2026 (4) TMI 662

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....ed to the respective petitioners under Section 74 of the CGST Act. In W.P.(C) No.23546/2024, the challenge is raised against the Order-in-Original passed under Section 73 of the CGST Act. In all these cases, a common issue that arises, relates to the entitlement of the input tax credit, in respect of a portion of the tax component on which the petitioners have claimed depreciation under the provisions of the Income Tax Act. 2. The issue involved herein has to be decided, based on the interpretation to be given to Section 16(3), Section 17(2) and Section 17(4) of the CGST Act that relate to the claim of input tax credit and the restrictions in granting such reliefs. 3. In W.P.(C) No.29087/2025, which is taken as the leading case, the proceedings were initiated by issuing Ext.P1 show cause notice, based on the information received by the officers of Directorate General of Goods and Service Tax Intelligence, Kochi Zonal Unit that, most of the banking companies are availing Input Tax Credit on the capital goods, in contravention of Section 16(3) and 17(4) of the CGST Act, 2017. Based on the said information, an investigation was initiated against the petitioner in the said writ p....

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....e cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed. 17.(1)*** (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. (3) *** (4) A banking company or a financial institution including a nonbanking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of subsection (2), or avail of, every month, an amount equal to fifty per cent. of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse: PROVIDED that the option once exercised shall not be withdrawn during the remaining part of the financial year: ....

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....ax Credit up to 50% of the actual entitlement, by virtue of Rule 38, the remaining 50% in respect of which the credit is not claimed, shall be reversed in FORM GSTR-3B. Thus, according to the learned senior counsel for the petitioner, as far as the nonavailed portion of the tax component is concerned, the same cannot be subjected to the restriction contemplated under Section 16(3). This submission is made mainly in view of the fact that, the sole purpose behind the prohibition contained in Section 16(3) in availing the depreciation benefits, is to avoid the double benefit being availed by the tax payer; Input Tax Credit under the provisions of the CGST Act and the benefits of depreciation under the provisions of the Income Tax, 1961. However, as far as the non-availed Input Tax Credit under Section 17(4) of the Act, read with Rule 38 of CGST Rules is concerned, there cannot be a case of any double benefit being accrued to the petitioner, as no Input Tax Credit is claimed for the said amount, points out the learned senior counsel. 12. On the other hand, learned senior standing counsel for the respondent opposed the aforesaid contentions, by specifically relying upon the expressio....

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....h difficulties. 15. Thus, 50% has been fixed as the eligible input tax credit, instead of bifurcating the taxable supplies and exempted supplies, as contemplated under Sec.17(2). When we try to understand the scheme of such provisions and the availment of input tax credit, as contemplated in the said provision by fixing 50% as the eligible input tax credit in Sec.17(4), it can be seen that, as per the same, a fiction has been created to the effect that, the remaining 50% is intended to cover the exempt supplies to which input tax credit is not attributable as provided in subsection (2) of Sec.17. 16. Therefore, when the eligibility of input tax credit is restricted to 50% by virtue of that deeming fiction, the applicability of Sec.16(3) and the expression "the said tax component" referred to therein, has to be understood with reference to the input tax credit actually available to the taxpayer concerned. It is to be noted that, since it is an option granted to the banking company, either to adopt the method of availing of input tax credit as contemplated under subsection (2) of Section 17 or to avail the same on 50% of the input tax, as contemplated under subsection (4) of Se....