Indirect Tax and GST Updates October 2024

November 8, 2024

Indirect Tax and GST Updates October 2024

GST Calendar –Compliances for the month of November ’2024

Nature of Compliances	Due Date
GSTR-7 (Tax Deducted at Source ‘TDS’)	November 10,2024
GSTR-8 (Tax Collected at Source ‘TCS’)	November 10,2024
GSTR-1	November 11,2024
IFF- Invoice furnishing facility (Availing QRMP)	November 13,2024
GSTR-6 Input Service Distributor	November 13,2024
GSTR-2B (Auto Generated Statement)	November 14,2024
GSTR-3B	November 20,2024
GSTR-5 (Non-Resident Taxable Person)	November 20,2024
GSTR-5A (OIDAR Service Provider)	November 20,2024
PMT-06 (who have opted for QRMP scheme)	November 25,2024

Supreme Court clarifies Input Tax Credit eligibility for construction: Functional use test to determine ‘Plant’ Status.

Issue:

In a much-anticipated judgment, the Supreme Court addressed a significant issue under the Goods and Services Tax (GST) regime, specifically the interpretation and applicability of Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 (CGST Act). The case revolved around whether a building constructed for the purpose of leasing or renting could be categorized as a ‘plant’ for the purpose of availing Input Tax Credit (ITC).
The Court clarified that when the construction of a building is indispensable for the provision of services, such as leasing or renting, the building could be treated as a ‘plant’—thus permitting the availment of ITC. This interpretation arose from the Court’s differentiation between the terms ‘plant and machinery’ in Section 17(5)(c) and ‘plant or machinery’ as mentioned in Section 17(5)(d) of the CGST Act. The distinction is crucial, as it affects the extent to which ITC can be availed for immovable property.

Facts:

The petitioner, an entity involved in the construction of a commercial shopping complex, undertook the development of immovable property with the objective of leasing individual premises to various tenants under commercial agreements.

In the course of construction, the petitioner accumulated substantial Input Tax Credit (ITC) on the procurement of goods and services that were integral to the construction process of the shopping mall. The petitioner sought to offset this accumulated ITC against the GST liability arising from the taxable rental income to be derived from the lease of the completed premises.
However, the petitioner’s claim for ITC was disallowed by the tax authorities, who invoked the restrictive provisions of Section 17(5)(d) of the Central Goods and Services Tax (CGST) Act. The said provision explicitly prohibits the availment of ITC on goods and services used for the construction of immovable property, except where the immovable property is intended for sale, thus precluding ITC in cases where the property is leased or otherwise not sold.

Ruling:

The Supreme Court, in delivering its judgment in favor of the taxpayer, meticulously construed the statutory framework embodied within clauses (c) and (d) of Section 17(5) of the CGST Act, while simultaneously affirming their constitutional validity. The Court’s observations and legal conclusions are detailed as follows:

Interpretation of Clauses (c) and (d) of Section 17(5) of the CGST Act:

Distinction between “plant and machinery” versus “plant or machinery”:

The Court distinguished between the phrase “plant and machinery” as utilized in Clause (c) of Section 17(5), which is expressly defined under the CGST Act, and the term “plant or machinery” in Clause (d), which lacks a statutory definition. The Court noted that this nuanced distinction is pivotal. The isolated reference to “plant or machinery” indicates that either plant or machinery, individually considered, may qualify for ITC under certain conditions, whereas the combined term “plant and machinery” is subject to a more restrictive interpretation that explicitly excludes land, buildings, and other civil structures. This dichotomy of terms reflects the legislative intention to apply differential treatment based on the scope and nature of the construction.

Adoption of the commercial meaning of ‘plant’:

As the term “plant” remains undefined under the CGST Act and its associated rules, the Court held that its interpretation must be guided by the ordinary, commercial meaning as understood within the relevant business or trade context. The adoption of such an interpretation aligns with established principles of statutory construction, wherein undefined terms are construed in accordance with their general or industry-specific usage. The Court underscored that in the absence of a statutory definition, it is incumbent upon the courts to adopt a pragmatic, purposive approach.

Intentional use of “or” in Section 17(5)(d):

The Court further emphasized that the legislature’s decision to employ the disjunctive term “or” in Clause (d) of Section 17(5), rather than the conjunctive “and”, is both deliberate and unequivocal. It is not a mere drafting oversight. The Court clarified that this intentional distinction allows for the exclusion of ITC where the construction of immovable property is carried out on the taxpayer’s own account, particularly when such property is for personal use or for use as a business premise. However, the exclusion would not extend to instances where the property is constructed for the purpose of sale, lease, or licensing—activities that constitute taxable supplies under GST law.

Legislative prerogative in structuring ITC exclusions:

The Court reaffirmed the principle that ITC is a legislative construct, and the legislature possesses the inherent authority to delineate and exclude specific categories of goods and services from the purview of ITC. The exclusion of works contracts under Clause (c), which encompasses the construction of immovable property, does not contravene the overarching objectives of the CGST Act. Such exclusions are consistent with the broader regulatory framework established under GST law and reflect a valid exercise of legislative discretion.

Constitutional Validity of Clauses (c) and (d) of Section 17(5):

Compliance with Article 14 of the Constitution and reasonable classification:

In addressing the constitutional challenge to the validity of clauses (c) and (d), the Court held that the impugned provisions withstand scrutiny under Article 14 of the Constitution of India. The Court articulated that the challenge failed to meet the threshold of reasonable classification, a foundational test for determining the constitutionality of statutory provisions. To pass this test, the classification must be based on intelligible differentia—a rational and discernible distinction between those included and those excluded by the statute—and the classification must bear a rational nexus to the object sought to be achieved by the legislation.

Legitimacy of classification between immovable property and goods for GST purposes:

The Court held that the classification of immovable property and immovable goods for the purposes of GST constitutes a distinct and legitimate category under the law. The denial of ITC on goods and services used for the construction of immovable property is justified as a policy measure aimed at preventing an overlap with the States’ exclusive legislative domain under Entry 49 of List II of the Constitution, which deals with taxes on land and buildings. This classification and the consequent exclusion of ITC serve the dual purpose of maintaining legislative harmony between the Union and the States while safeguarding the GST framework.

No basis for reading down the provisions:

The Court, interpreting the plain language of clauses (c) and (d) of Section 17(5), found no ambiguity in the statutory text that would necessitate a reading down of the provisions. The provisions, when read in their entirety, align with the legislative intent, and the Court saw no reason to dilute or modify their scope. The Court unequivocally held that the clear and unambiguous statutory language does not warrant any judicial intervention to alter or read down the exclusions imposed by the legislature.

The GSTN has provided guidance on restricting changes to auto-filled values in Form GSTR-3B.

This Tax Alert outlines the recent advisory issued by the Goods and Services Tax Network (GSTN) on the hard-locking of auto-filled values in GSTR-3B.

Key points from the advisory include:

GSTN has enhanced the return filing experience by introducing a pre-filled GSTR-3B form, which includes auto-populated tax liabilities based on data from GSTR-1/1A or the Invoice Furnishing Facility (IFF), as well as input tax credit (ITC) details from GSTR-2B, along with a comprehensive PDF report.
Taxpayers can now make corrections to incorrect outward supplies in GSTR-1/IFF through GSTR-1A before submitting GSTR-3B and can manage inward supplies for accurate ITC claims using the Invoice Management System (IMS).
Beginning tentatively in January 2025, the GST Portal will prevent alterations to auto-filled tax liabilities in pre-populated GSTR-3B to ensure accuracy. Necessary adjustments should be made via GSTR-1A.
The locking of auto-populated ITC in GSTR-3B will follow the implementation of IMS, with a separate advisory to address IMS-specific concerns after its rollout.

The procedure for filing a rectification application to claim a refund of Input Tax Credit (ITC) in line with the newly introduced sections 16(5) and 16(6) of the CGST Act involves the following steps:

Background

Notification Issuance: The notification has been issued following the introduction of sub-sections 16(5) and 16(6) of the CGST Act, as amended by section 118 of the Finance Act (No. 2), 2024, which is effective retrospectively from July 1, 2017.
Section 16(5): This section extends the deadline for claiming Input Tax Credit (ITC) concerning any invoice or debit note under section 16(4) of the CGST Act. Taxpayers can now claim ITC through any GSTR-3B return filed up until November 30, 2021, for the financial years 2017-18 to 2020-21.
Section 16(6): This provision allows taxpayers to claim ITC for an invoice or debit note during the interim period between the cancellation of GST registration and the revocation of that cancellation, provided the return is filed within 30 days of the revocation order. However, ITC claims must not be barred by the time limits set under section 16(4) at the time of the cancellation order.
Special Rectification Procedure: A new procedure has been established for rectifying demand orders related to incorrect claims of ITC due to violations of section 16(4) of the CGST Act. This applies to situations where the ITC is now available under the newly introduced provisions in sub-sections (5) or (6) of section 16 and where no appeal against the original order has been filed.

Amendment

Filing Deadline: The rectification application must be submitted within six months from the date of the notification, which is October 8, 2024. Therefore, the final date for submission is April 8, 2025. The application must include the information specified in the prescribed Form detailed in Annexure A of the notification.
Order Issuance: The proper officer is mandated to issue the rectified order in the prescribed format within three months from the date of the application. Additionally, a summary of the rectified orders will be uploaded.
Natural Justice Principles: Authorities are required to adhere to the principles of natural justice, particularly in cases where the rectification adversely impacts the applicant.

This amendment outlines the timeline and procedural requirements for submitting rectification applications, ensuring that the process remains fair and transparent.

Rnm