Chhattisgarh HC upholds Section 17(5) CGST Act restrictions but allows case-specific adjudication for immovable property as plant

The Chhattisgarh HC dismissed a writ petition challenging the constitutional validity of clauses (c) and (d) of Section 17(5) of the CGST Act, 2017 regarding input tax credit restrictions. Following the SC precedent in Safari Retreats Private Ltd., the court held these provisions are intra vires and constitutional. However, the SC had established that determining whether construction of immovable property constitutes "plant" requires case-specific adjudication applying a functionality test based on merits and facts. The HC reserved liberty for the petitioner to pursue appropriate proceedings to establish whether their immovable property construction qualifies as "plant" under Section 17(5)(d) of the CGST Act, which would affect input tax credit eligibility. The petition was disposed of with this specific reservation for future proceedings.

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Issues:
Challenge to the constitutional validity of clauses (c) & (d) of Section 17 (5) of the Central Goods and Services Tax Act, 2017.

Analysis:

The petitioner filed a writ petition challenging the constitutional validity of clauses (c) & (d) of Section 17 (5) of the CGST Act. The Government Advocate for the State mentioned that the Supreme Court had already adjudicated on this issue in a specific case. However, the petitioner's counsel argued that the constitutional validity had been upheld by the Supreme Court previously and requested liberty to raise a specific issue related to the application of Section 17 (5) (d) of the CGST Act. The Deputy Solicitor General of India and the State counsel did not oppose this request. The High Court heard both parties and carefully reviewed the material on record.

The Supreme Court had previously considered the constitutional validity of clauses (c) & (d) of Section 17 (5) of the CGST Act in a specific case and held them to be intra vires and not unconstitutional. The Court emphasized that the determination of whether a building can be classified as a "plant" under Section 17 (5) (d) depends on the functionality test and the role the building plays in the registered person's business activities. The Supreme Court remanded the case to the High Court for further assessment on whether a shopping mall qualifies as a "plant" under clause (d) of Section 17 (5). The Supreme Court also highlighted that each case must be decided on its merits by applying the functionality test.

In line with the Supreme Court's decision, the High Court dismissed the writ petition challenging the constitutional validity of the clauses in question. However, the petitioner was granted liberty to raise the specific issue of whether the construction of immovable property amounts to a "plant" under Section 17 (5) (d) of the Act. The petitioner was allowed to pursue this issue in appropriate legal proceedings as per the law. The writ petition was finally disposed of with no costs awarded.

This judgment clarifies the constitutional validity of clauses (c) & (d) of Section 17 (5) of the CGST Act and provides guidance on the application of the functionality test to determine whether a building can be considered a "plant" under the Act. The High Court's decision allows the petitioner to further explore the specific issue raised regarding the construction of immovable property in relation to the Act.

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