2024 (11) TMI 978 - HC - GST

GST levy on advances for agreed supply upheld; Input Tax Credit allowed on receipt vouchers under Section 31

L & T IHI Consortium, a consortium of Larsen & Toubro Ltd. and IHI Infrastructure Systems Co. Ltd., Japan Versus Union of India, represented by Secretary, Department of Revenue., State of Maharashtra, represented by the Secretary, Ministry of Finance, GST Council, Deputy Commissioner of State Tax.

Bombay HC rejected petitioner's challenge to constitutional validity of Sections 7, 12, 13, and 16(2)(b) of CGST/MGST Act. Court held that GST levy on ... Scope of Supply - GST on supply “agreed to be made” - Constitutional validity of Sections 7, 12, 13, and 16 of the CGST Act and corresponding MGST Act - Entitlement to Input Tax Credit (ITC) on receipt vouchers - the case of the petitioner is that the petitioner was precluded from availing of the Input Tax Credit (ITC) of the GST paid to L&T (its constituent) for the reason that Section 16 (2) (b) of the CGST and MGST Act provided that no ITC could be taken unless the service had been received - Refund of GST and ITC - HELD THAT:- It is not in dispute that for execution of the project work, purchase orders dated 23 March 2018 back-to-back with the Contract Agreement, were issued by the petitioner to its member, i.e. L & T. Reciprocally the constituent of the petitioner would raise bills on the petitioner for the portion of the work executed by it each month. In turn, the petitioner would raise a single consolidated invoice on the employer (MMRDA). On availing of these advances, the petitioner issued “advance receipt vouchers” to the MMRDA for both the first and second installment of the mobilization advance received by it. Such ‘advance receipt vouchers’ as issued/ executed by the petitioner in favour of the MMRDA, indicated several details inter alia the total amount of advance claimed before tax and the GST amounts payable on such advance and the total invoice value. In State of M. P. Vs. Rakesh Kohli & Anr. [2012 (5) TMI 262 - SUPREME COURT], the Court was considering the challenge whether the High Court was justified in declaring Clause (d) of Article 45 of Schedule 1-A of the Indian Stamp Act, 1899 which was brought in by the Indian Stamp (Madhya Pradesh Amendment) Act, 2002 as unconstitutional being violative of Article 14 of the Constitution of India. In such context, the Supreme Court, not agreeing with the view taken by the High Court, held that the well defined limitation in the constitutional validity of the statute enacted by the Parliament or the State Legislature has not been kept in mind by the High Court. On a plain reading of Section 7, the expression “supply” includes “all forms of supply of goods or services or both”, such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration (as defined under Section 2 (31)) by a person in the course or furtherance of business. It is well settled that every word as contained in the provision as used by the legislature, is required to be given its due meaning, so as to gather the object and intention behind the provision as intended by the legislature. In the context of Section 7 (1) (a), it is apparent that it inter alia includes “all forms of supply of goods or services or both”, of the nature as specified therein which are “made” or “agreed to be made” for a “consideration” by a person in the course or furtherance of business - Once the test in such form is satisfied in relation to the supply of goods or services, the levy of collection of tax under Chapter III and more particularly, Section 9 (charging section) would stand attracted. As to how the expression “in the course or furtherance of business” is legally understood and interpreted by the Courts can be discussed. Adverting to the interpretation of the expression “in the course of business” and in the present context, an expression added to it namely of the words “in furtherance of business”, as used in Section 7 (1) (a) would necessarily mean that the supply is connected to or in relation to the activities in question or is the integral part of such activity. By applying such interpretation, it cannot be denied that once an advance was received by the petitioner in the course of or in furtherance of the contract in question, it would necessarily amount to a supply attracting payment of GST - the legislative intention behind Section 7 is quite clear that such composite contract would fall within the definition of supply as envisaged by Section 7 (1) (a). The petitioner’s case challenging the vires of Section 12 and 13, is to the effect that these provisions are invalid and ultra vires as they apply to ‘supply agreed to be made’, for the reason that Article 246A applies only in respect of the ‘supply of goods or services’ and not in relation to supply “agreed to be made” - It is hence the petitioner’s case that once the actual supply itself is not made, there is no warrant for the levy in question either by virtue of the applicability of Section 7 read with Section 9 and Sections 12 and 13. The petitioner merely referring to the provisions of Article 246A read with Article 366 (12A) of the Constitution which provide that the Parliament as also the State Legislature would be empowered to make laws in respect of goods and services tax to be imposed by the Union or a State, would be required to be interpreted in a broad sense. Thus, the Parliament as also the State Legislature were within their constitutional authority, to not only enact the provisions which are assailed by the petitioner, but also to prescribe / stipulate the manner and the method under which the scheme of the GST laws ought to work, in regard to the applicability of such provisions, was also the domain of the respective legislatures. In the present case as contended on behalf of the petitioner, the provisions of Section 31 read with Rule 36 are being applied by the Revenue to deny the input tax credit to the petitioner on the ground that on account of lack of supply, no invoice was available or issued so as to entitle the petitioner to claim the input tax credit - the rigour and the mandate of sub-section (1) and (2) of Section 31 is not applicable to the operation of sub-section (3) which stands on its independent legs, when it recognises the tax paying documents as referred thereunder. In any event sub-section (3) of Section 31 is also required to be read in the context of the companion provisions namely sub-section (4), (5), (6) and (7). These provisions contemplate a variety of situations, even when at a belated stage, an invoice can be issued and which can be a situation of advance payment being received in relation to the transactions between the parties. Thus, Section 31 is required to be holistically read so as to make the provision meaningful and more particularly in the context in hand. For such reason, when the petitioner satisfied the requirements of Section 31 (3) (d) as also accepted by the revenue to be a tax paying document, it would not be correct in law that the petitioner is denied input tax credit, merely because the petitioner has not complied with the part of the provisions, namely sub-section (1) of Section 31 read with Rule 36. The prayers of the petitioner challenging the constitutional validity and legality of Sections 7, 12, 13 and 16 (2) (b) of the CGST/MGST Act are rejected - It is declared that in the peculiar facts of the case on the basis of Receipt Voucher issued by L&T in favour of the petitioner, the petitioner was entitled to avail the Input Tax Credit under section 16 of the CGST/MGST Act. Petition disposed off. Issues Involved:1. Constitutional validity of Sections 7, 12, 13, and 16 of the CGST Act and corresponding MGST Act.2. Entitlement to Input Tax Credit (ITC) on receipt vouchers.3. Refund of GST paid on advance payments.4. Interpretation of contractual terms concerning GST applicability.Issue-wise Detailed Analysis:1. Constitutional Validity of GST Provisions:The petitioner challenged the constitutional validity of Sections 7, 12, 13, and 16 of the CGST and MGST Acts, arguing that these provisions, by taxing supplies 'agreed to be made,' are ultra vires Articles 246A and 366(12A) of the Constitution. The court analyzed the scope of 'supply' under Section 7, which includes all forms of supply made or agreed to be made for consideration in the course or furtherance of business. The court held that the provisions are constitutional, noting that the legislative intent behind the GST framework is to tax transactions that are integral to business activities, including advance payments, which are part of the contract consideration. The court emphasized that the legislative competence under Article 246A allows for such taxation, and the provisions do not violate Articles 14, 19(1)(g), 265, or 300A.2. Entitlement to Input Tax Credit (ITC):The petitioner contended that denial of ITC on advance payments due to non-receipt of goods/services is arbitrary. The court recognized the peculiar nature of the contract and the legislative intent behind Section 16, which allows ITC for goods/services 'intended to be used' in business. The court concluded that the petitioner was entitled to ITC based on receipt vouchers, as these documents fulfilled the requirements under Section 31(3)(d) and Rule 36 of the CGST Rules. The court emphasized a harmonious interpretation of Sections 13 and 16, allowing ITC even when goods/services are yet to be received, provided the tax has been paid.3. Refund of GST Paid on Advance Payments:The petitioner sought a refund of GST paid on advance payments, arguing that these payments were loans and not taxable under GST. The court noted that the refund issue is pending in a statutory appeal and did not adjudicate on it, leaving the matter open for determination in the pending proceedings. The court highlighted that the advance payments, treated as mobilization advances, were subject to GST as per the contract terms, and the petitioner had voluntarily paid the tax.4. Interpretation of Contractual Terms:The court examined the contractual clauses between the petitioner and MMRDA, particularly Clause 14.2, which referred to advance payments as interest-free loans for mobilization. The court found that these advances were integral to the contract's execution and were part of the contract consideration, thus attracting GST. The court rejected the petitioner's argument that these advances were purely loans, noting that the contractual terms and the parties' conduct indicated otherwise.Conclusion:The court upheld the constitutional validity of the GST provisions, allowing the petitioner to claim ITC based on receipt vouchers. The court left the refund issue open for determination in the pending appeal. The judgment emphasized a purposive interpretation of GST laws, aligning with the legislative intent to tax business-related transactions comprehensively.