TaxTMI 
TaxTMI 
2026 (10) TMI 211
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....t be examined in the light of the decision of the Hon'ble Supreme Court in Chief Commissioner of Central Goods and Service Tax v. Safari Retreats (P.) Ltd., 2024 INSC 756 ("Safari Retreats"). 2. The appellant, M/s Flora Kingdom Farm Resort, is a partnership firm constituted on 08.02.2018 and registered under GSTIN 29AAFFF7564B1ZD. It runs a resort at D.No. 3-155/1A4, 3-155/1A3, Mallar, Kaup, Udupi, where it supplies room accommodation (SAC 996311) and restaurant and catering services (SAC 996332), and where it also hosts weddings, events and photo shoots. 3. The appellant has filed this appeal under Section 112 against Order-in-Appeal No. GST/AP/389/2024-25 dated 08.12.2025 (Ref. ZD291225071930A) ("the Order-in-Appeal"), passed under Section 107(11) by the Joint Commissioner of Commercial Taxes (Appeals), Mangaluru ("the First Appellate Authority"). That order affirmed the adjudication order No. ACCT/ADT/UDP/73/63/2024-25 dated 13.08.2024 in Form GST DRC-07 (Ref. ZD2908240514363) ("the Order-in-Original"), passed under Section 73 by the Assistant Commissioner of Commercial Taxes (Audit), Udupi ("the Adjudicating Authority"). 4. The Adjudicating Authority held that the cred....
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....NG/INSP-716/2023-24 dated 30.12.2023 of the Joint Commissioner of Commercial Taxes (Enforcement), West Zone, Mangaluru, in the presence of Sri Gaurav Shridhara Shenava, a partner. By its letter dated 29.01.2024, the appellant furnished its registers, financial statements and sales details. 9. On 12.04.2024, the Deputy Commissioner (Enforcement) issued an intimation in Form GST DRC-01A (Ref. ZD2904240295375) under Section 73(5) read with Rule 142(1A) of the CGST Rules. It stated that the appellant had availed credit through its returns in Form GSTR-3B for 2019-20 on goods and services procured "for construction" of an immovable property, namely a commercial complex, and that such credit was not admissible under Section 17(5)(d). It proposed tax of Rs.9,93,894 (Rs.4,96,947 each under CGST and SGST) and interest of Rs.7,00,900 (Rs.3,50,450 under each head, for 1,430 days), in all Rs.16,94,794. The appellant filed a reply in Part B of the form on 22.04.2024. Show cause notice and reply 10. The Deputy Commissioner (Enforcement) then issued a show cause notice in Form GST DRC-01 (No. DCCT/Enf/UDP/DRC-01/716/2023-24; Ref. ZD290524061797T) dated 20.05.2024 under Section 73(1). It ....
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....ne into the building and had been capitalised under other heads, and undertook to furnish an invoice-wise list. 13. By a written submission dated 07.08.2024, and a list of invoices sent by e-mail on 09.08.2024, the appellant identified purchases of Rs.1,87,68,688.13 across its years of construction, under five heads: furniture and fittings, electrical equipment, air-conditioners, generators, and items expensed off. For 2019-20, the list identified three heads: electrical equipment (ITC Rs.62,000), air-conditioners (ITC Rs.80,944.60) and purchases expensed off (ITC Rs.4,978.32), aggregating Rs.1,47,922.92. No furniture or generator appears in the list for 2019-20. Adjudication 14. By the Order-in-Original dated 13.08.2024, the Adjudicating Authority did four things: (a) It declined to follow the decision of the Hon'ble Orissa High Court in Safari Retreats, because the Revenue's special leave petition against that decision was pending and the matter was, in its words, "sub-judice". (b) It accepted the appellant's list for 2019-20, and excluded the ITC on the invoices in it. The order does not state the amount excluded, but the figures show it: the tax fell ....
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....d additional submissions. Order of the First Appellate Authority 20. The First Appellate Authority framed a single question: whether the Adjudicating Authority was justified in restricting credit on the materials used to construct a commercial building. It reproduced clause (d) in its original form, with the words "plant or machinery"; referred to Section 3(26) of the General Clauses Act, 1897 for the meaning of immovable property; and held that the decisions cited were "not applicable", since Section 17(5) "unambiguously and in clear terms" restricts credit. It upheld the interest under Section 50 and the penalty under Section 73(9), and dismissed the appeal. 21. The Order-in-Appeal does not refer to Safari Retreats, which had been decided fourteen months earlier and on which the appeal was founded, or to the amendment to clause (d), which had come into force before the order was passed. Nor does it refer to the appellant's plea that the balance credit included items that never went into the building. 22. It describes the appellant's case as the construction of a commercial complex "for the purpose of letting out the same for monthly rent". The grounds of appeal spoke ....
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.... element was alleged. We therefore turn to the merits. D. CASE OF THE APPELLANT 28. The following submissions were made on behalf of the appellant by the learned Authorised Representative: (a) It was submitted that the resort is a "plant". In Safari Retreats, it was held by the Hon'ble Supreme Court that "plant or machinery" in clause (d) is distinct from the defined expression "plant and machinery", so that the exclusion of buildings from the definition does not govern clause (d). A building which is the essential tool of a business is a "plant" on the functionality test. The resort, with its rooms, event spaces and installations, is not a mere shelter for the business but the apparatus through which accommodation, events and banqueting are supplied. (b) It was submitted that the resort was not built "on his own account", since construction undertaken to make taxable supplies is not construction on one's own account; the expression must be read purposively, and parts of the resort are let out for weddings, events and photo shoots. (c) It was submitted that the orders below are unreasoned. The First Appellate Authority, deciding the appeal more than....
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....erest cannot mechanically follow the tax demand, and must independently satisfy Section 50(3) read with Rule 88B with reference to actual utilisation. (e) It was submitted that the penalty under Section 73(9), imposed in proceedings not founded on fraud or suppression, is consequential and must be deleted or recomputed to the extent the credit is allowed. 30. The appellant accordingly prays that the orders be set aside or modified; that credit be allowed on movable assets, machinery, equipment, furniture, fixtures and other inward supplies that have not become part of the immovable property, "subject to verification"; and that the tax, interest and penalty be deleted or recomputed. E. CASE OF THE RESPONDENT 31. The learned Departmental Representative supported the orders below. The following submissions were made on behalf of the Respondent, orally and in the written submissions of 02.09.2026: (i). It was submitted that Section 17(5) opens with a non obstante clause that overrides Section 16(1). Clause (d) blocks credit on construction of an immovable property on one's own account "including when" the goods or services are used in the course or furtheranc....
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....ermination, the decision thereon and the reasons for such decision." 34. It was held by the Hon'ble Supreme Court in Kranti Associates (P) Ltd. v. Masood Ahmed Khan, (2010) 9 SCC 496, that a quasi-judicial authority must record reasons for its conclusions. Reasons show that the mind of the authority was applied to the case the party actually made, and they enable a superior forum to review the decision. Sections 75(6) and 107(12) give statutory form to that principle. 35. When the Order-in-Original was passed on 13.08.2024, Safari Retreats was pending before the Hon'ble Supreme Court. The Adjudicating Authority noted the pendency and decided the case on the statute as it stood. The Hon'ble Supreme Court decided the appeal seven weeks later, and the point has no practical consequence now. 36. When the Order-in-Appeal was passed, Safari Retreats had been decided and clause (d) had been amended. The First Appellate Authority rested its decision on the plain words of Section 17(5). When a judgment of the Hon'ble Supreme Court is cited before an appellate authority, the authority ought to refer to it and say, even briefly, why it does or does not apply. The appellant had cited ....
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....machinery) except where it is an input service for further supply of works contract service; (d) goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation.-For the purposes of clauses (c) and (d), the expression "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;" 41. Explanation 1 at the end of Section 17 defines "plant and machinery": "Explanation 1.-For the purposes of this Chapter and Chapter VI, the expression "plant and machinery" means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises." The decision in Safari Retreat....
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....2 SCC 283, and in Indian Aluminium Co. v. State of Kerala, (1996) 7 SCC 637, that a competent legislature may amend a law with retrospective effect, and that the law so amended governs the periods to which it is made to apply. Section 124 of the Finance Act, 2025 and the corresponding State amendment have been made to apply from 01.07.2017. This Tribunal must therefore read clause (d), for every tax period from that date, including 2019-20, as containing the words "plant and machinery". That expression is defined in Explanation 1, and the definition expressly excludes "land, building or any other civil structures". We apply clause (d) in that form. 46. In doing so, we respectfully follow Safari Retreats in every respect. That judgment construed clause (d) in the words it then bore. We are required to apply clause (d) in the words it is now deemed always to have borne. The validity of the amendment is not questioned before us, and it was fairly submitted on behalf of the appellant that the amendment operates from 01.07.2017. In any event, a tribunal created by statute does not sit in judgment over the validity of the law it administers. The challenges under Articles 14 and 300A, ....
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....f "plant" was inclusive. It did not hold that a hotel building is a "plant". In any event, clause (d) now uses an expression that the CGST Act itself defines, and it is that definition which governs. 50. The argument that denial of credit breaks the chain and cascades into price is, in truth, an argument against the policy of clause (d). The Hon'ble Supreme Court upheld the validity of the clause in Safari Retreats. It was held by the Hon'ble Supreme Court in Jayam & Co. v. Assistant Commissioner, (2016) 15 SCC 125, that input tax credit is a concession created by statute, and not a vested right, and that it is available only to the extent and on the conditions the statute prescribes. Finding on Point (ii): For 2019-20, clause (d) of Section 17(5), under both the CGST Act and the KGST Act, must be read with the words "plant and machinery", as defined in Explanation 1 to Section 17. The resort building and its other civil structures are excluded from that definition. Even under the unamended clause, the functionality test, as framed by the Hon'ble Supreme Court in Safari Retreats, did not extend to a hotel, and so was not available to the resort building. Credit on goods and s....
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....rom the expression "is to disallow credit of the inputs to any person [who] constructs the immovable property to use in his own business". The appellant thus accepted that clause (d) denies credit to a person who constructs an immovable property for use in his own business. In the same reply, the appellant described the resort as a commercial complex "being used in the course or furtherance of business", and described itself as "engaged in the business of renting the premise for Destination weddings, Events, Stays, renting as a Photo shoot Location". The two statements, read together, settle the point. By the appellant's own explanation, a building constructed for use in one's own business is constructed on one's own account. The appellant has built the resort for use in its own business. The resort is, therefore, constructed on the appellant's own account. The record points the same way. The appellant is registered for, and supplies, room accommodation (SAC 996311) and restaurant and catering services (SAC 996332). In Form GST APL-05 it describes its business as "Resort, Restaurant, Convention Centre and Hospitality Services". A guest who takes a room receives the ....
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.... its own account. The appellant has not shown that any part of it was built for sale, lease or licence to others. Credit on goods and services received for constructing the resort building and its civil structures is blocked by clause (d). Point (iv): The balance credit 58. Clause (d) does not block every purchase made by the owner of a resort. It blocks only goods and services "received ... for construction of an immovable property". Two questions must therefore be asked of every disputed item. First, was it received for the construction of the building or another civil structure? If it was not, as with furniture, movable fixtures, or equipment bought and used as such, clause (d) is not engaged, and eligibility is governed by the rest of Sections 16 and 17. Second, if it was, is the resulting property "plant and machinery" as defined? If so, the credit is not blocked; if not, it is. 59. In answering those questions, neither the books of account nor the label given to an item can be decisive. The words "to the extent of capitalisation" in the Explanation to Section 17(5) qualify the extended meaning of "construction"; they do not make the fixed-asset register the test of w....
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...., that each item went into construction. We are unable to accept the submission. Section 155 places the burden of proving eligibility on the person who claims the credit. The Adjudicating Authority did not itemise the balance, and its order would have been the better for doing so. However, the balance is simply what remains after everything the appellant identified was allowed. The appellant has had three opportunities, before the Adjudicating Authority, before the First Appellate Authority and before us, to point to anything else, and has not done so. Finding on Point (iv): The Adjudicating Authority allowed all the ITC that the appellant identified for 2019-20 as falling outside clause (d), namely Rs.1,47,922.92. The appellant has identified nothing further, and has not shown that any part of the balance credit of Rs.8,45,972 lies outside clause (d) or is "plant and machinery" as defined. The balance credit is blocked. Point (v): Interest and penalty 64. Section 50(3) and Rule 88B(3) of the CGST Rules, so far as relevant, read: "50. (3) Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax cr....
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....e show cause notice, so sub-section (8) did not relieve it of the penalty. Sub-section (9) then required a penalty of ten per cent of the tax, or ten thousand rupees, whichever is higher. It is not a penalty for fraud or suppression, and none was alleged. The tax being sustained, the penalty of Rs.84,598 (Rs.42,299 under each head, being ten per cent. of the tax) stands. Finding on Point (v): The interest of Rs.1,607 under Section 50(3) read with Rule 88B, and the penalty of Rs.84,598 under Section 73(9), are correctly computed and are sustained. H. SUMMARY OF CONCLUSIONS 68. We state our conclusions as follows: (i). By Section 124 of the Finance Act, 2025 and the corresponding State amendment, clause (d) of Section 17(5) must be read, for every period from 01.07.2017, with the defined expression "plant and machinery". A building or other civil structure is excluded from that definition and cannot come within the exception in clause (d). (ii). Even before the amendment, the Hon'ble Supreme Court in Safari Retreats framed the functionality test for "a mall, warehouse or any building other than a hotel or a cinema theatre". A hotel or resort building, used ....