2024 (10) TMI 1245 - HC - GST

Authority for Advance Ruling must apply functionality test not dictionary definitions for section 17 CGST Act exclusion

Western Concessions Pvt Ltd. Versus Union of India, Commissioner of Central Goods and Service Tax, Navi Mumbai, Assistant Commissioner of Central Goods and Services Tax Navi Mumbai.

The Bombay HC set aside orders by the Authority for Advance Ruling and Appellate Authority regarding constitutional validity of exclusion (iii) to ... Constitutional validity of exclusion (iii) to Explanation to section 17 of the CGST Act - ultra vires to the provisions of the CGST Act or not - applicability of exclusion (iii) to Explanation to section 17 of the CGST Act in case of service providers - HELD THAT:- The authorities under the Advance Ruling have primarily analysed the matter from the perspective of definitions of ‘plant’ and machinery by relying upon various dictionaries. Though there are some references to the functions, it is not as if the matter has been examined by focusing on the functionality test. The Hon’ble Supreme Court, in its judgment and order dated 3 October 2024 [2024 (10) TMI 286 - SUPREME COURT], has held that in each such case, a fact-finding enquiry is contemplated. Such an enquiry is necessary, inter alia, because such matters will have to be decided by recourse to the functionality test. Possibly, when the Advance Ruling Authorities decided the matter, the Petitioner had yet to establish the requisite infrastructure - Respondents, is also justified in contending that the scope of judicial review in such matters is relatively minimal and, therefore, typically, determination of questions of fact not entered into unless a case of perversity is made out. However, that does not mean that a party should be deprived of an opportunity to place all relevant facts before the fact-finding authority given the circumstances arising from the Hon’ble Supreme Court’s judgment. The order made by the Authority for Advance Ruling and the order dated 7 December 2019 made by the Appellate Authority set aside - matter remanded to the AAR for a fresh ruling in the light of the observations made by the Hon’ble Supreme Court. Issues:1. Constitutional validity of exclusion (iii) in the explanation to Section 17 of the CGST Act.2. Application of functionality test in determining the qualification of pipeline as plant or machinery.3. Scope of judicial review in matters of fact findings by Advance Ruling Authorities.Analysis:1. The Petitioner sought relief challenging the constitutional validity of exclusion (iii) in the explanation to Section 17 of the CGST Act. The Hon'ble Supreme Court's judgment in Civil Appeal No. 2948 of 2023 upheld the validity of the provision. However, the Court noted that the explanation applies only to Clause 17(5)(c) and not to 17(5)(d). The Petitioner argued that the functionality test was not considered in the impugned orders, which applied the explanation to sub-Clause (d). The Respondents contended that the pipeline did not qualify as plant or machinery based on the findings of the Advance Ruling Authorities.2. The Court recognized that the Advance Ruling Authorities did not have the benefit of the Supreme Court's judgment when making their decisions. The Court emphasized the need to apply the functionality test in determining whether a building qualifies as a plant. It was observed that the authorities primarily relied on dictionary definitions rather than focusing on the functionality test. The Petitioner was granted an opportunity to present additional material to the Advance Ruling Authorities to assess the matter in light of the functionality test.3. While acknowledging the minimal scope of judicial review in factual matters, the Court emphasized the importance of allowing parties to present relevant facts, especially in light of the Supreme Court's judgment. The Court set aside the orders of the Advance Ruling Authority and the Appellate Authority, remanding the matter to the Advance Ruling Authority for a fresh ruling considering the observations of the Supreme Court. The Petitioner was granted liberty to submit additional material within a specified timeline, and all parties' contentions were left open for further consideration. The Rule was made absolute without any cost order, directing all parties to act in accordance with the Court's order.