Remand for de novo review: apply SC principles on section 17(5)(d) CGST to decide if building is plant

HC set aside the impugned order dated 30.08.2024 and remanded the matter for de novo reconsideration, directing the tax authority to apply the SC's principles on section 17(5)(d) CGST regarding the meaning of "plant or machinery" and the factual inquiry whether a building serves as a plant in the taxpayer's business. Issues regarding eight invoices, inconsistencies between Form GSTR-3B and GSTR-9 entries, and other contentions were left open for fresh consideration. Petition allowed by way of remand.

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The core issue in this case is the determination of tax liabilities and the eligibility for input tax credit (ITC) under the Central Goods and Services Tax Act, 2017 (CGST Act), specifically regarding the construction of immovable property by the petitioner, who is engaged in retail trading, leasing, and wholesale trading. The petitioner contested the disallowance of ITC on works contract services used in constructing shopping malls, arguing that the output supply was not works contract service and thus should be eligible for ITC.

The legal framework centers on Section 73 of the CGST Act, which deals with the determination of tax not paid or short paid or erroneously refunded, and Section 17(5) concerning restrictions on ITC. The petitioner relied on the Supreme Court's decision in Chief Commissioner of Central Goods and Service Tax & Ors. v. M/s Safari Retreats Private Ltd. & Ors, which interpreted Section 17(5)(d) and the definition of 'plant or machinery.' The Court in Safari Retreats held that buildings essential for carrying out business activities could be classified as 'plant' and thus eligible for ITC if they meet the functionality test.

The Court's analysis focused on whether the impugned order considered the principles established in Safari Retreats. The petitioner argued that the order was inconsistent with the statutory instructions and failed to apply the functionality test to determine if the construction of shopping malls qualified as 'plant.' The Court found that the assessment order did not consider the Safari Retreats decision, which was declaratory and applicable to the petitioner's case.

The Court concluded that the impugned order was perverse for not applying the legal principles from Safari Retreats, warranting a de novo reconsideration. The Court set aside the order and directed the respondent to reassess the matter, considering the functionality test and the specific instructions related to ITC reporting in Form GSTR-3B and GSTR-9. The Court emphasized that the petitioner should be given a fair opportunity to present its case during the reassessment.

Significant holdings from the judgment include the Court's recognition of the declaratory nature of the Safari Retreats decision, which impacts the interpretation of Section 17(5) of the CGST Act. The Court underscored the necessity of applying the functionality test to determine if a building qualifies as 'plant' for ITC purposes. The final determination was to set aside the impugned order and mandate a fresh assessment, ensuring compliance with the legal principles established in relevant precedents.

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