2023 (4) TMI 699 - HC - GST

Contractor wins Input Tax Credit case for hotel construction work services under CGST Act Section 17

The HC ruled in favor of the petitioner contractor who provided work contract services for hotel construction. The court held that the petitioner ... Input Tax Credit - works contract services - construction of immovable property - blocked credits under Section 17(5)(c) - penalty under Section 74(1) of CGST Act - entitlement to ITC on inputs and input servicesInput Tax Credit - works contract services - construction of immovable property - blocked credits under Section 17(5)(c) - entitlement to ITC on inputs and input services - Whether the petitioner was entitled to avail Input Tax Credit on goods and services used in providing works contract services for construction of the hotel building - HELD THAT: - The court examined Section 17 and in particular clause (5)(c) which restricts input tax credit in respect of '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.' The petitioner provided works contract services to the owner for construction of a hotel building involving transfer of property in goods in execution of the contract. The Court found that the petitioner was rendering taxable works contract services to the owner (the hotel being an immovable property belonging to Hotel Polo Pvt. Ltd.) and that the goods and services procured were used in effecting those taxable supplies. Applying the statutory scheme, the Court held that the petitioner did not fall within the prohibition in Section 17(5)(c) and was therefore entitled to claim Input Tax Credit on inputs and input services utilized for providing the taxable works contract services.The petitioner was entitled to avail Input Tax Credit on the goods and services used for providing the taxable works contract services for construction of the hotel.Penalty under Section 74(1) of CGST Act - blocked credits under Section 17(5)(c) - Input Tax Credit - Whether the demand and penalty confirmed by the adjudicating and appellate authorities under Section 74(1) for alleged wrongful availment of ITC were sustainable - HELD THAT: - The appellate order under challenge affirmed the adjudicating authority's denial of ITC and confirmation of demand and penalty under Section 74(1). Having held that the petitioner was entitled to claim ITC, the Court concluded that the demand and the penalty premised on the disallowance under Section 17(5)(c) were without lawful foundation. Consequently, the impugned orders confirming the demand and penalty were held to be contrary to law and ultra vires insofar as they sought to deny legitimately available input tax credit and impose penalty thereon.The demand and penalty imposed under Section 74(1) insofar as they rest on denial of ITC under Section 17(5)(c) are quashed.Final Conclusion: The appellate order confirming denial of Input Tax Credit and imposition of penalty was set aside; the writ petition is allowed and the impugned order dated 01.02.2022 is quashed, the petitioner being entitled to the claimed ITC. Issues:The legality and validity of the order passed by the Additional Commissioner (Appeals) under CGST Act challenged.Summary:The petitioner, a construction company, challenged an order by the appellate authority regarding Input Tax Credit (ITC) availed on works contract service for construction of a hotel. The petitioner contended that the denial of ITC was incorrect and lacked reasoning. The respondents raised a demand against the petitioner under Section 74(1) of the CGST Act, alleging a violation of Section 17(5). The appellate authority confirmed the order, leading to the writ petition.The petitioner argued that the appellate authority failed to provide a valid reason for denying ITC on works contract services. The respondents claimed the impugned order was lawful and the charges were clearly specified. The petitioner had already paid a substantial amount as per Section 17(5)(c) of the Act.The Court analyzed Section 17 of the CGST Act and determined that the petitioner, providing work contract services for the construction of a hotel, was entitled to ITC on goods and services used for the contract. The demand and penalty imposed were deemed ultra vires and contrary to the law. Consequently, the impugned order was set aside and quashed.Therefore, the writ petition was allowed and disposed of in favor of the petitioner.