both are used in the course or furtherance of business. The immovable property in the subject case is neither a plant nor a machinery. Section 17(5) (d) provides that no ITC is available in respect of any goods or services received by a taxable person for construction of an immovable property on his own account even if such inputs and input services are used in the course and furtherance of business. In the instant case the applicant is himself building the immovable property and is using the said property for supply of accommodation, restaurant and renting out to his customers. Therefore, as per section 17(5) (d), no ITC is available on any goods or services received by him for such construction.
The applicant, inter alia, has placed reliance on the judgment of Hon'ble Odisha HC in case of Safari Retreats Pvt Ltd. However, the department has filed an appeal against the said judgment and the matter in case of Safari Retreats Pvt Ltd is still pending with Hon'ble Supreme Court and has not attained finality yet. Ld. Maharashtra AAR in case of M/s Ashish Arvind Hasnoti did not accept the views of Hon'ble Odisha HC (as held in case of Safari Retreats Pvt Ltd) on the ground that though it gives relief to the party but it doesn't intend to hold section 17(5) (d) to be ultra vires, hence, two statements are contradictory to each other.
Since the matter is sub-judice, in view of the foregoing, it is respectfully submitted that the Ld. Advance Ruling Authority, Uttarakhand may be pleased to pass necessary order as may be deemed fit and proper in facts and circumstances of the case.
Observations:
20. Although the mutter is sub-judice yet for the sake of discussion we put our views on the issues raised by the applicant. We would like to refer the relevant provisions of the Act which have direct effect on the case in hand. Section 16(1) of the Act stipulates that:-
Section 16. Eligibility and conditions for taking input tax credit.-
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
From the wording of Section 16(1) of the CGST Act we find that this section empowers the Central Government to impose conditions and restrictions on availing input tax credit.
Further, Section 17(5)(c) & 17(5)(d) of the Act also stipulates that:-
Section 17. Apportionment of credit and blocked credits.-
(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-
(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation.- For the purposes of clauses (c) and (d), the expression-construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;
Explanation.- For the purposes of this Chapter and Chapter VI, the expression-plant and machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes,-
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
21. Regarding restrictions of input tax credit under Section 17(5) (c) & (d), we are inclined to rely on the following judgments:
In case of Jayam and Company vs. Asstt. Commissioner and Another-(2016) 15 SCC 125, the Hon'ble Supreme Court held that,-
"It is a trite law that whenever concession is given by statute or notification, etc. the conditions thereof are to be strictly complied with in order to avail such concessions. Thus, it is not the right of the 'dealers' to get the benefit of TTC but it is concession granted by virtue of Section."
In case of The State Of Karnataka vs M/S M.K. Agro Tech.(P) Ltd. on 22 Sep.2017 (SC), it is held that,-
"The entire scheme of the KVAT Act is to be kept in mind and Section 17 is to be applied in that context. Sunflower oil cake is subject to input tax. The Legislature, however, has incorporated the provision, in the form of Section 10, to give tax credit in respect of such goods which are used as inputs/ raw material for manufacturing other goods. Rationale behind the same is simple. When the finished product, after manufacture, is sold, VAT would be again payable thereon. This VAT is payable on the price at which such goods are sold, costing whereof is done keeping in view the expenses involved in the manufacture of such goods phis the profits which the manufacturer intends to earn. Insofar as costing is concerned, element of expenses incurred on raw material would be included. In this manner, when the final product is sold and the VAT paid, component of raw material would be included again."
"Keeping in view this objective, the Legislature has intended to give tax credit to some extent. However, how much tax credit is to be given and under what circumstances, is the domain of the Legislature and the courts are not to tinker with the same. This proposition is authoritatively determined by this Court in series of judgments. We may refer to the judgment in Godrej & Boyce Mfg. Co. Pvt. Ltd. & Ors. v. Commissioner of Sales Tax and Others."
The Hon'ble Supreme Court, in its judgment in the case of Indian Oil Corporation Ltd. Vs State of Bihar (TS-347-SC-2017-VAT] while dealing with the issue of set off of VAT against entry tax, the court held that,-
"...no assessee can claim set off as a matter of right and levy of Entry Tax cannot be assailed as unconstitutional only because set off is not given".
In view of the above, the taxpayer cannot claim credit accumulated due to supply of inputs (goods as well as services) used by them for construction of their project as a vested right for payment of GST on the output taxable supply of Renting of their said property.
Powers to restrict flow of credit also exist under Section 16(1) of the CGST Act which empowers the Central Government to impose conditions and restrictions on availing input tax credit. This shows a Legislative intent that input tax credit may not always be allowed partially or fully. Input tax credit provisions do not provide for that all the tax paid on inputs should be available as credit. Some credits have been denied under Section 17 in the Act itself and to allow flexibility, the Act provides that restrictions can be placed on availability of credit. In this regard, reliance is also placed on the recent judgment of Hon'ble Delhi Court in the case of Cellular Operators Association of India and Others vs. UOI [2018-TIOL-310-HC-DBL-ST] wherein the Hon'ble Court rejected the claim of the taxpayer to allow credit of unutilised education and higher education cess and upheld the power of the Government to restrict utilisation of balance cess.
GST is a new system of taxation which provides setting off of input tax credit against the output tax liability along the entire value chain till the final retail level. Under the earlier tax regime, credit of inputs was available for final product in respect of certain taxes/ duties only e.g. credit of duty of excise could not be utilised against VAT and vice versa. It can be therefore said that GST is applicable only on value addition along the entire supply chain and thus cascading effect of taxes has been eliminated. Thus, under the GST regime, more input tax credit is available to tax payers along the entire supply chain as compared to the previous tax regime. Further, the transitional provisions under the CGST Act provide adequate credit of taxes accumulated under the erstwhile taxation regime to taxpayers in the GST regime.
Section 17(5)(c) 8s (d) of the CGST Act prescribes denial of credit for certain class of taxpayers with certain conditions and limitations. This would mean that the legislature has decided in its wisdom the credit of taxes which would be allowed in credit as ITC and the tax that has not been allowed, as policy call of the Government, given effect through legislation, cannot be obtained through judicial review.
In the judgment of JCB India Ltd. Vs. Union of India 2018-TEDL-23-HC-Mum-GST, the Hon'ble Court held- "CENVAT credit is a mere concession and it cannot be claimed as a matter of right- credit on inputs under the existing law itself is not absolute but a restricted or conditional right. If the existing law itself imposes condition for its enjoyment or availment, then, it is not possible to agree with the Counsel that such rights under existing law could have been enjoyed and availed of irrespective of the period or time provided therein- The period or the outer limit is prescribed in the existing law and the Rules of CENVAT credit enacted thereunder- In the circumstances, it is not possible to agree with the Counsel appearing for the petitioner that imposition of the condition vide Clause (iv) is arbitrary, unreasonable and violative of Articles 14 and 19(1) (9) of the Constitution of India- if right to availment of CENVAT credit itself is conditional and not restricted or absolute, then the right to pass on that credit cannot be claimed in absolute terms- there cannot be a estoppel against a statute- transitional arrangements that have been made have clear nexus with the object sought to be achieved and cannot be struck down as having no such relation or nexus-Petitions fail."
Hon'ble Supreme Court, in its judgment in the case of Indian Oil Corporation Ltd. Vs State of Bihar (TS-347-SC-2017-VAT) while discussing the applicability of Article 14 to taxing statutes, held that:
" When it comes to taxing statutes, the law laid down by this Court is clear that Article 14 of the Constitution can be said to be breached only when there is perversity or gross disparity resulting in clear and hostile discrimination practiced by the legislature, without any rational justification for the same".
The right to practice any profession, or to carry on any occupation, trade or business, conferred by Article 19(g) of the Constitution is not absolute right and the Government has Power to impose reasonable restrictions.
22.The applicant submitted that in view of Section 16, they being a registered person under GST are statutorily entitled to avail benefit of taking credit of input tax charged on supply of goods and services which are consumed or utilized for the construction of the aforesaid property and set off the same against CGST/SGST payable on output services provided by it to its customers from such property as there is no break in the supply chain.
We find that the legislative intent flows from the sovereign power given in the CGST Act, 2017 vide Section 16(1) of the Act. As per said provision input tax credit is allowed to a registered person subject to such conditions and restrictions as the Government thinks proper, against the supply of goods or services received which are used or intended to be used in the course or furtherance of his business. Here it is pertinent to mention that construction of an immovable property (hotel/restaurant or banquet hall) is a different business and hotel accommodation or renting of banquet hall is a different business. Thus supply chain is not the same for both the businesses. The thin line here is the break in the nature of business. For both the businesses input supply of goods or services are totally different from each other. Input supply of goods or services received for one business cannot be used for furtherance of other business. Legislative intent is clear from aforesaid provision that if input supply of goods or services are received for furtherance of same business for which these supplies are received than only input tax credit can be allowed. The wordings of Section 16 (1) ibid i.e. "any supply of goods or services or both which are used or intended to be used in the course or furtherance of his business" does not mean that any supply of goods or services received for the purpose of one business can be used for furtherance of another business.
Further, Section 17(5)(d) provides that no input tax credit shall be available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant & machinery). Thus, the legislative intent of the statute is clear from the very fact that any registered person is eligible for taking input tax credit unless and until he is restricted by conditions laid down in the law in this respect. One of such condition is prescribed vide Section 17(5)(c) & (d) of the said Act. Moreover, there are catena of judgments of the Hon'ble Courts which have underlined the fact that ITC is not a right of the taxpayer as discussed in para 21 above.
Article 14 of the Constitution of India reads as "the State shall not deny to any person equality before the law or equal protection of the laws within the territory of India"' Section 17(5)(c) & (d) is not violative of the Article 14 of the Constitution of India as it is applied equally to all the taxpayers of India if they are covered by the condition and restriction imposed by virtue of the power given under section 16(1) of the said Act.
The input tax credit, for construction of immovable property is only available for those taxpayer who are engaged in supply of construction service and not for any other taxpayers who are beneficiaries of the output of such construction activity. The allegation of discrimination falls short of any substance as reasonable classification has been adopted by the legislature in demarcating eligibility for availment of such input tax credit.
23. We further find that the applicant has taken shelter of judicial precedent & judicial discipline by referring various judgments in their support. They submitted that the doctrine of 'stare decisis' i.e. to stand by decided matters provides that, the judicial precedents of higher courts are bound to be followed by the lower courts and tribunals. In this regard, reliance is placed on the decision of the Bombay High Court in the matter of Commissioner of Income Tax, Vidarbha v. Smt Godavari devi Saraf- 2003-TIOL-l 136-HC-MUM-IT wherein it was clearly held that until a contrary decision is given by any other competent High Court, which is binding on a Tribunal in the particular State, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land and the Tribunal is bound to follows that.
The applicant submitted that the appeal in the matter of CCE Vs Safari Retreats (P) Ltd & Others was only admitted by the Hon'ble Supreme Court and there was no stay of said judgment and accordingly the decision of Hon'ble Odisha High Court was binding precedent as on date. They further submitted that this judgment will apply throughout the territory of India, unless and until the same is stayed by the Supreme Court or there is any contrary decision for the same from the jurisdictional High Court.
To begin with judicial precedent we are of the view that judicial precedent is an interpretation of law by the Hon'ble Supreme Court which is binding on all the courts of India. We also rely on the following judgments:
As provided in Article 141 of the Constitution and as reiterated by the Hon'ble Supreme Court in the case of Bengal Immunity Co. v. State of Bihar - A.I.R. 1955 S.C. 661 that,-
" There is nothing in our Constitution which prevents us from departing from a previous decision if we are convinced of its error and its baneful effect on the general interests of the public. Article 141 which lays down that the law declared by this Court shall be binding on all Courts within the territory of India quite obviously refers to Courts other than this Court. The corresponding provision of the Government of India Act, 1935 also makes it clear that the Courts contemplated are the Subordinate Courts"
Appeal in case of M/s Rosewood Hospitality (P) Ltd. is pending in the Hon'ble High Court of Uttarakhand on the similar issue. Further, Hon'ble High Court of Odisha's decision in case ovf Safari Retreats (supra) has also been challenged before the Apex Court which is still pending decision. Section 98(2) of the CGST Act, 2017 prescribes that-
"(2) The Authority may, after examining the application and the records called for and after hearing the applicant or his authorised representative and the concerned officer or his authorised representative, by order, either admit or reject the application:
Provided that the Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act:"
Above provision does not say that proceedings must be stayed by the higher court. The word used are 'pending' or 'decided' i.e. even if the issue is pending in any proceedings in the case of an applicant then the Authority shall not admit the application. In the case of Safari Retreats (supra), proceedings are pending before the Apex Court and in case of M/s Rosewood Hospitality (P) Ltd., proceedings are pending before the Hon'ble High Court of Uttarakhand. Since the appeal against decision passed in favour of Safari Retreats (supra) has been admitted by the Apex Court, hence the issue has become disputed and therefore cannot be termed as judicial precedent.
Recently, in Astik Dyestuff Pvt Ltd Vs. CCE [2014-TIOL-237-HC- AHM-ST] it has been held that, when there are two contrary decisions, one of jurisdictional High Court and another of the other High Court, then the decision of the jurisdictional High Court is binding on the department and not the decision of another High Court. It can be said that decision passed by one high court is not binding for the other high court and thus decision passed by any High Court cannot be termed as judicial precedent.
It has been held in Patil Vijay Kumar Vs. CIT (1985) 48 CTR (Kar) 41 that a High Court is not bound by the decision of any other High Court. A High Court's decision will only be binding on the same High Court and the Courts and Tribunals over which it exercises jurisdiction (See also CIT Vs. Ved Prakash (1989) 77 CTR (P&H) 116).
In CIT Vs. Thane Electricity Supply Ltd. (1994) 206 ITR 727 the following observations were made by the Bombay High Court:-
(a) The law declared by the Supreme Court being binding on all courts in India, the decisions of the Supreme Court are binding on all courts, except, however, the Supreme Court itself which is free to review the same and depart from its earlier opinion if the situation so warrants. That is binding is, of course, the ratio of the decision and not every expression found therein.
(b) The decisions of the High Court are binding on the subordinate courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction. It does not extend beyond its territorial jurisdiction.
The Supreme Court, in Shenoy & Co. Vs. CTO (1985) 155 ITR 178, has held that the law laid down by it (SC) is binding on all, notwithstanding the fact that it is against the State or a private party; it is binding even on those who were not parties before the court. Also as per Article 141 of the Constitution of India the law declared by the Supreme Court shall be binding on all courts with in the territory of India.
The Five Judges Constitution Bench of Hon'ble Supreme Court in case of Central Board of Dawoodi Bohra Community v. State of Maharashtra -(2005)2 SCC 673 has observed that,
"The law laid down by this Court in a decision delivered by a Bench of larger strength is binding on any subsequent Bench of lesser or co-equal strength".
The Hon'ble Apex Court in "Megh Singh v. State of Punjab [AIR2003 SC 3184]" has held that,
"circumstantial flexibility, one additional or different fact may make a world of difference between conclusion in two cases or between two accused in the same case. Each case depends on its own facts and a close similarity between one case and another is not enough because a single significant detail may alter the entire aspect."
24. Now to discuss the judicial discipline we first go through the following judgments:
The Hon'ble Supreme Court in the case of Hari Singh v. State of Haryana, reported in 1993 (66) E.L.T.23 (S.C.), it was held that,
'It is true that the system of the justice which is being administered by the Courts, one of the basic principles which has to kept in view, is that Courts of coordinate jurisdiction, should have consistent opinions in respect of an identical set of facts or on question of law. If Courts express different opinion on the identical sets of facts or question of law while exercising the same jurisdiction, then instead of achieving harmony in the judicial system, it will lead to judicial anarchy.''
The Hon'ble Apex Court in the Case of Gammon India Ltd. v. Commissioner of Customs, Mumbai reported in 2011 (269) ELT 289 (SC), held that,
"two Tribunals should not take differently divergent views, which will create judicial uncertainty in declaring the law involved in identical issues. This is a fundamental principle which every presiding officer of a judicial forum ought to know, for consistency in interpretation of law alone can lead to public confidence in our judicial system. A subordinate court is bound by the enunciation of law made by the superior courts. A Coordinate Bench of a Court cannot pronounce judgment contrary to declaration of law made by another Bench It can only refer it to a larger Bench if it disagrees with the earlier pronouncement. We respectfully concur with these observations and are confident that all the Courts and various Tribunals in the country shall follow these salutary observations in letter and spirit. "
In case of Tata Motors Ltd. vs. Union of India [2009 (244) ELT 337 (Bom.)], in para 6 the Hon'ble Bombay High Court has held as under:
"6. We are at pains to understand the approach of the learned Tribunal. Judgments of higher Courts considering judicial discipline have to be followed by the Courts subordinate to the higher court. Failure to do so would result in judicial mayhem.. Subordinate courts are bound to follow the judgments unless there be a subsequent Judgment of a Higher Court which has taken a view different from the view earlier expressed."
From the above judgments it can be inferred that judgment passed by higher court can only be followed unless and until it is challenged in the court superior than it.
25. However from the plain reading of the provisions of Section 17(5)(c) of the Act, we are of the view that input tax credit is disallowed to a works contractor if he supplies his services for construction of an immovable property (other than plant & machinery) and if he is not a sub-contractor. Further, Section 17(5)(d) of the Act does not allow credit of input tax paid on goods or services which are received by a person who construct immovable property on his own account i.e. for self use. Since there is no service recipient of the said property till it comes into its complete shape, hence no credit is allowed. After completion of construction of hotel/banquet hall, the applicant is not going to sell it but using it for earning money by way of supplying services of room accommodation, restaurant and renting of banquet hall. The applicant cannot say that he is not retaining the property for his own purpose. He got the hotel or banquet hall constructed by availing the services of a works contractor so that he could run his business of hotel accommodation, restaurant and renting of banquet hall. Therefore, we are also not in agreement with the findings of the Odisha High Court in the matter of M/s Safari Retreats(supra) that-"here he is retaining the property and is not using for his own purpose but he is letting out the property on which he is covered under the GST, but still he has to pay huge amount of GST, to which he is not liable".
Here in case of M/s Safari Retreats(supra), we find that the appellant are also earning rent from the shops rented by them therefore it cannot be said that they are not using the shopping mall for their own purpose. The shopping mall is being used in the course of their business of Renting of Immovable Property.
26. Though provisions of Section 17(5)(c)&(d) of the Act categorically denies credit of input tax for the specified supply yet we leave this issue raised by the applicant at question a) to d) of their application as the similar issue is pending before the Hon hie High Court of Uttarakhand as well as before the Hon'ble Apex Court.
27. To decide the last two questions we would like to refer the relevant provisions of the Act. Explanation given under Section 17 of the Act states that,
This explanation categorically states that building or any other civil structures cannot be termed as plant & machinery. Since hotel is also a building/civil structure hence for the purpose of Section 17 ibid, hotel itself is not covered under the definition of "plant &/or machinery".
The applicant has relied on the meaning of the term 'plant and machinery' provided under Notification F. No. 2(2)/2017-SPS dated 23-Apr-2018 issued to provide Industrial Development Scheme for Himachal Pradesh (HP) & Uttarakhand 2017 issued by the Government of India to boost industrialization in the said states. As per para 4.4 of the .said Scheme, the term plant and machinery is defined to include inter-alia cost of construction of building. The relevant para is reproduced below.
Above scheme was brought by the government for the development of a few Himalayan states. To progress the economy of these states, Government has provided them some facilities including considering the cost of construction of building in the Plant 8b Machinery. It doesn't mean definition of Plant & machinery has been generalized by the legislature. Definition of Plant 8b Machinery changes according to the statute laid down as is explained under Section 17 ibid.
Therefore civil structures viz. hotel/banquet hall are not plant & machinery for the sake of Section 17 ibid.
28. The applicant has also queried whether specified goods viz. Lifts, sanitary items, underground cables etc. fall under the expression "plant 8b machinery" 8b whether input credit on the same and freight paid to GTA on such items under RCM, Repair 8b maintenance of aforesaid specified goods and Architect services etc. is available.
As per explanation appended below Section 17 of the Act, plant and machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports.
We are of the considered view that in case of a building which is constructed through a works contractor, a lift, sanitary items, underground cables etc. are also an integral part of that building itself and therefore covered under the exclusion clause of the explanation given beneath Section 17(6) of the Act. In support of our contention, we rely on the following case laws:
AAR, Maharashtra in an Application by Palmas Co-Operative Housing Society Ltd [2020 (2) TMI 497 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA] held that,
"Lift, after erection and installation is an immovable property because it becomes a part of an immovable property ie. a building - in other words it is to be considered as an integral part of the building itself and it is not a separate part of the building - Therefore, manufacture, supply, installation and commissioning of lifts/elevators is in the nature of Works Contract (WCS) activity which results in creation of an immovable property- In view of explanation to S. 17 of the CGST Act, applicant is not entitled to ITC of GST paid on replacement of existing lifts/elevator at its premises."
AAR of Karnataka in the case of m/s Tarun Realtors Pvt. Ltd. (Order No. KAR ADRG 103/2019 Dated: 30.09.2019) held that,
"The provisions of facilities like transformers, sewage treatment plant, electrical wiring and fixtures, DG sets, lifts, Air handling units etc are sine-qua non for a commercial mall and hence cannot be considered separate from the building or civil structure. Hence the input tax credit on the inward supplies of goods or services involved in the construction of the immovable property which is a civil structure or building is not available to the applicant and hence blocked. "
AAR - MADHYA PRADESH in case of Jabalpur Hotels Pvt. Ltd. (Order No. 10/2020 dated 08.06.2020) held that,
"As per Oxford References "The equipment required to operate a business. Capital allowances are available for plant and machinery although neither is defined in the tax legislation. This defines plant and machinery as "whatever apparatus is used by a businessman for carrying on his business - not his stock in trade which he buys or makes for resale: but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in the business. Subsequent cases have been largely concerned with the distinction between plant actively used in a business, and so qualifying for capital allowances, and expenditure on items that relate to the setting up of the business, which do not so qualify".
Further, a lift comprises of components or parts (goods) like lift car motors, ropes, rails, etc. and each of them has its own identity prior to installation and they are assembled/installed to create the working mechanism called lift. The installation of these components/parts with immense skill is rendition of service and without installation in the building, there is no lift. Lifts are assembled and manufactured to suit the requirement in a particular building and are not something sold out of shelf and, in fact, the value of goods and the cost of the components used in the manufacturing and installation of a lift are subject to taxation while the element of labour and service involved cannot be treated as goods. Parts of the lift are assembled at the site in accordance with its design and requirement of the building which may include the floor levels and the lift has to open on different floors or otherwise depending upon the requirement. It has to synchronize with the building and each door has to open on the level of each floor.
The lift therefore becomes part of the building and is not a separate thing per se. A lift does not have an identity when removed from the Building. Therefore, the lift cannot be said to be separate from a Building. Also, it has to be borne in mind that a lift is not an item that is purchased and sold. It is a customized mechanism far transportation, designed to suit a specific building. Upon piece by piece installation, it becomes an integral part of the building.
In the instant case, the lift has become part of the building and thus /a s under the exclusion from plant and machinery and accordingly, we do not find any reason to interfere with the clear provisions of statute."
AAR of Maharashtra in the case of M/s Lai Palmas Co-operative Housing Society Limited (Order No. GST-ARA-31/2019-20/B-13 dated 22.01.2020), held that
GST ITC shall not be available on replacement of existing lift/elevator. The AAR said that the erection of lift cam be done only inside the building structure as an integral part of the building in which lift is to be installed. The erection of a lift has to be correlated and tailored to meet the needs and requirements of a particular building. Once the lift is installed and commissioned in the building it becomes integral part of the immovable property that is the building. The lift when installed in the building makes the building fit for occupation and becomes a permanent fixture of the building itself. Hence the same will be considered as an immovable property.
In the case of Triveni Engineering & Industries Ltd. vs C.C.E., 2000(40) RLT 1 (SC)- 2000(120) ELT 273, the Apex Court held that after assembling, on completion of process of erection, the item becomes a part of the building or an immovable property.
In the case of Quality Steel Tubes (P) Ltd. vs C.C.E., U.P. on 9 December, 1994 it was held by the Apex Court that,-
Goods which are attached to the earth and thus become immoveable do not satisfy the test of being goods within the meaning of the Act nor it can be said to be capable of being brought to the market for being bought and sold. Therefore, both the tests, as explained by this Court, were not satisfied in the case of appellant as the tube mill or welding head having been erected and installed in the premises and embedded to earth they ceased to be goods within meaning of Section 3 of the Act.
In the case of Otis Elevator Company (India) vs S.C.E, on 27.08.2002 and 2003 (151) ELT 499 Bom, the Mumbai HC observed that,-
"Having heard the rival contentions and having examined all the citations referred to hereinabove, we are clearly of the opinion that the same shall apply to the facts of this case in full force and item in question being immovable property cannot be subjected to excise under the tariff heading claimed by the Revenue. The case sought to be made out by the petitioner is also covered by the decision of Government of India in reference, Otis Elevator company (India) Ltd. 1981(3) ELT 720(GOI), wherein it was clearly held that if an article does not come into existence until it is fully erected or installed, adjusted, tested and commissioned in a building, and on complete erection and installation of such article when it becomes part of immovable property.' In the view of the above we have no doubt that the lift would become an immovable property after being erected and installed as it is attached to the building itself The lift after erection and installation is an immovable property that is a building. In other words it is to be considered as an integral part of the building itself It is not a separated part of the building like storage water tank etc.
In the case of M/s Kone Elevators vs State of Tamil Nadu ( Writ petition No. 232 of 2005, DT: 06.05.2014), the Hon'ble Supreme Court held that in the case of installation of lift after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building and its supply, erection, installation and commissioning would be considered as 'works contract' and not 'sale'.
In para (v) & (vi) of Point No.4 of 37B Order No. 58/1/2002 - CX dated 15.01.2002 issued on the "Excisability of plant and machinery assembled at site" by the CBEC, New Delhi, the following is clarified: -
(v) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods.
(vi) If any goods installed at site (example paper making machine) are capable of being sold or shifted as such after removal from the base and without dismantling into its components/parts, the goods would be considered to be movable and thus excisable. The mere fact that the goods, though being capable of being sold or shifted without dismantling, are actually dismantled into their components/parts for ease of transportation etc., they will not cease to be dutiable merely because they are transported in dismantled condition. Rule2(a) of the Rules for the Interpretation of Central Excise Tariff will be attracted as the guiding factor is capability of being marketed in the original form and not whether it is actually dismantled or not, into its components. Each case will therefore have to be decided keeping in view the facts and circumstances, particularly whether it is practically possible (considering the size and nature of the goods, the existence of appropriate transport by air, water, land for such size, capability of goods to move on self propulsion -ships- etc.) to remove and sell the goods as they are, without dismantling into their components. If the goods are incapable of being sold, shifted and marketed without first being dismantled into component parts, the goods would be considered as immovable and therefore not excisable to duty.
Further para (iv) of Point No. 5 of said order clarifies that,-
(iv) Lifts and escalators. (a)Though lifts and escalators are specifically mentioned in sub heading 8428.10, those which are installed in buildings and permanently fitted into the civil structure, cannot be considered to be excisable goods. Such lifts and escalators have also been held to be non-excisable by the Govt, of India in the case of Otis Elevators India Co Ltd reported in 1981 ELT 720(GOI). Further, this aspect was also a subject matter of C & AG's Audit Para No.7.1(b)/98-99[DAP NO 186] which has since been settled by the C & AG accepting the Board's view that such lifts and escalators are not excisable goods. Also refer CCE vs Elevators India Ltd reported In 2001(45)RLT 676 (CEGAT-Chen).
Further this Authority for Advance Ruling vide Ruling No. 03/2018-19 passed on 04.05.2018 considering a question raised by M/s Bahl Paper Mills Ltd. has held that,-
(c) Whether credit will be available in GST of office fixtures & furniture, A.C. plant & sanitary fittings on newly constructed building on its own account for furtherance of business and accounting entry is capitalized in books of account.
Held: As per explanation to the Section 17 of CGST Act, 2017 credit is not available in respect of land, building or any other civil structure ......................... Therefore, in view of the aforesaid provisions of law, Cenvat Credit of GST paid in relation with building or any other civil structure is not available and since sanitary fittings are integral part of building or any other civil structure, cenvat credit of GST paid on such sanitary fittings is not available...................
In view of above judgments we are of the view that Lifts, Sanitary items and underground cables etc. being integral parts of a building are immovable properties as these items are attached to building for the permanent beneficial enjoyment of the said building and therefore cannot be termed as "plant and/or machinery".
As far as availability of input credit on the same and freight paid to GTA on such items under RCM, Repair & maintenance of aforesaid specified goods and Architect services etc. is concerned, we find that Section 17(5)(c)(d) blocks credit of input tax when works contract services are supplied for construction of an immovable property as well as when goods or services or both received by a taxable person for construction of an immovable property where immovable property is not "plant and/or machinery". Since Lifts, Sanitary items and underground cables etc. are also immovable property therefore input tax credit of works contract service supplied for construction of these items or goods or services or both received for construction of these items together with construction of hotel/banquet hall will also not be available to the applicant, however this aspect of allowing input tax credit under Section 17(5)(c) & (d) is pending decision before Hon hie High Court of Uttarakhand in case of M/s Rosewood Hospitality (P) Ltd and before Hon hie Supreme Court in case of M/s Safari Retreats Pvt. Ltd (supra).
We also find that Repair & Maintenance itself is not a construction service. Roll of repair or maintenance starts when a building or any immovable property comes into existence. Repair 8s Maintenance is done on the already constructed buildings, civil structures etc. Further, input tax credit of the GST paid on Repair & Maintenance service supplied for repair or maintenance of an immovable property is not denied under CGST Act. Therefore input tax credit of the GST paid on Repair & Maintenance service is allowable under CGST Act.
ORDER
In view of the above discussion & findings we hold as under:
i) We refrain ourselves from answering to question no. a) to d) raised by the applicant as the matter is sub-judice.
ii) We hold that Lifts, Sanitary items and underground cables etc. being integral parts of a building are immovable properties. However, we refrain ourselves from answering on the question whether input tax credit these specified goods, GTA service used in relation to the construction immovable property and Architect service used for construction immovable property will be available to the applicant, as the matter is sub-judice.
iii) Input Tax Credit of the GST paid on Repair & Maintenance service of specified goods viz. Lifts, Sanitary items and underground cables etc. is allowed under CGST Act, 2017.
(MEMBER)