Loading...

Top
Help
×

By creating an account you can:

Logo TaxTMI
Call Us / Help / Feedback

Contact Us At :

E-mail: [email protected]

Call / WhatsApp at: +91 99117 96707

For more information, Check Contact Us

FAQs :

To know Frequently Asked Questions, Check FAQs

Most Asked Video Tutorials :

For more tutorials, Check Video Tutorials

Submit Feedback/Suggestion :

Email :
Please provide your email address so we can follow up on your feedback.
Category :
Description :
Min 15 characters 0/2000
Make Most of Text Search
  1. Checkout this video tutorial: How to search effectively on TaxTMI.
  2. Put words in double quotes for exact word search, eg: "income tax"
  3. Avoid noise words such as : 'and, of, the, a'
  4. Sort by Relevance to get the most relevant document.
  5. Press Enter to add multiple terms/multiple phrases, and then click on Search to Search.
  6. Text Search
  7. The system will try to fetch results that contains ALL your words.
  8. Once you add keywords, you'll see a new 'Search In' filter that makes your results even more precise.
  9. Text Search
Add to...
You have not created any category. Kindly create one to bookmark this item!
Create New Category
Hide
Title :
Description :
❮❮ Hide
Default View
Expand ❯❯
Close ✕
🔎 TMI Notes - Adv. Search
TEXT

Press 'Enter' to add multiple search terms. Rules for Better Search

Search In
Main Text + AI Text
  • Main Text
  • Main Text + AI Text
  • AI Text
Law:
---- All Laws----
  • ---- All Laws----
  • Benami Property
  • Bill
  • Central Excise
  • Companies Law
  • Customs
  • DGFT
  • FEMA
  • GST
  • GST - States
  • IBC
  • Income Tax
  • Indian Laws
  • Money Laundering
  • SEBI
  • SEZ
  • Service Tax
  • VAT / Sales Tax
Types:
---- All Types ----
  • ---- All Types ----
  • Act Rules
  • Case Laws
  • Circulars
  • Manuals
  • News
  • Notifications
Sort By: ?
In Sort By 'Default', exact matches for text search are shown at the top, followed by the remaining results in their regular order.
Relevance Default Date
    Input Tax Credit Eligibility under the CGST Act: Supplier Tax Non-Payment and Recipient ITC Claims: ...
    Actionable Claims, Contingent Winnings and Gross Valuation in GST on Gaming Transactions
    Invocation of Extended Limitation under Section 74 of the CGST Act: Foundational Facts, Prima Facie ...
    Assignment of Leasehold Rights in Industrial Plots under the CGST Act: Distinguishing Lease Services...
    Service of GST Show Cause Notices and Orders through the Common Portal: Validity of Service, Hearing...
    News GST
    Bill-To Ship-To E-Way Bill Compliance, Portal Closure and Transit Controls: GST E-Way Bills: Rule 13...
    E-Way Bill Requirements Under Rule 138: GST E-Way Bill Framework for Movement of Goods, Transit Docu...
    Case Laws Customs
    Limits of Website Upload (of Notifications) as Notice for Delegated Legislation Where the Parent Sta...
    Case Laws Indian Laws
    Illegality of Arrest and Remand for Non-Supply of Written Grounds: The Two-Hour Pre-Remand Standard ...
    When Trademark Ownership Controversies Fall Outside Insolvency Adjudication: Application of the 'Nex...
    Locus Standi - Intervention by Homebuyer Societies in Insolvency Proceedings: Statutory Limits under...
    News Bill
    Rates of income-tax in respect of income liable to tax for the assessment year 2026-27 for the purpo...
    News Bill
    Tax rates under section 115BAC of the Income-tax Act, 1961
    News Bill
    Individual, HUF, association of persons, body of individuals, artificial juridical person.
    News Bill
    Co-operative Societies
    News Bill
    Firms
    News Bill
    Local authorities
    News Bill
    Companies
    News Bill
    Rates of income-tax in respect of income liable to tax for the tax year 2026-27 for the purposes of ...
    News Bill
    Tax rates under section 202
❯❯
Maximize Maximize Maximize
0 / 200
Expand Note
Add to Folder

No Folders have been created

+

Are you sure you want to delete "My most important" ?

NOTE:

Notes
Showing Results for :
Reset Filters
Results Found:
Show All Summaries Hide All Summaries
Case Laws GST
Show AI Summary
Supplier tax payment remains a substantive input tax credit condition, requiring reversal and allowing re-availment after compliance.
Section 16(2)(c) of the CGST Act makes actual payment of tax to the Government a substantive condition for input tax credit. The conditions under Section 16(2) operate cumulatively, and invoice reflection, receipt of supplies, or supplier return filing do not independently establish tax payment. Section 41 requires reversal of credit where the supplier has not paid tax, with re-availment allowed after payment. Rule 37A prescribes reversal and re-availment where the supplier fails to furnish the corresponding GSTR-3B within the prescribed period.
Case Laws GST
Show AI Summary
GST valuation of stake-based gaming treats committed stakes as consideration for taxable actionable claims, irrespective of skill.
GST on stake-based gaming applies to the supply of actionable claims where money or money's worth is committed to an uncertain outcome in an organised betting or gambling arrangement. Skill in the underlying game does not remove the stake-based character of the transaction. Participants acquire contingent beneficial interests in pooled movable property, and committed stakes become consideration for participation. The platform is the supplier where it controls pooling, participation, gameplay and payouts. Gross stake valuation applies unless a statutory deduction is authorised, with specialised valuation mechanisms governing online gaming and casinos.
Case Laws GST
Show AI Summary
Extended GST limitation requires disclosed prima facie material linking tax shortfall to fraud, wilful misstatement, or suppression.
Section 74 permits extended GST limitation only where available material supports a rational prima facie view that a tax shortfall, erroneous refund or wrongful credit arose by reason of fraud, wilful misstatement or suppression of facts to evade tax. Final proof is not required at initiation, but suspicion or bare statutory labels are insufficient. Prior scrutiny, audit, inspection or pre-notice communications may provide the factual foundation if actually communicated and linked to the notice. The notice and final order must preserve fair opportunity, disclose the material basis, and remain within the grounds stated.
Case Laws GST
Show AI Summary
Complete assignment of industrial leasehold rights can fall outside GST when it transfers the entire proprietary estate.
A complete assignment of an industrial lessee's entire leasehold interest, together with the building on the plot, is distinguished from leasing, renting, or sub-leasing. Where the assignor retains no reversionary interest or continuing right to earn rent, the consideration is for transfer of proprietary rights constituting benefits arising out of land. Schedule II classification of an original lease as a service does not govern the subsequent absolute assignment. Section 7(2), read with Schedule III, excludes a qualifying transfer of immovable-property benefits from the scope of supply.
Case Laws GST
Show AI Summary
Common Portal service requires effective access to complete GST notices and orders, preserving hearing rights and appellate limitation.
GST service through the Common Portal is an express statutory mode, but portal availability must be distinguished from effective service of an adjudicatory communication. Rule 142 preserves the distinction between a substantive show cause notice or order and its electronic summary in FORM GST DRC-01 or DRC-07. Electronic summaries do not, without more, demonstrate communication of complete allegations, grounds, facts and reasons. Portal-based service must be assessed by statutory compliance, accessibility of the complete communication, and the taxpayer's real opportunity to respond, particularly where appellate limitation is involved.
News GST
Show AI Summary
E-way bill compliance strengthens traceability through Ship-To GSTIN capture, voluntary closure, and disciplined transit controls.
Rule 138 and Rule 138A require pre-movement e-way bill generation, carriage of the prescribed invoice or challan documents, and distance-based validity, with cancellation confined to cases where goods are not transported as declared. The portal advisory adds mandatory Ship-To GSTIN capture in Bill-To/Ship-To transactions and a voluntary post-delivery closure facility, while circular guidance treats transporter godowns as an additional place of business when declared by the recipient. Enforcement under Section 129 and Section 130 distinguishes detention for transit contravention from confiscation linked to intent to evade tax, and minor e-way bill defects are described as technical lapses rather than automatic proof of evasion.
Act Rules GST
Show AI Summary
E-way bill compliance under GST rules governs prior movement information, transit documents, validity, cancellation, and special goods regimes.
Rule 138 of the Central Goods and Services Tax Rules, 2017 governs the e-way bill system for movement of goods and requires prior electronic information before movement begins in specified cases, generally where consignment value exceeds fifty thousand rupees. The rule allocates responsibility for Part A and Part B of FORM GST EWB-01 among registered persons, authorised transporters, e-commerce operators, courier agencies and fallback transporters, while also covering special cases such as job work, handicraft goods, consolidated movement and transport by road, rail, air or vessel. Rule 138A specifies the documents that must accompany the conveyance, Rule 138 provides validity, cancellation and exemption rules, and Rule 138F creates a special intra-State regime for notified precious goods.
Case Laws Customs
Show AI Summary
Import regulation: Gazette publication is required before a notification binds importers; website uploads do not suffice for enforceability.
Publication in the Official Gazette is a condition precedent to the enforceability of notifications under Section 3 of the Foreign Trade (Development and Regulation) Act, 1992; website uploads cannot substitute for Gazette promulgation. Internal references to the "date of this Notification" must be read as the Gazette publication date, and where a notification incorporates paragraph 1.05(b) of the Foreign Trade Policy, transitional protection applies if its objective conditions (LC established before imposition, timely registration, shipment within validity) are satisfied.
Case Laws Indian Laws
Show AI Summary
Arrest communication: written grounds generally required; oral only temporarily, written copy at least two hours before remand.
The obligation to communicate grounds of arrest applies across statutes and, as a rule, must be met by supplying written grounds in a language the arrestee understands. In exceptional exigencies oral communication at arrest is permissible temporarily, but a written copy must be provided within a reasonable time and no later than two hours before production for remand; remand papers must include the grounds and explain any delay. Non compliance renders the arrest and remand illegal, though authorities may seek fresh custody after supplying written grounds with reasons for earlier non supply.
Case Laws IBC
Show AI Summary
Trademark ownership disputes in insolvency require a clear nexus to CIRP; complex title issues belong to full proceedings.
A disputed trademark cannot be declared an asset of the corporate debtor in summary CIRP proceedings absent a demonstrable nexus with insolvency; where title turns on contested private transactions and rival claims, the approved resolution plan governs stakeholders and summary disposition that effectively alters plan rights is impermissible. Avoidance conclusions require properly pleaded applications, material and notice; absent these safeguards, invoking preferential or undervalued transaction provisions in collateral proceedings violates natural justice.
Case Laws IBC
Show AI Summary
Homebuyer societies' intervention in insolvency is limited; representation must follow authorised representative routes post-admission.
Locus standi under the IBC is stage-sensitive: pre-admission proceedings are in personam and participation is confined to the applicant and corporate debtor, while post-admission proceedings are in rem and allow broader standing subject to statutory channels. Individual allottees recognised as financial creditors must be represented through the Code's authorised-representation mechanisms rather than by separate societies asserting membership rights, and inherent tribunal powers cannot create substantive participatory rights absent statutory basis.
News Bill
Show AI Summary
Income-tax rates for assessment year 2026-27 remain unchanged; schedule placement for advance tax and salary TDS is preserved.
Tax rates for assessment year 2026-27 remain unchanged and continue to be prescribed either in specific sections of the Income-tax Act (including concessional regimes for domestic companies, cooperative societies and the alternate individual regime) or in the First Schedule. Rates formerly listed in Part III of the First Schedule to the Finance Act, 2025 - used for advance tax computation, TDS from salaries and charging tax payable in certain cases - are reclassified as Part I of the First Schedule for AY 2026-27.
News Bill
Show AI Summary
Tax rates under section 115BAC prescribe slab rates up to 30% with surcharge tiers and caps on dividend and capital gains.
Section 115BAC(1A) sets default slab rates for certain resident taxpayers ranging from nil up to 30% above Rs.24,00,000; these apply unless an option under section 115BAC(6) is exercised. Income-tax under clause (1A)(iii) is subject to surcharge tiers (10%, 15%, 25%) based on total-income thresholds, with the surcharge on dividend income and specified capital gains capped at 15% and a 15% cap also for associations of persons consisting only of companies. Marginal relief is available.
News Bill
Show AI Summary
Individual tax rates set in the Finance Bill 2026: progressive slabs with higher nil thresholds for senior residents.
The Finance Bill 2026 prescribes progressive income-tax slabs for individuals, HUFs, associations of persons, bodies of individuals and artificial juridical persons: nil up to Rs. 2,50,000; 5% on Rs. 2,50,001-5,00,000; 20% on Rs. 5,00,001-10,00,000; 30% above Rs. 10,00,000; with higher nil thresholds for resident senior citizens (Rs. 3,00,000 for 60-79 years; Rs. 5,00,000 for 80+), and states these rates mirror the prior year.
News Bill
Show AI Summary
Co-operative societies: the Finance Bill preserves the existing three-band income-tax rate structure (10%, 20%, 30%).
Specified income-tax rates for co-operative societies are set out in Paragraph B of Part I-A of the First Schedule to the Finance Bill. The Bill retains the existing three-band structure: 10% on income up to the first band, 20% on the middle band, and 30% on income above the top band, thereby preserving the prior rate structure for co-operative societies.
News Bill
Show AI Summary
Firms' income-tax rate unchanged at 30% under the Finance Bill, specified in Paragraph C of Part I-A.
The Finance Bill specifies the income-tax rate for firms in Paragraph C of Part I A of the First Schedule, maintaining the rate at 30%.
News Bill
Show AI Summary
Local authorities: income-tax rate remains 30% under Paragraph D of Part I-A of the First Schedule in the Finance Bill.
The Finance Bill specifies the income-tax rate for local authorities in Paragraph D of Part I-A of the First Schedule, fixing the rate at 30% and maintaining continuity for that taxpayer category.
News Bill
Show AI Summary
Union Budget corporate tax: 25% for smaller domestic firms, 30% generally, 35% for non-domestic, plus surcharge and 4% cess.
Domestic companies with turnover or gross receipts up to Rs. 400 crore are taxed at 25%; other domestic companies at 30%; non-domestic companies at 35% on income other than that chargeable at special rates. Surcharge rates are unchanged, with the surcharge not applying to income of a specified fund and with a 25% cap on surcharge for persons under the referenced preferential regime for income above Rs. 5 crore (excluding dividend income and certain capital gains). Marginal relief is provided where surcharge applies. A 4% Health and Education Cess applies on income-tax inclusive of surcharge, with no marginal relief for the cess.
News Bill
Show AI Summary
Income-tax rates for 2026-27 remain unchanged across specified sections and Part I-B of the First Schedule.
Income-tax rates for the tax year 2026-27 remain unchanged: rate provisions in the Act for domestic companies, individuals/HUFs/AOPs/BOIs/AJPs and cooperative societies and the rates set out in Part I-B of the First Schedule to the Bill are not amended and the existing rate structures continue to apply.
News Bill
Show AI Summary
Tax rates under section 202 set default slabs with surcharge bands, surcharge caps for specified cases, and marginal relief.
Tax rates under section 202 set graded default income-tax slabs for specified taxpayers for 2026-27, subject to an option to elect an alternative regime; a surcharge applies to higher total income bands (with inclusion rules for dividend income and capital gains), surcharge caps where alternative provisions apply and for certain associations of persons, and marginal relief to alleviate threshold impacts.

TMI Notes

Back

All TMI Notes

Showing Results for :
Reset Filters
No Records Found

TMI Notes

Back

All TMI Notes

Renting of Immovable Property and Blocked Input Tax Credit under Sections 16 and 17(5) of the CGST Act

24 September, 2026

Contents
Acts
Plus +
Summary
Note

Note

-

Bookmark

Print

Print

This is a neutral professional article. The judgment is analysed in the context of its factual background, issues framed, and conclusions reached by the Court.

2026 (7) TMI 220 - MADRAS HIGH COURT

At a Glance

  • Renting of immovable property is treated as a supply of services under Schedule II. That characterisation does not, by itself, make construction-related input tax credit available.
  • The general entitlement in Section 16 is expressly subject to statutory restrictions. The central restriction for property developers and lessors is contained in Section 17(5)(c) and (d).
  • Section 17(5)(c) blocks credit on works contract services used for construction of immovable property, except where the service is an input service for further supply of works contract service. Section 17(5)(d) separately blocks credit on goods or services received for construction of immovable property on the taxpayer's own account, even where used in the course or furtherance of business.
  • The decision reported as 2026 (7) TMI 220 - MADRAS HIGH COURT holds, on its facts, that a taxpayer engaged in renting and leasing could not claim construction-related credit merely because rental receipts were taxable. The Court also sustained invocation of the fraud-and-suppression demand provision.
  • The distinction between a building constituting ordinary immovable property and a building that may satisfy the functionality test as a "plant" was recognised in 2024 (10) TMI 286 - Supreme Court. The inquiry is fact-specific and cannot be presumed from the fact that a building is commercially let out.

Background & Context

The dispute arose from availment of input tax credit on construction-related inputs, capital goods and services by a taxpayer whose outward activity was renting and leasing of immovable property. The credit covered, among other things, construction materials, sanitary and plumbing materials, electrical goods, architecture, landscaping, construction and labour services, works contract services, and related expenditure.

The taxpayer had initially refrained from taking credit because of the restrictions in Section 17(5)(c) and (d). It subsequently claimed credit after a High Court decision had read down Section 17(5)(d) in the context of property constructed for letting out. That earlier approach treated a continuing stream of taxable rent as preserving the tax chain and therefore as warranting credit.

The Court rejected the taxpayer's challenge to the demand. It held that the subsequent availment was contrary to the statutory restrictions and was also beyond the applicable time limit under Section 16. The Court further held that a unilateral communication seeking departmental approval, which was never approved or answered, could not create a bona fide basis for availment of blocked credit or defeat proceedings under Section 74.

The decision is significant because it separates two propositions that are often conflated: first, renting is a taxable supply of services; secondly, the construction-stage inward supplies satisfy the independent conditions for credit. Under the CGST framework, the former does not neutralise a specific blocked-credit provision.

Key Issues / Provisions

Renting and works contract as supplies of services

Schedule II, paragraph 5(a), provides that "renting of immovable property" shall be treated as a supply of services. Paragraph 6(a) likewise treats a "works contract as defined in clause (119) of section 2" as a composite supply of services.

The relevant definition in Section 2(119) describes a works contract as a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of immovable property where transfer of property in goods is involved in execution of the contract. This definition is material because Section 17(5)(c) specifically addresses works contract services.

General entitlement and time limit

Section 16(1) confers entitlement to credit of input tax charged on supplies used or intended to be used "in the course or furtherance of" business, subject to prescribed conditions and restrictions. This opening entitlement is not absolute. Section 16(2) additionally requires, among other conditions, possession of the prescribed tax document, receipt of goods or services, payment of tax to the Government in the prescribed manner, and furnishing of the return.

Section 16(4) states that credit on an invoice or debit note cannot be taken after the thirtieth day of November following the end of the relevant financial year or furnishing of the relevant annual return, whichever is earlier. The statutory text also contains specific provisions for identified earlier financial years. For the dispute decided in 2026 (7) TMI 220 - MADRAS HIGH COURT, the Court held that the credit had not been availed within the applicable Section 16 time limit. That conclusion governs the case decided.

Blocked credits for construction of immovable property

Section 17(5) begins with a non-obstante clause: "Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available" in respect of the specified categories. Thus, even a business nexus under Section 16(1) cannot prevail over a credit block within Section 17(5).

Section 17(5)(c) blocks credit on "works contract services when supplied for construction of an immovable property" other than plant and machinery. The express exception is where the works contract service is an input service for further supply of works contract service. A person supplying renting services is not, merely because of that outward supply, within this further-supply exception.

Section 17(5)(d) blocks credit on "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." The words "including when" are consequential: commercial use, including use for an outward rental business, does not on its own remove the bar.

Explanation 1 to Section 17(5)(c) and (d) provides that "construction" includes reconstruction, renovation, additions, alterations or repairs, to the extent capitalised to the immovable property. The Explanation to Section 17 defines "plant and machinery" as apparatus, equipment and machinery fixed to earth by foundation or structural support and used for making outward supplies; it includes the relevant foundations and structural supports, but excludes land, building or other civil structures, telecommunication towers and pipelines laid outside factory premises.

The supplied statutory text also contains Explanation 2 to Section 17(5)(d), which clarifies that, notwithstanding anything contrary in any judgment, decree or order, a reference to "plant or machinery" in clause (d) shall be construed, and shall always be deemed to have been construed, as a reference to "plant and machinery." The precise consequence of this text for a particular credit period must be assessed against the statutory provisions applicable to that period and the facts of the claim.

Detailed Analysis

Taxable rent does not displace the construction credit block

The Court in 2026 (7) TMI 220 - MADRAS HIGH COURT treated the statutory embargo as decisive. The taxpayer's business of renting and leasing did not alter the character of inward construction-related goods and services as supplies used for construction of immovable property on its own account. The Court therefore held that the credit was impermissible under Section 17(5)(c) and (d).

This approach follows the statutory sequence. Section 16 determines whether there is a general business-related entitlement. Section 17 then limits that entitlement. Where inward supplies fall within either clause (c) or clause (d), the fact that the completed property is deployed in earning taxable rent is insufficient, without more, to establish credit eligibility.

The functionality inquiry under the Supreme Court decision

2024 (10) TMI 286 - Supreme Court is central to the meaning of the earlier expression "plant or machinery" in Section 17(5)(d). The Court held that this expression could not automatically be equated with the defined phrase "plant and machinery" appearing in the Explanation to Section 17. The disjunctive wording had to be given effect and could not be judicially rewritten.

The Court upheld the constitutional validity of Section 17(5)(c), Section 17(5)(d) and Section 16(4), emphasising that input tax credit is a statutory entitlement and that the legislature may prescribe exceptions to it. At the same time, it held that a mall, warehouse or other building may, in an appropriate factual case, qualify as a "plant" for the earlier wording of Section 17(5)(d). The test is functional: whether, considering the registered person's business and the role performed by the building, construction of that building was essential to carrying out the taxable activity. The Court remitted the factual determination rather than treating commercial use or rental use as conclusive.

The primary decision does not treat every rented building as a plant. On the facts before it, the Court found the construction credit to be blocked and held that the earlier High Court basis on which the credit was claimed had been removed by the Supreme Court ruling. Accordingly, a functionality-based contention requires clear, contemporaneous material demonstrating the building's operative and essential role in the particular business; it cannot rest solely on the existence of taxable rental income.

Earlier letting-out view and its reversal

2019 (5) TMI 1278 - ORISSA HIGH COURT had read down Section 17(5)(d) to permit credit for construction of property intended for letting out where the tax chain was said to remain unbroken. Its reasoning focused on avoidance of cascading and the taxable nature of rental receipts. That view explains why taxpayers engaged in leasing may have considered construction credit to be available.

However, 2024 (10) TMI 286 - Supreme Court set aside the reading down of Section 17(5)(d). The constitutional challenge to the blocked-credit provisions failed. The relevant inquiry, under the statutory wording examined by the Supreme Court, was not whether rent was taxable but whether the property could factually be characterised as a plant by applying the functionality test. The primary decision applies this later position and does not preserve the earlier letting-out rationale as an independent ground for credit.

Foundation and structural-support exception

2025 (8) TMI 551 - APPELLATE AUTHORITY FOR ADVANCE RULING, GUJARAT concerned a concrete structure supporting manufacturing equipment. The authority held that the structure was an essential foundation and structural support for plant and machinery and therefore fell within the statutory Explanation. Credit on inputs and input services used for its construction was held available.

That ruling is factually distinct from construction of premises for renting. Its relevance lies in the analytical distinction it draws between an ordinary civil structure and a foundation or structural support that is integral to identified plant and machinery used for outward supplies. A lessor seeking to rely on this exception must establish that the claimed expenditure relates to the qualifying foundation or support, rather than to the building as such.

Pre-GST CENVAT authorities: contextual but not determinative

2018 (9) TMI 1135 - MADRAS HIGH COURT accepted CENVAT credit on construction services used to provide renting of immovable property services. It proceeded on the earlier CENVAT input-service definition and the nexus between construction and the output renting service. The ruling demonstrates the different statutory design of the pre-GST regime; it does not override the non-obstante block in Section 17(5).

Similarly, 2022 (12) TMI 472 - KARNATAKA HIGH COURT upheld CENVAT credit on construction-related inputs and input services used for a renting business. Its rationale was that the constructed building was used in the business of providing the output service. Under GST, that broad nexus reasoning must yield where the express conditions of Section 17(5)(c) or (d) are attracted.

2022 (12) TMI 139 - PUNJAB AND HARYANA HIGH COURT likewise addressed the former CENVAT definition of "input service", including its setting-up limb, and held that a later exclusion was not retrospective for the period in issue. It is useful for understanding the earlier credit position, but it cannot determine eligibility under the CGST Act's separately worded blocked-credit provisions.

Demand, interest and penalty exposure

Section 74(1) authorises a notice where input tax credit has been wrongly availed or utilised "by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax." The notice must require the taxpayer to show cause against tax, interest under Section 50 and penalty equivalent to the tax stated in the notice. Section 74(10) prescribes a five-year period for issuance of the adjudication order, calculated from the due date of the annual return for the relevant financial year or from the date of erroneous refund, as applicable.

In the primary decision, the taxpayer relied on a previous communication to the department. The Court held that an unresponded request for approval, made outside the GST return mechanism, was not departmental concurrence. It also considered the wider actual availment, compared with the proposed credit stated in that communication, while holding that a case for the extended period had been made out. The decision underlines that disclosure arguments depend on the nature, completeness and statutory mode of disclosure, not merely on the existence of correspondence.

Section 50(3) provides that where credit has been wrongly availed and utilised, interest is payable on the wrongly availed and utilised credit at a rate not exceeding twenty-four per cent, in the prescribed manner. Further, Section 122(2)(b) prescribes, where the wrong availment or utilisation is by reason of fraud, wilful misstatement or suppression of facts to evade tax, a penalty equal to ten thousand rupees or the tax due, whichever is higher. Section 74 also contains statutory closure mechanisms on payment within the periods specified in sub-sections (5), (8) and (11).

Practical Implications

  • Credit reviews for rented commercial property should separately identify works contract services, materials, capitalised repair expenditure, movable equipment, and foundations or structural supports. A single project-level conclusion is unlikely to be reliable.
  • The claim should first be tested under Section 16, including the relevant time limit and documentary conditions. It should then be tested independently against both Section 17(5)(c) and Section 17(5)(d).
  • The fact that rental income is taxable, and that construction was commercially necessary to generate that income, does not itself satisfy either the works-contract exception or the plant-and-machinery exception.
  • Where a plant or structural-support argument is available, records should address functional necessity, technical design, identified machinery, the connection between the structure and that machinery, capitalisation treatment, and the nature of outward supplies.
  • Representations or letters to the department should not be treated as approval unless an express statutory approval or determination has actually been issued. Return disclosures and reconciliations should accurately identify ineligible credit and reversals.
  • In a Section 74 dispute, the defence must separately address substantive eligibility, timing under Section 16, the statutory basis for alleging fraud, wilful misstatement or suppression, utilisation of credit for interest purposes, and the consequences of any reversal or payment.

Key Takeaways

  • Renting of immovable property is a supply of services, but taxable outward rent does not automatically permit credit on construction of the rented property.
  • Section 17(5)(c) and (d) are specific overrides of the general business-use entitlement in Section 16(1).
  • The historical read-down that allowed credit merely because property was let out has been set aside. The Supreme Court's functionality analysis does not create a blanket rental-property exception.
  • A claim based on plant, plant and machinery, or qualifying foundation and structural support is necessarily evidence-driven and fact-specific.
  • Belated availment and incomplete statutory disclosure can compound substantive credit disputes by exposing the taxpayer to proceedings under Section 74, interest under Section 50(3), and penalty consequences.

 


Full Text:

2026 (7) TMI 220 - MADRAS HIGH COURT

Topics

Acts Income Tax