Goods and Services Tax – GST – By: – Ramesh Patodia – Dated:- 21-11-2018 – Goods and Services Tax, commonly known as GST , is a multi-stage consumption-based value added tax levied on the supply of goods and services and most acclaimed tax reforms of the century which was brought into effect from the 1st day of July 2017 upon enactment of various State and Central GST legislation for which the roadmap was laid by the Constitution (101st) Amendment Act, 2016. The GST replaced the existing multiple cascading taxes levied both by the Centre and the State and all powerful GST Council was assigned the task of Implementation of the law. The Council prescribed five tax slabs for collection of tax viz. 0%, 5%, 12%, 18% and 28% including various rules and regulations. The rationale behind introduction of GST is laid down in the Rajya Sabha Select Committee Report on the Constitution (One Hundred and Twenty Second) Amendment Bill, 2014 as under: To do away with the multiplicity of taxes at the
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as been addressed though multiple issues still remain. While no doubt it would take years for the GST law to become perfect in view of the diverse nature of the Country with several prominent sectors, Real Estate Sector is one of the sectors of the country which is gripping with multiple issues of falling sales, rising cost of inputs, labour issues, income-tax issues etc. One prominent issue which is hotly debated across the country as far as real estate sector is concerned, is the Issue of allowability of input credit towards inputs and input Services used in the construction of a Shopping complex, Mall and/or office complex. The general consensus amongst the various stakeholders seems to be that such input credit is not allowable in view of the express provisions as contained in Section 17(5)(d) of the CGST Act, 2017 and similar provisions as contained in the multiple SGST Acts. The present article examines the ambit and scope of clause (d) of sub-section (5) of section 17 of the CGS
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ion (1) states that every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner as specified in section 49, be entitled to take credit of input tax charged on supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person . On reading of the above stated provision, it is clear that subject to certain conditions, every registered person is eligible to take credit of input taxes charged on the supply of goods or services or both to him provided the goods or services – i) are used; or ii) Intended to be used in the course or furtherance of his business Provisions of Section 17(5)(d) of the CGST Act However, section 17 of the Act dealing with the provisions relating to Apportionment of credit and blocked credit vide sub clause (d) of Sub section (5) restricts the utilisation of input tax cre
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phrase and therefore ordinary meaning of the said expression has to be taken. The plain and simple meaning of the said term would be for his own purposes . The phrase on his own account cannot be taken to refer to a situation where any taxable person who is engaged in any business or profession and uses the goods or services or both on his own account. This is because immediately after the phrase on his own account , the words including when such goods or services or both are used in the course or furtherance of business is written. Apparently if the meaning of the phrase on his own account is deemed to be wide enough to cover every situation of business or commerce including the situation where a real estate company is intending to utilise the Immovable property for the purposes of renting, then there was no need of saying including when such goods or services or both are used in the course or furtherance of business. If the usage of the words on account of furtherance of business wa
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en restricted via Section 17(5). Rationale behind introduction of the provisions as contained in Section 17 of the CGST Act Now it is to be seen as to what is the rationale behind introduction of the provisions as contained in Section 17 of the CGST Act which starts with the heading Apportionment of credit and blocked credit. The first four sub-sections of section 17 viz. sub-section (1) to (4) deals with the situation where the credit is apportioned between eligible and ineligible credit depending upon the utilisation of the goods and services for the purpose of any business and the other purposes and it is Section 17(5) which deals with the cases relating to the blocked credit where the input tax credit is blocked in certain situations as contained in the said sub-section. A glance at the provisions as contained in the said Section 17(5) would reveal that the blocked credit is in respect of such situations where the goods or services or both are not utilised for the purposes of makin
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s also well-settled principle of law that at first one has to apply literal interpretation and only in cases of absurd results, one has to apply purposive interpretation . It is well settled law that while interpreting a statute the basic principle of literal rule of interpretation has to be followed (See B. Premanand and Ors. v. Mohan Koikal and Ors. reported in 2011 (3) TMI 1590 – SUPREME COURT . The relevant portion of the said decision is as follows: 9. It may be mentioned in this connection that the first and foremost principle of interpretation of a statute in every system of interpretation is the literal rule of interpretation. The other rules of interpretation e.g. the mischief rule, purposive interpretation etc. can only be resorted to when the plain words of a statute are ambiguous or lead to no intelligible results or if read literally would nullify the very object of the statute. Where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to th
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situation where a company which is engaged in the construction as well as rendition of Real Estate services will be denied the input tax credit in all cases since primarily a real estate company is expected to be engaged in the selling of the properties or renting of the properties and the property in such a situation may be constructed by it on its own account as it is not expected that a real estate company will know in advance the purpose for which the construction is being done i.e., for the purpose of sale or for the purpose of renting out and till such time, the decision is made whether the company will sell or rent out, the construction will always be on own account and therefore if the interpretation of the phrase own account is done in the manner as is being done, the said interpretation will be against the basic framework of the GST law as per which the inputs tax credit is available in respect of goods or services or both which are used for the purpose or intended to be used
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scussion hereinabove, it can be safely concluded that the phrase own account by any stretch of imagination cannot be interpreted to mean that it covers a situation where the property is intended to be leased out. It is not permissible to assume or intend when the intention of the law makers is very clear. Even if the purposive interpretation is applied, from a simple reading of the provisions as contained in Section 17 , it is apparent that in a situation where a movable asset after purchase is rented out then there are express provisions in Section 17 to allow the Input tax credit on purchase of the movable asset against the output taxable supply of the renting of the movable asset and thus it cannot be said that the law makers wanted the supply of movable and immovable property (in so far as utilisation of the property for the purposes of renting) to be treated differently thereby resulting in violation of Article 14 and 19(1)(g) of the Constitution of India. Plant or machinery exclu
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ying on trade or other industrial business The said decision of the Apex Court was considered by Hon ble Allahabad High Court in the case of CIT Lucknow-II Vs Kanodia Warehousing Corporation reported in 1979 (11) TMI 97 – ALLAHABAD HIGH COURT and the Hon ble Court observed as follows:- In order to find out if a building or a structure or part thereof constitutes plant the functional test must be applied. It must be seen whether the subject matter involved, that is, the building or structure or part thereof, constitutes an apparatus or a tool of the tax payer or whether it is merely a space where the tax payer carried on his business. If the building or structure or part thereof is something by means of which the business activities are carried on, it would amount to plant but where the structure plays no part in the carrying on of those activities but merely constitutes a place within which they are carried on, it cannot be regarded as plant. The aforesaid decision was followed by Hon
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n this regard, it may be noted that the word or is normally disjunctive and and is normally conjunctive but at times they are read as vice versa to give effect to the manifest intention of the legislature as disclosed from the context. One does sometimes reads or as and in a statute but one does not do it unless you are obliged because or generally does not mean and and and does not generally mean or . Where provision is clear and unambiguous, the word or cannot be read as and by applying the principles of reading down (See Principles of Statutory Interpretation 13th edition 2012 Page No 485-486). In the instant case, while section 17(5)(c) of the Act uses the phrase plant and machinery , Section 17(5)(d) uses the phrase plant or machinery . Obviously the law makers wanted to differentiate between the blockage of credit as contained in Section 17(5)(c) and Section 17(5)(d) and the said difference is explained hereinabove whereby the lawmakers wanted to keep the blockage out of Section
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ictions in respect of utilisation of input tax credit have been prescribed in respect of certain kinds of supply of service but no such restrictions have been prescribed therein in respect of renting of immovable property service taxed under the heading Real Estate Services. In this regard it is pertinent to note that while prescribing different bands of tax rate in respect of GST, five bands of tax rate has been prescribed viz. 0%, 5%, 12%, 18% and 28%. These bands of tax rate has been prescribed on the basis of principle that 0%, 5% and 12% is in respect of essential and needy area and also where there are certain restrictions on the allowability of input tax credit, 28% in respect of luxurious area, etc. and the tax rate of 18% has been said to be the ordinary general rate of GST. In this respect it is to be noted that in notification prescribing the Central Tax Rate for different supplies as referred to hereinabove, the restriction in respect of availment of Input tax Credit has be
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d for the provision of renting services shall be allowed as cenvat credit on the pretext that renting service could not have been rendered without construction of property. However, unlike the amended provision under the service-tax as stated herein above, there is no such express provision under the GST law. GST law itself was introduced in order to allow seamless input credit of tax paid on input and input services used for the provision of output taxable supply and if the interpretation as being sought to be done is allowed to be done; it will be patently against the legislation itself without there being reasonable justification for such differentiation. Interpretation of the phrase including when such goods or services or both are used in the course or furtherance of business in Section 17(5)(d). Now coming to the phrase including when such goods or services or both are used in the course or furtherance of business , it has to be seen as to what is the meaning and purpose of this
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or furtherance of business. Now the question arises whether when one is using the goods or services or both for the purpose of construction of an immovable property, can it be said that such goods or services or both are used in the course or furtherance of business. It is not so. The goods and services when used for the construction of an immovable property directly, they cannot simply by such usage be said to have been used in the course or furtherance of business. If the intention of the law makers was to restrict the credit in case the immovable property was used in the course or furtherance of business, then the law makers would have stated on own account including when such immovable property is used in the course or furtherance of business . Having not said so, it cannot by intendment be read that the said phrase including when such goods or services or both are used in the course or furtherance of business seeks to include the immovable property used for the purposes of busines
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is difficult to carve out one from another and the analysis of the provisions has to be therefore done in the light of this. The plain and simple interpretation of the said phrase can be to say that the said phrase seeks to disallow the input tax credit when the goods or services or both are used in the course of any business i.e., where the immovable property is used as a space for the purpose of running the business. Recently, one writ petition has been filed in Karnataka High Court on this issue and is awaiting the judgement. Conclusion: Across the globe, in similar situations VAT on construction cost is eligible to be allowed as input credit against output supply of renting or leasing. Recently, Cyprus introduced VAT on renting with effect from 13/11/2017 and an Interpretative circular was brought out on 2/1/2018 to clarify certain situations. However, there are no restrictions imposed regarding the input credit re construction cost. Similarly under the UK Law, VAT on construction
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