# Chief Commissioner of Central Goods and Service Tax & Ors v. M/s Safari Retreats Private Ltd. & Ors

- **Citation:** 2024 INSC 756
- **Court:** Supreme Court of India
- **Decided:** 2024-10-03
- **Case number:** Civil Appeal No. 2948 of 2023
- **Bench:** Abhay S. Oka, Sanjay Karol
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/chief-commissioner-of-central-goods-and-service-tax-ors-v-m-s-safari-retreats-37328
- **Pages:** 67

## Headnote

Whether the definition of "plant and machinery" in the explanation
appended to Section 17 of the Central Goods and Services Tax
Act, 2017 applies to the expression "plant or machinery" used
in clause (d) of sub-section (5) of Section 17; if it is held that
the explanation does not apply to "plant or machinery", what
is the meaning of the word "plant"; and whether clauses (c)
and (d) of Section 17(5) and Section 16(4) of the CGST Act are
unconstitutional.
Headnotes†
Central Goods and Services Tax Act, 2017 - s.17(5)(c), (d),
s.16(4) - Constitutional validity - Challenge to - Eligibility and
conditions for taking Input Tax Credit (ITC) - Apportionment of
blocked credits - Whether the construction of an immovable
property is a "plant" for the purposes of s.17(5)(d) - Shopping
mall in question, if was a "plant" - Plea of the assessees inter
alia that they were not able to avail the credit on GST paid
on goods and services used in the construction of buildings
etc. against the GST received for the renting/letting out etc.
of the premises - High Court held that if the assessees were
required to pay GST on the rental income from the mall, they
were entitled to ITC on the GST paid on the construction of
the mall - Correctness:
Held: Constitutional validity of clauses (c) and (d) of s.17(5)and
s.16(4) is upheld - Since their plain interpretation does not lead
to any ambiguity, they cannot be read down - The expression
"plant or machinery" used in s.17(5)(d) cannot be given the same
meaning as the expression "plant and machinery" defined by the
explanation to s.17 - Whether a mall, warehouse or any building
* Author
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other than a hotel or a cinema theatre can be classified as a plant
within the meaning of the expression "plant or machinery" used in
s.17(5)(d) is a factual question to be determined keeping in mind the
business of the registered person and the role that building plays in
the said business - If the construction of a building was essential
for carrying out the activity of supplying services, such as renting
or giving on lease or other transactions in respect of the building
or a part thereof covered by clauses (2) and (5) of Schedule II of
the CGST Act, the building could be held to be a plant - Then, it
is taken out of the exception carved out by clause (d) of s.17(5) to
sub-section (1) of s.16 - Functionality test to be applied to decide
whether the construction of an immovable property is a "plant"
for the purposes of clause (d) of s.17(5) - Impugned judgment in
Civil Appeal Nos. 2948 and 2949 of 2023 set aside, writ petitions
remanded to High Court for limited purposes of deciding whether,
on facts, the shopping mall satisfies the functionality test and is
a "plant" in terms of clause (d) of s.17(5) - Further, whether the
construction of immovable property carried out by the petitioners
in Writ Petitions amounted to "plant" to be decided on merit by
applying the functionality test. [Paras 65-67]
Central Goods and Services Tax Act, 2017 - ss.17(5),
16(1), 18(1) - Eligibility and conditions for taking Input Tax
Credit(ITC) - Availability of ITC in special circumstances -
Non-obstante clause - s.17(5) overrides sub-section (1) of
s.16 and s.18:
Held: s.17(5) beginning with a non-obstante clause overrides both
sub-section (1) of s.16 and sub-section (1) of s.18 - A non-obstante
clause gives an overriding effect to certain provisions over contrary
provisions found in the same or some other enactments - Said
provision should prevail despite anything to the contrary in the
provisions mentioned in the non-obstante clause - In the cases
covered by s.17(5), ITC is not available - Thus, sub-section (5) of
s.17 carves out an exception to sub-section (1) of ss.16 and 18,
which confer the benefit of ITC. [Para 31]
Central Goods and Services Tax Act, 2017 - s.17(5) (c), (d) -
Constitution of India - Article 14 - Challenge to constitutional
validity on the ground that the test of reaso

## Text

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[2024] 10 S.C.R. 793 : 2024 INSC 756
Chief Commissioner of Central Goods and
Service Tax & Ors.
v.
M/s Safari Retreats Private Ltd. & Ors.
(Civil Appeal No. 2948 of 2023)
03 October 2024
[Abhay S. Oka* and Sanjay Karol, JJ.]
Issue for Consideration
Whether the definition of "plant and machinery" in the explanation
appended to Section 17 of the Central Goods and Services Tax
Act, 2017 applies to the expression "plant or machinery" used
in clause (d) of sub-section (5) of Section 17; if it is held that
the explanation does not apply to "plant or machinery", what
is the meaning of the word "plant"; and whether clauses (c)
and (d) of Section 17(5) and Section 16(4) of the CGST Act are
unconstitutional.
Headnotes†
Central Goods and Services Tax Act, 2017 - s.17(5)(c), (d),
s.16(4) - Constitutional validity - Challenge to - Eligibility and
conditions for taking Input Tax Credit (ITC) - Apportionment of
blocked credits - Whether the construction of an immovable
property is a "plant" for the purposes of s.17(5)(d) - Shopping
mall in question, if was a "plant" - Plea of the assessees inter
alia that they were not able to avail the credit on GST paid
on goods and services used in the construction of buildings
etc. against the GST received for the renting/letting out etc.
of the premises - High Court held that if the assessees were
required to pay GST on the rental income from the mall, they
were entitled to ITC on the GST paid on the construction of
the mall - Correctness:
Held: Constitutional validity of clauses (c) and (d) of s.17(5)and
s.16(4) is upheld - Since their plain interpretation does not lead
to any ambiguity, they cannot be read down - The expression
"plant or machinery" used in s.17(5)(d) cannot be given the same
meaning as the expression "plant and machinery" defined by the
explanation to s.17 - Whether a mall, warehouse or any building
* Author
794
[2024] 10 S.C.R.
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other than a hotel or a cinema theatre can be classified as a plant
within the meaning of the expression "plant or machinery" used in
s.17(5)(d) is a factual question to be determined keeping in mind the
business of the registered person and the role that building plays in
the said business - If the construction of a building was essential
for carrying out the activity of supplying services, such as renting
or giving on lease or other transactions in respect of the building
or a part thereof covered by clauses (2) and (5) of Schedule II of
the CGST Act, the building could be held to be a plant - Then, it
is taken out of the exception carved out by clause (d) of s.17(5) to
sub-section (1) of s.16 - Functionality test to be applied to decide
whether the construction of an immovable property is a "plant"
for the purposes of clause (d) of s.17(5) - Impugned judgment in
Civil Appeal Nos. 2948 and 2949 of 2023 set aside, writ petitions
remanded to High Court for limited purposes of deciding whether,
on facts, the shopping mall satisfies the functionality test and is
a "plant" in terms of clause (d) of s.17(5) - Further, whether the
construction of immovable property carried out by the petitioners
in Writ Petitions amounted to "plant" to be decided on merit by
applying the functionality test. [Paras 65-67]
Central Goods and Services Tax Act, 2017 - ss.17(5),
16(1), 18(1) - Eligibility and conditions for taking Input Tax
Credit(ITC) - Availability of ITC in special circumstances -
Non-obstante clause - s.17(5) overrides sub-section (1) of
s.16 and s.18:
Held: s.17(5) beginning with a non-obstante clause overrides both
sub-section (1) of s.16 and sub-section (1) of s.18 - A non-obstante
clause gives an overriding effect to certain provisions over contrary
provisions found in the same or some other enactments - Said
provision should prevail despite anything to the contrary in the
provisions mentioned in the non-obstante clause - In the cases
covered by s.17(5), ITC is not available - Thus, sub-section (5) of
s.17 carves out an exception to sub-section (1) of ss.16 and 18,
which confer the benefit of ITC. [Para 31]
Central Goods and Services Tax Act, 2017 - s.17(5) (c), (d) -
Constitution of India - Article 14 - Challenge to constitutional
validity on the ground that the test of reasonable classification
under Article 14 is not met:
Held: Immovable property and immovable goods for the purpose
of GST constitute a class by themselves - Clauses (c) and (d)
[2024] 10 S.C.R.
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Chief Commissioner of Central Goods and Service Tax & Ors. v.
M/s Safari Retreats Private Ltd. & Ors.
of s.17(5) apply only to this class of cases - Cases covered by
s.17(5)(c), (d) are entirely distinct from the other cases so as not
to encroach upon the State's legislative powers under Entry 49 of
List II - ITC cannot be enforced unless there is a statutory provision
as the right of ITC is a creation of a statute and is conferred only
by the Statute - ITC cannot be claimed as a matter of right unless
expressly provided in the statute - Plea of the assessees that the
difference is not intelligible and has no nexus to the object sought
to be achieved, rejected - The test of vice of discrimination in taxing
law is less rigorous - The legislature was dealing with a complex
economic problem - Clauses (c) and (d) of s.17(5) cannot be said
to be discriminatory. [Paras 58-60]
Central Goods and Services Tax Act, 2017 - s.17(5),
Clause (d), (c) - Distinction between - Discussed.
Interpretation of Statutes - Taxation Statutes - Interpretation -
Principles governing - Discussed.
Words and Phrases - Central Goods and Services Tax Act,
2017 - s.17(5), Clause (d), (c), Explanation; s.7, Schedule II, III;
s.102(2) - "plant and machinery"; "plant or machinery"; "plant";
"construction"; "service"; "supply" - Discussed.
Case Law Cited
CIT, Trivandrum v. Anand Theatres [2000] 1 Supp. SCR 338 :
(2000) 5 SCC 393 - held inapplicable.
Eicher Motors Limited & Anr. v. Union of India & Ors [1999] 1 SCR
295 : (1999) 2 SCC 361; Bharat Sanchar Nigam Limited & Anr. v.
Union of India & Ors. [2006] 2 SCR 823 : (2006) 3 SCC 1; Shreya
Singhal v. Union of India [2015] 5 SCR 963 : (2015) 5 SCC 1;
Union of India v. Bharti Airtel Limited & Ors. (2021) SCC OnLine
SC 1006; Federation of Hotel & Restaurant Association of India, etc.
v. Union of India and Ors. [1989] 2 SCR 918 : (1989) 3 SCC 634;
Twyford Tea Co. Ltd. and Anr. v. State of Kerala and Anr. (1981) 4
SCC 675; Union of India and Ors. v. Nitdip Textile Processors Pvt.
Ltd. and Anr. [2011] 13 SCR 26 : (2012) 1 SCC 226; Government
of Andhra Pradesh and Ors. v. P. Laxmi Devi [2008] 3 SCR 330 :
(2008) 4 SCC 720; Assistant Commissioner of Urban Land Tax
and Ors. v. Buckingham and Carnatic Co. Ltd., Etc. [1970] 1 SCR
268 : (1969) 2 SCC 55; Jindal Stainless Ltd. and Anr. v. State of
Haryana and Ors. [2016] 10 SCR 1 : (2017) 12 SCC 1; State of
796
[2024] 10 S.C.R.
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Tamil Nadu and Anr. v. National South Indian River Interlinking
Agriculturist Association [2021] 7 SCR 479 : (2021) 15 SCC 534;
Sanjeev Coke Manufacturing Company v. M/s Bharat Coking Coal
Ltd. & Anr. [1983] 1 SCR 1000 : (1983) 1 SCC 147; Union of India
& Anr v. Mohit Minerals Pvt. Ltd. [2022] 9 SCR 300 : (2022) 10 SCC
700; Indian Social Action Forum (INSAF) v. Union of India [2020]
4 SCR 903 : (2021) 15 SCC 60; Delhi Transport Corporation v.
DTC Mazdoor Congress & Ors. [1990] Supp. 1 SCR 142 : (1991)
Supp (1) SCC 600; Indcon Structurals (P) Ltd. v. Commissioner
of Central Excise, Chennai [2006] Supp. 1 SCR 11 : (2006) 4
SCC 786; CIT, Andhra Pradesh v. Taj Mahal Hotel, Secunderabad
[1972] 1 SCR 168 : (1971) 3 SCC 550; Commissioner of Income
Tax, Karnataka v. Karnataka Power Corporation (2002) 9 SCC 571;
Commissioner of Income Tax v. Victory Aqua Farm Ltd. (2016) 16
SCC 553; Commissioner of Customs (Import), Mumbai v. Dileep
Kumar & Company & Ors. (2018) 9 SCC 1; Sneh Enterprises v.
Commissioner of Customs, New Delhi [2006] Supp. 5 SCR 817 :
(2006) 7 SCC 714; Commissioner of Income Tax, West Bengal 1,
Calcutta v. M/s Vegetables Products Ltd. [1973] 3 SCR 448 :
(1973) 1 SCC 442; R.S. Raghunath v. State of Karnataka & Anr.
[1991] Suppl. 1 SCR 387 : (1992) 1 SCC 335; Union of India &
Ors v. VKC Footsteps India Pvt. Ltd. [2021] 15 SCR 169 : (2022) 2
SCC 603; ALD Automotive Pvt. Ltd. v. Commercial Tax Officer,
now upgraded as Assistant Commissioner (CT) & Ors. [2018] 13
SCR 217 : (2019) 13 SCC 225; Hari Krishna Bhargav v. Union of
India & Anr [1966] 2 SCR 22 : (1966) 2 SCR 22; Joseph Shine
v. Union of India [2018] 11 SCR 765 : (2019) 3 SCC 39; Indore
Development Authority v. Manoharlal & Ors. [2020] 3 SCR 1 :
(2020) 8 SCC 129; State of Bombay v. R.M.D. Chamarbaugwala
& Anr. [1957] 1 SCR 874 : (1957) SCC OnLine SC 12; Union of
India v. Shri Harbhajan Singh Dhillon [1972] 2 SCR 33 : (1971) 2
SCC 779; India Cement Ltd. & Ors. v. State of Tamil Nadu & Ors.
[1989] Supp. 1 SCR 692 : (1990) 1 SCC 12; State of W.B. v.
Kesoram Industries Ltd. & Ors. [2004] 1 SCR 564 : (2004) 10 SCC
201; Commissioner of Central Excise, Ahmedabad v. Solid and
Correct Engineering Works & Ors. [2010] 4 SCR 476 : (2010) 5
SCC 122 - referred to.
List of Acts
Central Goods and Services Tax Act, 2017; Tamil Nadu Value
Added Tax Act, 2006; Finance Act, 2022; Constitution of India.
[2024] 10 S.C.R.
797
Chief Commissioner of Central Goods and Service Tax & Ors. v.
M/s Safari Retreats Private Ltd. & Ors.
List of Keywords
Goods and Services Tax; Clauses (c) and (d) of Section 17(5)
and Section 16 of the Central Goods and Services Tax Act, 2017;
Input Tax Credit (ITC); Exception; Non-obstante clause; Shopping
mall; Hotels; Warehouses; Building; Cinema; Construction of
immovable property; "plant and machinery"; "plant or machinery";
"plant"; "construction"; Supply of service; Land and buildings;
Works contracts; Immovable property; Immovable goods; Capital
goods; Constitutional validity challenged; Reading down; Intelligible
differentia; Test of reasonable classification; Vice of discrimination;
Discriminatory; Unconstitutional; Functionality test; Taxation
Statutes; Renting; Leasing; Letting out; Rental income; Articles 14,
19(1)(g), 300A; List II of Schedule VII of the Constitution of India.
Case Arising From
CIVIL APPELLATE/ORIGINAL JURISDICTION: Civil Appeal No.
2948 of 2023
From the Judgment and Order dated 17.04.2019 of the High Court
of Orissa at Cuttack in WPC No. 20463 of 2018
With
Writ Petition (Civil) Nos. 804 and 1030 of 2022, Civil Appeal No.
2949 of 2023, Writ Petition (Civil) Nos. 1036 of 2022, Writ Petition
(Civil) Nos. 90, 846 and 847 of 2023
Appearances for Parties
N. Venkataraman, A.S.G., Arijit Prasad, Arvind P. Datar, Mukul Rohatgi,
Abhratosh Majumdar, V. Raghuraman, Vikram Nankani, Tarun Gulati,
Sr. Advs., Inderjit Prasad, Mukesh Kumar Maroria, Rupesh Kumar,
S.A. Haseeb, Mohd. Akhil, Ms. Swarupama Chaturvedi, T.S. Sabarish,
Lalit Mohan, Ms. Sonu Bhatnagar, V.Chandrashekara Bharati, Ms.
Amritha Chandramouli, Rahul Vijay Kumar, Shivshankar G., Ms.
Shruti Shivkumar, Ms. Monica Benjamin, Ms. Nishtha Mittal, Saurabh
Chaudhary, Vijaya Nand Tripathi, Ms. Ankita Anilkumar Singh, Vipin
Jain, Vinay Saraf, Vishal Agrawal, Sasi Prabhu, Ravi Bharuka, Ankit
Agarwal, Abhishek Deodhar, Rahul Unnikrishnan, Ms. Ritu Jain, Ms.
Aditi Jain, Sujit Ghosh, Ms. Mannat Waraich, Ms. Anshika Agarwal,
Ms. Priyanka Rathi, Ms. Ashwini Chandrasekaran, Ms. Shubhangi
Gupta, Abhishek A. Rastogi, Nikhil Jain, Pratyushprava Saha,
798
[2024] 10 S.C.R.
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Ms. Divya Jain, Ms. Meenal Songiri, Ms. Ranjeeta Rohatgi, Vinod
Kumar Jain, Ms. Pooja M Rastogi, Ms. Monica Dhingra, Ms. Meenal
Songire, Ashwini Kumar, Pallav Mongia, Vijay Deora, Jayesh Gupta,
Ajay Singh, Shubham Singh, Renita Alex, Avra Majumdar, Ramesh
Patodia, S Sukumaran, Anand Sukumar, Mrs. Megha Agarwal,
Bhupesh Kumar Pathak, Mrs. Ruche Anand, Mrs. Meera Mathur,
Suvendu Suvasis Dash, Ms. Swati Vaibhav, Ms. Shruti Vaibhav,
Priyonkoo Anjan Gogoi, Ms. Nitya Thakur, Rajasmit Mondal, Shivam
Saini, Prasenjeet Mohapatra, Avra Mazumder, Bhupesh Pathak,
Vinay Shraff, Vishal Aggrawal, Ms. Tuhina Sinha, Bhanumurthy J, C
R Raghavendra, Mrs. Sandhya Raghuraman, Shivam Batra, Sparsh
Bhargava, Ms. Ishita Farsaiya, Rahul Jain, Kishore Kunal, Ms. Ankita
Prakash, Naresh Jain, Ms. Arti Singh, Alok Kumar, Vikas Mehta, J.K.
Mittal, Ms. Vandana Mittal, Ms. Aashna Suri, Nagarkatti Kartik Uday,
Mahaveer Jain, Rameshwar Prasad Goyal, Vishal Aggarwal, Ankit
Kanodia, Advs. for the appearing parties.
Judgment / Order of the Supreme Court
Judgment
Abhay S. Oka, J.
FACTUAL ASPECTS
1.
The issues which broadly arise in this group of matters concern
clauses (c) and (d) of sub-section (5) of Section 17 of the Central
Goods and Services Tax Act, 2017 ("the CGST Act"). There is a
challenge to the constitutional validity of the said provision. There
is a prayer for reading down the said provision.
2.
In Civil Appeal Nos. 2948 and 2949 of 2023, the first respondent is
engaged in the construction of a shopping mall for the purpose of
letting out premises in the malls to different tenants. Vast quantities of
material, inputs and services are required for the construction of the
malls in the form of cement, sand, steel, aluminium, wires, plywood,
paint, lifts, escalators, air-conditioning plants, electrical equipment,
transformers, building automation systems etc., and also consultancy
services, architectural services, legal and other professional services,
engineering services and other services including the services of a
special team of international designers specialised in the construction
of Malls. These goods and services used in the construction of
the mall are taxable under the CGST Act. It is the case of the first
[2024] 10 S.C.R.
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Chief Commissioner of Central Goods and Service Tax & Ors. v.
M/s Safari Retreats Private Ltd. & Ors.
respondent that it has accumulated input credit of GST amounting
to more than Rs. 34 crores by the purchase/supply of goods and
services consumed and used in the construction of the shopping
mall. At the same time, the first respondent's letting out of units in
the shopping mall attracts CGST based on the rent received by the
first respondent since it amounts to the supply of service under the
CGST Act. Therefore, the first respondent was desirous of availing
the Input Tax Credit (ITC) accumulated against the rental income
received by it upon letting out the mall premises. According to the
first respondent, when it approached the concerned authorities, it
was advised to deposit GST on rent without deducting ITC because
of the exception carved out by Section 17(5)(d).
3.
The first respondent filed a writ petition before the High Court of Orissa
seeking a declaration that Section 17(5)(d) of the CGST Act and the
corresponding provisions of the Orissa Goods and Services Act, 2017
do not apply to the construction of immovable property intended for
letting out on rent. A prayer in the alternative was made that in the
event it is held that the bar under Section 17(5)(d) is applicable even
to the construction of immovable property intended for letting out, a
declaration be issued that Section 17(5)(d) is violative of Articles 14
and 19 (1)(g) of the Constitution of India. A consequential prayer was
made to issue a writ of mandamus to enjoin the present appellants,
who were respondents in the writ petition, to grant the benefit of ITC
to the first and second respondents.
4.
By the impugned judgment dated 17th April 2019, the High Court
held that in view of the decision of this Court in the case of Eicher
Motors Limited & Anr. v. Union of India & Ors.,1 Section 17(5)(d)
was required to be read down as the very purpose of ITC is to benefit
the assessee. The High Court held that if the assessee is required
to pay GST on the rental income from the mall, it is entitled to ITC
on the GST paid on the construction of the mall. It was held that the
narrow interpretation given by the Department to Section 17(5)(d)
would frustrate the very object of the Act. Civil Appeal No. 2949 of
2023 takes exception to the same judgment.
5.
In the Writ Petitions, the petitioners contend that due to the restrictions
imposed by Section 17(5)(c) and Section 17(5)(d) of the CGST
1
[1999] 1 SCR 295 : (1999) 2 SCC 361
800
[2024] 10 S.C.R.
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Act, they are unable to avail the credit on GST paid on goods and
services used in the construction of factory premises, buildings etc
against the GST received by them for the renting/leasing/letting out
etc. of the premises. GST is being recovered on the supply of goods
and services used in the construction of commercial office buildings,
and GST is also being recovered on rentals collected. Accordingly,
several writ petitions have been preferred seeking the following reliefs:
a.
Writ Petition (C) No. 90 of 2023 challenging clauses (c) and (d)
of Section 17(5) of the CGST Act to the extent to which it
excludes works contract services and goods from ITC. It is
also prayed that the bar imposed by Section 16(4) should not
apply to the petitioner;
b.
Writ Petition (C) No. 804 of 2022 challenging the validity of
Section 17(5)(d) of the CGST Act;
c.
Writ Petition (C) No. 846 of 2023 challenging the validity of
clauses (c) and (d) of Section 17(5) of the CGST Act. There is
another prayer to read down the provisions;
d.
Writ Petition (C) No. 847 of 2023 challenging the constitutional
validity of clauses (c) and (d) of Section 17(5). There is a
prayer to read down the clauses (c) and (d) of Section 17(5)
and Section 16(4) of the CGST Act;
e.
Writ Petition (C) No. 1036 of 2023 challenging the constitutional
validity of clauses (c) and (d) of Section 17(5). There is a
prayer to read down the clauses (c) and (d) of Section 17(5)
and Section 16(4) of the CGST Act; and
f.
Writ Petition (C) No. 1030 of 2022 containing similar prayers
SUBMISSIONS ON BEHALF OF ASSESSEES
6.
Very detailed submissions have been made by the parties to the civil
appeals, intervenors and parties to the writ petitions. We find that
the submissions made by the learned counsel for the assessees and
the intervenors are repetitive. There are a large number of decisions
relied upon, whether relevant or irrelevant. Brevity is the hallmark of
good advocacy. It would be ideal if parties on one side file joint written
submissions. The Judges and lawyers are humans. Sometimes, bulky
compilations and submissions can be counterproductive.
[2024] 10 S.C.R.
801
Chief Commissioner of Central Goods and Service Tax & Ors. v.
M/s Safari Retreats Private Ltd. & Ors.
7.
Assessees have submitted that clauses (c) and (d) and sub-section (5)
of Section 17 are violative of Articles 14, 19(1)(g) and 300A of the
Constitution of India. The submissions concerning the challenge to
constitutional validity can be summarised as follows:
a.
Section 17(5)(d) is violative of Article 14 since it classifies
assessees engaged in the business of constructing immovable
properties and then renting/leasing/letting out etc. premises
within the said immovable properties on the same footing as
assessees engaged in the business of constructing immovable
properties and then selling the immovable properties or
premises within the said immovable properties, by denying
them ITC for their business expenditure, i.e., the expenditure
incurred in constructing the immovable properties. Therefore,
it is submitted that the provision treats unequals as equals and
contravenes the principle of GST Law, i.e., to allow ITC for
business expenditure. Therefore, the provisions are arbitrary,
irrational and unreasonable.
b.
There is no intelligible differentia on the basis of which such
classification is done. Creation of an immovable property is not
a differentia. The contention is that works contracts, namely
the contracts for the construction of immovable property
wherein transfer of property is involved, are treated as a
supply of services. Therefore, de jure, they are treated as a
supply of services notwithstanding the immovable character of
the deliverable. It is submitted that there are cases where a
transaction may seemingly appear to involve a supply of goods,
but in essence, it is a transaction involving something else. An
illustration is given of a lawyer drafting a legal contract. In such
a case, the deliverable may be in the form of documents handed
over to the client and, therefore, apparently may appear to be a
supply of goods. However, it is a legal service rendered, which
is what the bargain was for. In short, the dominant intention
test, as laid down in the case of Bharat Sanchar Nigam
Limited & Anr. v. Union of India & Ors.,2 must be applied. It is
submitted that under the CGST Act, a works contract involving
the creation of immovable property is treated as a supply of
2
[2006] 2 SCR 823 : (2006) 3 SCC 1
802
[2024] 10 S.C.R.
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services. Thus, the nature of the deliverable, namely, building,
etc., has no relevance to the levy of GST. Under the CGST
Act, the immovable character of the deliverables, such as
buildings, etc., under a works contract is entirely disregarded.
Therefore, such immovable property cannot be said to exist
under the architecture of GST. In short, the submission is that
the differentia canvassed by the State, which is an immovable
characteristic of the deliverable under the works contract, is
artificial and non-existent in the eyes of the law. As intelligible
differentia does not exist, the first condition of the twin test can
be said to be satisfied;
c.
Break in the credit chain is also not a differentia, since, in
the assessees' case, unlike in the case of assessees selling
immovable properties, there is no break in the credit chain. The
break arises when the recipient uses the supplier's output to
make non-taxable transactions for which GST is not payable
by the recipient. In such a case, credit cannot be utilised in
the subsequent leg of the transaction from where the break in
the chain took place. Several illustrations have been given in
support of this submission. It was submitted that there is no
break in the chain at any of the levels, starting from the subcontractor to the main contractor and the petitioner, since all
three entities are liable to output GST, and therefore, in such
a case, denial of credit cannot be justified;
d.
It is submitted that even assuming that coming into existence
of an immovable property is an intelligible differentia, it has
no nexus with the objects of the CGST Act. The reason is
that denying credit in such cases essentially perpetuates and
continues the cascading effect of tax, contrary to the very object
of the CGST Act of eliminating the cascading effect of tax and
achieving tax neutrality. For example, if a manufacturer hires a
contractor to build a factory building through a works contract,
the manufacturer would have to pay GST for the services
rendered by the contractor. If the manufacturer is not permitted
to avail ITC for the GST so paid, the GST would be included
in the cost of the output product price, upon which further GST
would be levied, leading to tax on tax. If what is being supplied
by the seller is a service, it has to be necessarily received as
a service by the buyer;
[2024] 10 S.C.R.
803
Chief Commissioner of Central Goods and Service Tax & Ors. v.
M/s Safari Retreats Private Ltd. & Ors.
e.
Section 17(5)(c) and (d) remain vague due to the absence of
definitions of the expressions "on its own account" and "plant
or machinery". The distinction between the expression "plant
and machinery" used in Section 17(5)(c) and the expression
"plant or machinery" used in Section 17(5)(d) has not been
clarified by the Government. Therefore, the provisions suffer
from vagueness. It is submitted that if a provision is very vague,
it can be struck down, as held in the case of Shreya Singhal
v. Union of India.3
f.
It is submitted that ITC is the bedrock of the GST framework.
The right to avail of ITC is a statutory right in terms of Section 16
of the GST Act. The receipt of rental income and tax payable
are direct consequences of the construction undertaken. By
blocking the ITC on the rentals collected by the assessee who
has constructed the building, the State is unjustly enriching itself
and violating the right to avail ITC flowing from Section 300A of
the Constitution of India. Reliance is also placed on a decision
of this Court in the case of Union of India v. Bharti Airtel
Limited & Ors.;4 and
g.
Reliance has been placed on numerous decisions concerning
the principles for examining the constitutional validity of taxation
statutes. It is submitted that though, in the matters of taxing
Statutes, the legislature enjoys a very wide latitude, and the
Courts are expected to show deference to legislative choices,
a decision of this Court in the case of Federation of Hotel &
Restaurant Association of India, etc. v. Union of India and
Ors.5 holds that wide latitude is also subject to exceptions, it
is argued that "wide latitude" does not mean "wild latitude". On
the twin test of reasonable classification, reliance was placed
on various decisions, including those in the case of R.K Garg
v. Union of India and Ors.,6 Twyford Tea Co. Ltd. and Anr. v.
State of Kerala and Anr.,7 Union of India and Ors. v. Nitdip
3
[2015] 5 SCR 963 : (2015) 5 SCC 1
4
(2021) SCC OnLine SC 1006
5
[1989] 2 SCR 918 : (1989) 3 SCC 634
6
[1982] 1 SCR 947 : (1981) 4 SCC 675
7
[1970] 3 SCR 383 : (1970) 1 SCC 189
804
[2024] 10 S.C.R.
Digital Supreme Court Reports
Textile Processors Pvt. Ltd. and Anr..8 Varying standards of
review under the doctrine of classification are typically applied to
economic and non-economic legislation, with the rational basis
test being applied to economic legislation. Various decisions
were relied upon dealing with the wide latitude doctrine in
relation to economic legislations. Reliance was placed on
the Government of Andhra Pradesh and Ors. v. P. Laxmi
Devi,9 Assistant Commissioner of Urban Land Tax and
Ors. v. Buckingham and Carnatic Co. Ltd., Etc.,10 Jindal
Stainless Ltd. and Anr. v. State of Haryana and Ors.11 and
State of Tamil Nadu and Anr. v. National South Indian River
Interlinking Agriculturist Association.12 The true import of
the legislative provision is to be understood from the plain
reading of the provision and not on the basis of affidavits or
submissions of the State. A decision in the case of Sanjeev
Coke Manufacturing Company v. M/s Bharat Coking Coal
Ltd. & Anr.13 is relied upon.
8.
Assessees have submitted that clauses (c) and (d) and sub-section (5)
of Section 17 must be read down to the extent that ITC is blocked
for suppliers who procure taxable works contract services, goods or
services on the input side and then provide taxable supplies on the
output side. The submissions about reading down clauses (c) and (d)
of Section 17(5) of the CGST Act can be summarised as follows:
a.
The statement of objects and reasons of the Constitution (122nd
Amendment) Bill, 2014 shows that Articles 246A and 279A were
introduced to simplify the indirect tax regime to prevent the
cascading effect of multiplicity of taxes. The cascading effect of
taxes can be removed only by introducing a system for allowance
of ITC so that there would not be any missing link in the chain
or series of transactions culminating into deliverable goods and
services or both to the ultimate end-user, who is the customer.
Reliance has been placed on the observations made by this
8
[2011] 13 SCR 26 : (2012) 1 SCC 226
9
[2008] 3 SCR 330 : (2008) 4 SCC 720
10
[1970] 1 SCR 268 : (1969) 2 SCC 55
11
[2016] 10 SCR 1 : (2017) 12 SCC 1
12
[2021] 7 SCR 479 : (2021) 15 SCC 534
13
[1983] 1 SCR 1000 : (1983) 1 SCC 147
[2024] 10 S.C.R.
805
Chief Commissioner of Central Goods and Service Tax & Ors. v.
M/s Safari Retreats Private Ltd. & Ors.
Court in the case of Union of India & Anr v. Mohit Minerals
Pvt. Ltd..14 The entire GST regime has been so designed that
the credit of tax paid at every stage of value addition from the
point of manufacture to the point of consumption could be availed
at the next stage. It provides for seamless transfer of ITC from
one stage to another. Moreover, GST is a destination-based
tax on consumption, and accordingly, the final burden of the
tax must be borne by the customers and not the businesses.
If the entire scheme of the CGST Act is perused, except for
clauses (c) and (d) of Section 17(5), the ITC is not denied when
the transaction is from business to business.
b.
The assessees pay substantial amounts for the construction
of immovable properties and are levied CGST on the same.
However, since they are not permitted to avail of the CGST
paid as ITC, it gets added to the price of services they supply,
i.e., renting/leasing/letting out, etc. Further, CGST is leviable
on the supply of these services, resulting in tax on tax or the
cascading effect of tax. Moreover, due to the denial of ITC, the
assessees have to bear the tax burden. Thus, the interpretation
put by revenue to clauses (c) and (d) of Section 17(5), as per
which ITC is denied to assessees on construction expenditure,
results in the cascading effect of taxes and denial of credit for
business expenditure, which is in direct contradiction of the
objects of GST Law as elaborated previously. It is submitted
that ITC cannot be denied solely because immovable properties
are created in the assessee's business. The primary condition
for availing of ITC is the nexus between the assessee's input
and output business activities, which exists in the assessee's
case. Direct corelation with input services or output services
is not necessary to avail of the benefit of ITC.
c.
It is submitted that the phrase "on its own account" should
be read down and given a purposive construction instead of
a myopic one. The phrase should be deemed to mean when
construction is done for personal use and not for services, i.e.,
credit should be denied only when goods and services are
utilised for the construction of immovable property for his own
14
[2022] 9 SCR 300 : (2022) 10 SCC 700
806
[2024] 10 S.C.R.
Digital Supreme Court Reports
purposes, like an office building or factory building. In such a
case, no further GST on the sale of such a building occurs
and, therefore, a chain of taxability breaks. However, when
such immovable property is not being used by the assessee
itself but is used for other supplies, such as renting property
or supply of hotel accommodation services, etc., the same
should not be covered by the expression 'on his own account'.
Therefore, when an immovable property itself is a means
by which business is being carried out, like letting out for
short-term purposes by a hotel, the embargo under
Section 17(5)(d) on ITC will not apply as it cannot be construed
on his own account. It is submitted that this manner of reading
down will ensure that in cases where there is no breakage in
the chain of taxable supply, ITC is available to a taxable person
who pays output tax. Moreover, this interpretation will avoid the
cascading effects of tax.
d.
In the submissions made by assessees, principles of reading
down were sought to be invoked based on the decision of this
Court in the case of Indian Social Action Forum (INSAF) v.
Union of India.15 Reliance was also placed on a decision of
this Court in the case of Delhi Transport Corporation v. DTC
Mazdoor Congress & Ors.16
9.
Assessees have submitted that Section 17(5)(d) of the CGST Act
can be interpreted in a manner that ITC is available to them for the
construction of immovable property used for the purpose of further
output supply. Shri Arvind P Datar, the learned senior counsel appearing
in Writ Petition (C) No. 804 of 2022 contended that the conclusion
rendered by the Orissa High Court in the impugned judgment could
have been reached without reading down Section 17(5)(d). The
contention is founded on a three-pronged argument:
a.
Firstly, it is submitted that Clause (d) exempts "plant or
machinery" from blocked credit, which is distinct from the
expression "plant and machinery" used in Clause (c). Therefore,
the explanation to sub-section (6) of Section 17, which defines
"plant and machinery" is not applicable to the Clause (d).
15
[2020] 4 SCR 903 : (2021) 15 SCC 60
16
[1990] Supp. 1 SCR 142 : (1991) Supp (1) SCC 600
[2024] 10 S.C.R.
807
Chief Commissioner of Central Goods and Service Tax & Ors. v.
M/s Safari Retreats Private Ltd. & Ors.
Revenue has opposed this contention by submitting that
'or' must be read as 'and' stating it to be the mistake of the
legislature and contending that assigning distinct meaning to
the two clauses would result in unequal treatment of works
contract services for the construction of immovable properties
under clause (c) and goods and services for the construction
of immovable properties under clause (d). The submissions in
relation to this can be summarised as follows:

y
Section 17, being an exception to the general rule under
Section 16, must be construed strictly. The expression
"plant and machinery" has been used at least ten times in
Chapters V and VI of the CGST Act, and the expression
"plant or machinery" occurs only once in Section 17(5)(d).
Therefore, the intention of the legislature to treat the
expression "plant or machinery" differently from the
expression "plant and machinery" is apparent.

y
In the model GST law, which the GST Council Secretariat
circulated in November 2016 for inviting suggestions
and comments, the expression "plant and machinery"
was used both in clauses (c) and (d) of Section 17(5).
However, while enacting the law, the legislature has
advisedly used the expression "plant and machinery"
in clause (c) and "plant or machinery" in clause (d) of
Section 17(5). Therefore, the intention of the legislature
cannot be brushed aside by contending that the use
of the word "or" in Section 17(5)(d) is a mistake of the
legislature.

y
The expression "plant or machinery" has not been
defined under the CGST Act. The definition of "plant and
machinery" provided in the explanation to Section 17 will
not apply to the expression "plant or machinery". Since the
legislature has intentionally used two different expressions
in clauses (c) and (d) of Section 17(5), different meanings
will have to be assigned to these expressions.

y
Clauses (c) and (d) of Section 17(5) give unequal treatment
to unequals. Though they may appear to be similar, they
are quite different from each other. Besides using different
expressions, clauses (c) and (d) use a completely different
808
[2024] 10 S.C.R.
Digital Supreme Court Reports
language. Clause (c) applies to the works contract, which
will not per se apply to clause (d). The classes of cases
covered by clauses (c) and (d) of Section 17(5) are two
separate classes and the same cannot be treated equally.
b.
Secondly, it is submitted that malls, hotels, warehouses, etc.,
are 'plants' and, therefore, are exempted from the provision. The
submissions in relation to this can be summarised as follows:

y
The word "plant" is not defined under the CGST Act or the
General Clauses Act, 1897. It is also not defined in any
of the State GST enactments. Reliance was placed on a
decision of this Court in the case of Indcon Structurals
(P) Ltd. v. Commissioner of Central Excise, Chennai17 in
support of the proposition that the words and expressions
in taxing statute unless defined in the statute itself, have
to be understood in the sense that the person dealing with
them understands them as per the trade understanding,
commercial and technical practice and usage. Reliance
was also placed on a decision of this Court in the case of
CIT, Andhra Pradesh v. Taj Mahal Hotel, Secunderabad18
wherein this court held that the word "plant" means land,
building, machinery, apparatus and fixtures employed in
carrying on trade and other industrial business.

y
Functionality or essentiality tests must be applied to decide
what a plant is. Ultimately, a plant is an apparatus used
by a businessman for carrying on his business. It does
not include his stock in trade, but it does include all goods
and property, whether movable or immovable. Apart from
holding that a generating station building, hospital, and
pond are plants, this Court has also held that even a
dry dock is a plant. A building or a warehouse must be
considered a 'plant' within the meaning of Section 17(5)(d)
if it serves as an essential tool of trade with which business
is carried on. However, if it merely serves as a setting in
which business is carried on, it will not qualify as a 'plant'.
17
[2006] Supp. 1 SCR 11 : (2006) 4 SCC 786
18
[1972] 1 SCR 168 : (1971) 3 SCC 550
[2024] 10 S.C.R.
809
Chief Commissioner of Central Goods and Service Tax & Ors. v.
M/s Safari Retreats Private Ltd. & Ors.

y
Since buildings have been specifically excluded from
the definition of "plant and machinery" in the explanation
to sub-section (5) of Section 17, the word 'plant' in the
expression 'plant or machinery' must be taken in its natural
sense, which will include buildings.

y
In support of the submission that a shopping mall could be
treated as a plant, which will fall in the exception carved
out to Section 17(5)(d), reliance was placed on the decision
of this Court in the case of CIT, Trivandrum v. Anand
Theatres19 wherein it was held that when a building is
specially designed and constructed with some special
features to attract the customers, the building could be
treated as a plant. In the case of Commissioner of Income
Tax, Karnataka v. Karnataka Power Corporation,20 this
Court held that an electricity power generating station
building would have to be treated as a plant as it would
satisfy the functional test or test of essentiality. This Court
further held that the judgment in the case of Anand
Theatres19 would be limited to buildings used for hotels
or cinemas/theatres. Reliance was also placed on the
decision in the case of Commissioner of Income Tax
v. Victory Aqua Farm Ltd.,21 which holds that ponds
specially designed for doing business of aquaculture of
prawns should be treated as plants for the purposes of
the Income Tax Act.

y
Reliance has been placed on numerous decisions
concerning the principles for interpreting taxation statutes.
Usually, a taxation Statute calls for strict interpretation,
as held in the decision of this Court in the case of
Commissioner of Customs (Import), Mumbai v. Dileep
Kumar & Company & Ors.22 It is equally well settled
that when two interpretations of a provision in a taxing
Statute are possible, the Court would ordinarily interpret
19
[2000] Supp. 1 SCR 338 : (2000) 5 SCC 393
20
(2002) 9 SCC 571
21
(2016) 16 SCC 553
22
(2018) 9 SCC 1
810
[2024] 10 S.C.R.
Digital Supreme Court Reports
the provisions in favour of the assessee and against the
revenue. Reliance was placed on this behalf in the case
of Sneh Enterprises v. Commissioner of Customs,
New Delhi23 and Commissioner of Income Tax, West
Bengal 1, Calcutta v. M/s Vegetables Products Ltd.24
It is submitted that if one reads Section 17 objectively,
it would be noticed that the restrictions on availing ITC
are imposed on a reasonable basis. The benefit of ITC is
excluded when the services are used for personal purposes
or for providing exempted services, or if the supply is
outside the ambit of levying GST. However, where the
taxing chain continues, ITC is not restricted. It is submitted
that the Court shall not interpret a statutory provision in
such a manner that it would create an additional fiscal
burden on a person.
c.
Thirdly, it is submitted that services of renting/leasing/letting out,
etc., in relation to immovable property constitute supply. Clause 2
of Schedule II provides that any lease or letting out of the
building, including a commercial, industrial or residential complex
for business or commerce, is a supply of service. Clause 5(a)
of Schedule II provides that renting an immovable property is
a supply of service.