2024 INSC 756

Civil Appeal No.2948 of 2023 etc. Page 1 of 91

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE/ORIGINAL JURISDICTION

CIVIL APPEAL NO. 2948 OF 2023

Chief Commissioner of Central Goods

and Service Tax & Ors. … Appellants

versus

M/s Safari Retreats Private Ltd. & Ors. … Respondents

with

WRIT PETITION (CIVIL) NOS. 804 of 2022 & 1030 of 2022

CIVIL APPEAL NO. 2949 OF 2023

WRIT PETITION (CIVIL) NOS. 1036 of 2022 & 90 of 2023

WRIT PETITION (CIVIL) NO. 846 of 2023

and

WRIT PETITION (CIVIL) NO. 847 of 2023

J U D G M E N T

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

Civil Appeal No.2948 of 2023 etc. Page 2 of 91

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 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.

Civil Appeal No.2948 of 2023 etc. Page 3 of 91

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 17

th 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

1

(1999) 2 SCC 361

Civil Appeal No.2948 of 2023 etc. Page 4 of 91

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 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;

Civil Appeal No.2948 of 2023 etc. Page 5 of 91

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 ASSESSEE S

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.

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

Civil Appeal No.2948 of 2023 etc. Page 6 of 91

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

Civil Appeal No.2948 of 2023 etc. Page 7 of 91

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 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

2

(2006) 3 SCC 1

Civil Appeal No.2948 of 2023 etc. Page 8 of 91

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 sub-

contractor 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

Civil Appeal No.2948 of 2023 etc. Page 9 of 91

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;

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

3

(2015) 5 SCC 1

4

(2021) SCC OnLine SC 1006

Civil Appeal No.2948 of 2023 etc. Page 10 of 91

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

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

5

(1989) 3 SCC 634

6

(1981) 4 SCC 675

7

(1970) 1 SCC 189

8

(2012) 1 SCC 226

9

(2008) 4 SCC 720

Civil Appeal No.2948 of 2023 etc. Page 11 of 91

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

(122

nd 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

10

(1969) 2 SCC 55

11

(2017) 12 SCC 1

12

(2021) 15 SCC 534

13

(1983) 1 SCC 147

Civil Appeal No.2948 of 2023 etc. Page 12 of 91

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 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

14

(2022) 10 SCC 700

Civil Appeal No.2948 of 2023 etc. Page 13 of 91

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 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

Civil Appeal No.2948 of 2023 etc. Page 14 of 91

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

15

(2021) 15 SCC 60

16

(1991) Supp (1) SCC 600

Civil Appeal No.2948 of 2023 etc. Page 15 of 91

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). 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:

• 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.

Civil Appeal No.2948 of 2023 etc. Page 16 of 91

• 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.

• 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.

• 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 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)

Civil Appeal No.2948 of 2023 etc. Page 17 of 91

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:

• 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, Chennai

17 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, Secunderabad

18 wherein this court

held that the word “plant” means land, building,

machinery, apparatus and fixtures employed in

carrying on trade and other industrial business.

17

(2006) 4 SCC 786

18

(1971) 3 SCC 550

Civil Appeal No.2948 of 2023 etc. Page 18 of 91

• 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’.

• 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.

• 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 Theatres

19 wherein it was

19

(2000) 5 SCC 393

Civil Appeal No.2948 of 2023 etc. Page 19 of 91

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 Theatres

19 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.

• 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

20

(2002) 9 SCC 571

21

(2016) 16 SCC 553

22

(2018) 9 SCC 1

Civil Appeal No.2948 of 2023 etc. Page 20 of 91

would ordinarily interpret 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 Delhi

23 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. Clause 5(b) of Schedule II

23

(2006) 7 SCC 714

24

(1973) 1 SCC 442

Civil Appeal No.2948 of 2023 etc. Page 21 of 91

provides that the construction of a complex, building,

civil structure or a part thereof intended for sale to a

buyer, wholly or partly, is also a supply of service, except

where the entire consideration has been received after

issuance of the completion certificate or after its first

occupation, whichever is earlier. Therefore, ITC accrued

on construction of immovable property can be availed

against these services.

Miscellaneous Submissions

10. It is submitted that even though sub -Section (5) of

Section 17 starts with the non-obstante clause, it cannot be

said that the legislature intended to override Section 16(1) in

its entirety. It is submitted that the non-obstante clause in

Section 17(5) cannot cut down the construction or restrict the

scope of operation of Section 16(1). Reliance was placed on a

decision of this Court in the case of R.S. Raghunath v. State

of Karnataka & Anr.

25;

11. It is pointed out that Section 17(5)(c) carves out an

exception only for works contracts, assuming that this is the

only category of service where there is no breakage in the chain

of taxable supplies. It is submitted that while Section 17(5)(c)

allows ITC on works contracts for contractors, ITC has been

blocked for other developers;

12. The classification sought to be invoked by the Revenue

leads to invidious discrimination within the provision in as

25

(1992) 1 SCC 335

Civil Appeal No.2948 of 2023 etc. Page 22 of 91

much as credit has been allowed for the construction of

immovable plant and machinery during the execution of a

works contract and for the construction of a building during

the execution of work by the sub-contractor under its work

contract with the main contractor;

13. It is submitted that Section 16(1) of the CGST Act is not

pari materia with the provisions of the Tamil Nadu Value Added

Tax Act, 2006. Therefore, the decisions relied upon by learned

ASG will have no application. It is submitted that the decision

of this Court in the case of Union of India & Ors v. VKC

Footsteps India Pvt. Ltd.

26 is not relevant as this Court did

not have an occasion to consider the implications of statutory

entitlement to ITC.

SUBMISSIONS OF THE REVENUE

14. Shri N. Venkataraman, learned Additional Solicitor

General, has made detailed submissions. He brought our

attention to provisions regarding taxation on goods and

services in the pre-GST and post-GST eras. He submitted that

in the GST regime, the taxable event is one common event,

namely, the supply of goods and services. He invited the

attention of the Court to the definition of goods and services in

Article 366 of the Constitution. He submits that the distinction

between goods and services has not been obliterated. He also

pointed out the historical evolution of ITC, starting from

26

(2022) 2 SCC 603

Civil Appeal No.2948 of 2023 etc. Page 23 of 91

MODVAT credit, which was made available to inputs and raw

materials and later extended to capital goods.

15. His submissions about the challenge to constitutional

validity can be summarised as follows:

a. Classification of the assessees on the same footing as

assessees engaged in the business of constructing

immovable properties and then selling the immovable

properties is justified on the ground that the

classification has been done on the basis of intelligible

differentia which has rational nexus with the object of

GST. The transactions lead to the creation of immovable

property, which itself is the intelligible differentia based

on which classification has been done. Such

classification has a rational nexus since there is a break

in the tax chain and therefore, the ITC is being denied;

b. Denial of ITC was justified on the ground that it is not a

fundamental or constitutional right. He submitted that

ITC is a statutory right, and in the absence of the right

under the statute, the Court cannot issue a mandamus

to grant ITC. Reliance has been placed upon the decision

of this Court in the case of ALD Automotive Pvt. Ltd. v.

Commercial Tax Officer, now upgraded as Assistant

Commissioner (CT) & Ors.

27 and in particular, what is

held in paragraphs 34, 37, 38 and 40.

27

(2019) 13 SCC 225

Civil Appeal No.2948 of 2023 etc. Page 24 of 91

c. In response to the principles for examining the

constitutional validity of taxation statutes, he submitted

that the test of vice of discrimination in a taxing statute

is less rigorous. He submitted that the Parliament is

entitled to make policy choices and adopt appropriate

classifications given the latitude that our Constitutional

jurisprudence allows in the matters involving tax

legislation. The principle of equality does not preclude the

classification of property, credit, profession and events

for taxation. He submitted that it is settled law, as held

in the case of Hari Krishna Bhargav v. Union of India

& Anr

28 that a taxing statute is not open to challenge on

the ground that the tax is harsh or excessive. He refuted

a submission that clauses (c) and (d) of Section 17(5) are

fraud on the Constitution or that they are manifestly

arbitrary. He invited our attention to a decision of the

Constitution Bench in the case of Joseph Shine v. Union

of India

29 and, in particular, what is held in paragraphs

163 to 165. He submitted that considering the test laid

down in the said decision, even assuming that clauses (c)

and (d) are discriminatory, they are not manifestly

discriminatory. He submitted that English decisions will

not apply, as in India, there is a constitutional and

statutory distinction between goods that are movables

28

(1966) 2 SCR 22

29

(2019) 3 SCC 39

Civil Appeal No.2948 of 2023 etc. Page 25 of 91

and immovables. This distinction is not available in

England.

16. His submissions about the interpretation of Section

17(5)(d) can be summarised as follows:

a. The expression “plant or machinery” must be read as

“plant and machinery”. It is not uncommon to read “and”

as “or” or “or” as “and”. He relied upon a decision of this

Court in the case of Indore Development Authority v.

Manoharlal & Ors.

30 and, in particular, what is held in

paragraph 105. He also relied upon another decision of

this Court in the case of State of Bombay v. R.M.D.

Chamarbaugwala & Anr.

31. Further, he submitted that

if “or” is not read as “and”, it would be discriminatory

since ITC would be available on a mall or warehouse, but

under clause (c), it would not be available on works

contracts relating to the construction of a mall or

warehouse. In this regard, he stated that Clauses (c) and

(d) of Section 17(5) deal with the same subject matter, i.e.,

immovable property and therefore they cannot be treated

unequally. Furthermore, he submitted that the

explanation to Section 17(5) applies to Chapters V and VI

and thus has to apply to clause (d). However, he accepted

that the expression “plant and machinery” occurs ten

times in Chapter V and Chapter VI and the expression

“plant or machinery” occurs only once in Section 17(5)(d).

30

(2020) 8 SCC 129

31

(1957) SCC OnLine SC 12

Civil Appeal No.2948 of 2023 etc. Page 26 of 91

He invited our attention to Section 16(3) of the CGST Act,

which bars the claim of depreciation on ‘plant and

machinery’ if the assessees choose to avail of ITC. Thus,

ITC is allowable only when depreciation is not claimed.

He submitted that if the argument of the assessees is

accepted, they would be entitled to take benefit of both

ITC and depreciation simultaneously. In a similar vein,

he submitted that if the submission is accepted, even

Sections 18(6) and 29(5) will not apply to plant or

machinery falling under Section 17(5)(d).

b. For identifying what would constitute plant and

machinery/plant or machinery, it is not necessary to

refer to decisions under the Income Tax Act as the same

have no relevance. There is no concept of ITC in the

Income Tax Act. The scheme of the Act is completely

different. He further submitted that if the assessee’s

submission that a shopping mall or warehouse is treated

as a plant is accepted, it would amount to hostile

discrimination.

c. Tax on goods cannot be extended to immovable property.

However, taxation on services can be raised even on using

immovable properties for rendition of services. He

submitted that when it comes to sales tax or VAT on

goods, a consistent view taken by this Court is that the

sale would include the sale of goods and not the sale of

immovables. He submitted that malls, hotels, office

buildings, etc., are immovable properties; therefore, GST

Civil Appeal No.2948 of 2023 etc. Page 27 of 91

cannot be levied. He relied upon the earlier decisions of

this Court arising out of the Central Excise Act, 1944.

According to him, those plants and machinery which are

deeply rooted in the earth and cannot be relocated

without sufficient damage are immovable goods.

However, he accepted that renting an immovable property

amounts to a supply of service, which is taxable under

the CGST Act.

d. While dealing with the case of a shopping mall, he

submitted that since a shopping mall is an immovable

property, it is excluded from the GST. Therefore, it does

not fall in Clause (5)(b) of Schedule II. He submitted that

the entire purpose of ITC is to extend the ITC paid at the

anterior stage to remove the cascading burden of taxation

at a subsequent stage. As there is no GST payable on

shopping malls, there is no need to grant ITC. He pointed

out that if a shopping mall is sold as an immovable

property immediately after the completion certificate is

issued, no GST is payable at the time of sale of the

immovable property. Therefore, ITC credit cannot be

used. If the mall is used to render renting service for five

years and then is sold after five years, no GST will be

payable on the sale. However, if ITC is allowed as

contended during these five years, ITC will be exhausted

against GST payable on rental income. Thereafter, the

mall would be sold without paying any tax, which would

cause a substantial monetary loss. Learned ASG relied

Civil Appeal No.2948 of 2023 etc. Page 28 of 91

upon a decision of this Court in Union of India v. Shri

Harbhajan Singh Dhillon

32, and in particular, what is

held in paragraphs 74 to 76 and 82. He also relied upon

a decision in the case of India Cement Ltd. & Ors. v.

State of Tamil Nadu & Ors.

33 and State of W.B. v.

Kesoram Industries Ltd. & Ors.

34. He pointed out that

the construction of a complex building intended for sale

to a buyer will be treated as a supply of service except

where the entire consideration has been received after the

issuance of the commencement certificate. He pointed

out that the supply of a constructed building complex or

a civil structure before the issuance of the completion

certificate can be construed as a supply of services and

will be liable to GST. The dividing line is the issuance of

a completion certificate. A supply prior to the issuance of

the commencement certificate is treated as a supply of

service, whereas a sale made after the issuance of the

completion certificate is not treated as a supply of service.

Miscellaneous Submissions

e. He submitted that tax on works contracts is also a tax on

movable goods, either as goods, or during the transfer of

goods, or before accretion takes place, leading to their

becoming immovable property.

32

(1971) 2 SCC 779

33

(1990) 1 SCC 12

34

(2004) 10 SCC 201

Civil Appeal No.2948 of 2023 etc. Page 29 of 91

f. The learned ASG also dealt with the services on tax and

work contracts in the pre-GST regime. Relying upon the

definition of “works contract” in Article 366 (29A)(b) of the

Constitution, he submitted that what is taxed cannot be

a taxation on the immovable property.

GIST OF REJOINDER

17. By way of rejoinder, the learned counsel representing

assessees submitted that the legislature intentionally used the

expression “plant or machinery” in only one place, and the

legislative intention has to be adhered to.

18. It was submitted that in certain cases, CENVAT credit

was allowed for the construction of buildings. That is the view

taken by the Tribunals/High Courts.

19. Concerning the apprehension of misusing GST expressed

by the learned ASG, it was submitted that even if the argument

of the assessees is accepted, the ITC on goods or services used

to construct a warehouse or mall is only to a limited extent of

GST payable on rental activity. It was, therefore, submitted

that the definition of “plant or machinery” will not apply to

“plant and machinery”.

20. The learned counsel submitted that there is no conflict

between Section 17(5)(d) and Section 16(3). He submitted that

Section 16(3) applies to “plant and machinery” and not to

“plant or machinery”. He submitted that even assuming that

Section 16(3) applies to plant or machinery, the effect of the

provision is that if the registered person claims depreciation on

Civil Appeal No.2948 of 2023 etc. Page 30 of 91

the tax component of the cost of capital goods and plant and

machinery under the provisions of the Income Tax Act, 1961,

he cannot avail of the ITC on the said tax component. He

submitted that there is no conflict between the provisions of

Section 17(5)(d) and Section 29(5) of the CGST Act. Inviting

our attention to Section 18(6), he submitted that the provision

can be pressed into service only in case of supply of capital

goods or plant and machinery on which ITC has been taken.

He submitted that in the facts of the case, it is nobody’s case

that the registered persons are supplying capital goods, plant

or machinery.

21. It was argued that the constitutional bar in Entry 49 of

List II exists only against the levy of GST on land and buildings

and not against the grant of ITC on movable goods and services

used for the construction of buildings. In its wisdom, the

legislature has allowed ITC on immovable property provided it

meets the criteria of functionality or essentiality of a plant. It

is submitted that GST is leviable on the activity of renting and

the activity of selling buildings before the grant of completion

certificate. The disallowance of ITC on goods and services used

in the construction of buildings could be a logical corollary only

if the buildings were intended to be sold as stock by the

developer instead of being further used for providing taxable

goods or services. There is no contradiction in promoting ITC

on goods and services used for the construction of buildings

when such buildings are deployed to provide taxable supplies

on which GST is being discharged. Not permitting ITC in such

Civil Appeal No.2948 of 2023 etc. Page 31 of 91

a situation would lead to absurdness and the unintended

consequence of breaking the ITC chain, which will amount to

thwarting the seamless flow of tax credits.

22. There is a deliberate intention to permit ITC on plant or

machinery under Section 17(5)(d) even if the plant or

machinery is immovable, and Section 17(5)(d) cannot be

detracted by Section 16(3). He submitted that Sections 16(3)

and 17(5) must be read harmoniously.

REPLY TO REJOINDER

23. We may note here that submissions in brief were made

by learned ASG dealing with the arguments of Shri Arvind

Datar, Senior Advocate. His submission is that the expression

“capital goods” is intended to include “plant and machinery”.

He submitted that what emerges from steel, cement, etc., are

immovable goods, which would be excluded from GST. Since

no GST is payable on immovable property, ITC is not available.

BROAD ISSUES FOR CONSIDERATION

24. Considering the submissions made by the parties, the

following main questions arise for consideration:

(i) Whether the definition of “plant and machinery” in the

explanation appended to Section 17 of the CGST Act

applies to the expression “plant or machinery” used in

clause (d) of sub-section (5) of Section 17?

Civil Appeal No.2948 of 2023 etc. Page 32 of 91

(ii) If it is held that the explanation does not apply to

“plant or machinery”, what is the meaning of the word

“plant”? and

(iii) Whether clauses (c) and (d) of Section 17(5) and

Section 16(4) of the CGST Act are unconstitutional?

RULES REGARDING THE INTERPRETATION OF TAXING

STATUTES

25. Regarding the interpretation of taxation statutes, the

parties have relied on several decisions. The law laid down on

this aspect is fairly well-settled. The principles governing the

interpretation of the taxation statutes can be summarised as

follows:

a. A taxing statute must be read as it is with no additions

and no subtractions on the grounds of legislative

intendment or otherwise;

b. If the language of a taxing provision is plain, the

consequence of giving effect to it may lead to some

absurd result is not a factor to be considered when

interpreting the provisions. It is for the legislature to

step in and remove the absurdity;

c. While dealing with a taxing provision, the principle of

strict interpretation should be applied;

d. If two interpretations of a statutory provision are

possible, the Court ordinarily would interpret the

Civil Appeal No.2948 of 2023 etc. Page 33 of 91

provision in favour of a taxpayer and against the

revenue;

e. In interpreting a taxing statute, equitable

considerations are entirely out of place;

f. A taxing provision cannot be interpreted on any

presumption or assumption;

g. A taxing statute has to be interpreted in the light of

what is clearly expressed. The Court cannot imply

anything which is not expressed. Moreover, the Court

cannot import provisions in the statute to supply any

deficiency;

h. There is nothing unjust in the taxpayer escaping if the

letter of the law fails to catch him on account of the

legislature’s failure to express itself clearly;

i. If literal interpretation is manifestly unjust, which

produces a result not intended by the legislature, only

in such a case can the Court modify the language;

j. Equity and taxation are strangers. But if construction

results in equity rather than injustice, such

construction should be preferred;

k. It is not a function of the Court in the fiscal arena to

compel the Parliament to go further and do more;

l. When a word used in a taxing statute is to be construed

and has not been specifically defined, it should not be

Civil Appeal No.2948 of 2023 etc. Page 34 of 91

interpreted in accordance with its definition in another

statute that does not deal with a cognate subject. It

should be understood in its commercial sense. Unless

defined in the statute itself, the words and expressions

in a taxing statute have to be construed in the sense in

which the persons dealing with them understand, that

is, as per the trade understanding, commercial and

technical practice and usage.

RELEVANT PROVISIONS OF THE CGST ACT AND

INTERPRETATION THEREOF

26. Firstly, we will deal with the issue of interpretation of the

relevant statutory provisions. To deal with the first question,

we must analyse the provisions of the CGST Act. The charging

Section is Section 9, which reads as follows:

“9. Levy and collection.— (1) Subject

to the provisions of sub-section (2),

there shall be levied a tax called the

central goods and services tax on all

intra-State supplies of goods or

services or both, except on the supply

of alcoholic liquor for human

consumption, on the value

determined under section 15 and at

such rates, not exceeding twenty per

cent., as may be notified by the

Government on the recommendations

of the Council and collected in such

manner as may be prescribed and shall

be paid by the taxable person.

(2) The central tax on the supply of

petroleum crude, high speed diesel,

motor spirit (commonly known as petrol),

natural gas and aviation turbine fuel

Civil Appeal No.2948 of 2023 etc. Page 35 of 91

shall be levied with effect from such date

as may be notified by the Government on

the recommendations of the Council.

(3) The Government may, on the

recommendations of the Council, by

notification, specify categories of supply

of goods or services or both, the tax on

which shall be paid on reverse charge

basis by the recipient of such goods or

services or both and all the provisions of

this Act shall apply to such recipient as

if he is the person liable for paying the

tax in relation to the supply of such

goods or services or both.

(4) The Government may, on the

recommendations of the Council, by

notification, specify a class of registered

persons who shall, in respect of supply

of specified categories of goods or

services or both received from an

unregistered supplier, pay the tax on

reverse charge basis as the recipient of

such supply of goods or services or both,

and all the provisions of this Act shall

apply to such recipient as if he is the

person liable for paying the tax in

relation to such supply of goods or

services or both.

(5) The Government may, on the

recommendations of the Council, by

notification, specify categories of services

the tax on intra-State supplies of which

shall be paid by the electronic commerce

operator if such services are supplied

through it, and all the provisions of this

Act shall apply to such electronic

commerce operator as if he is the

supplier liable for paying the tax in

relation to the supply of such services:

Civil Appeal No.2948 of 2023 etc. Page 36 of 91

Provided that where an electronic

commerce operator does not have a

physical presence in the taxable

territory, any person representing such

electronic commerce operator for any

purpose in the taxable territory shall be

liable to pay tax:

Provided further that where an electronic

commerce operator does not have a

physical presence in the taxable territory

and also he does not have a

representative in the said territory, such

electronic commerce operator shall

appoint a person in the taxable territory

for the purpose of paying tax and such

person shall be liable to pay tax.”

(emphasis added)

Thus, the GST is to be levied on supplies of goods or services

or both, as provided in sub-section (1) of Section 9. Sub-

sections (3) and (4) provide for certain categories of cases where

the tax on the supply of goods or services or both shall be paid

on a reverse charge basis by the recipient of such goods or

services. As per Section 2(98) of the CGST Act, ‘reverse charge’

means the liability to pay tax by the recipient of the supply of

goods or services, or both, instead of the supplier. Therefore,

when sub-sections (3) or (4) of Section 9 are applicable, the

recipients of goods, services, or both are liable to pay tax as if

they were the suppliers.

27. Section 16 deals with ITC, which reads thus:

“16. Eligibility and conditions for taking

input tax credit—(1) Every registered

Civil Appeal No.2948 of 2023 etc. Page 37 of 91

person shall, subject to such conditions

and restrictions as may be prescribed

and in the manner specified in Section

49, be entitled to take credit of input tax

charged on any 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.

(2) Notwithstanding anything contained in

this section, no registered person shall be

entitled to the credit of any input tax in

respect of any supply of goods or services

or both to him unless,—

(a) he is in possession of a tax invoice

or debit note issued by a supplier

registered under this Act, or such

other tax paying documents as may

be prescribed;

(aa) the details of the invoice or

debit note referred to in clause

(a) has been furnished by the

supplier in the statement of

outward supplies and such

details have been

communicated to the recipient

of such invoice or debit note in

the manner specified u nder

Section 37;

(b) he has received the goods or services or

both;

Explanation.—For the purposes of

this clause, it shall be deemed that

the registered person has received

the goods or, as the case may be,

services—

Civil Appeal No.2948 of 2023 etc. Page 38 of 91

(i) where the goods are delivered by

the supplier to a recipient or any

other person on the direction of such

registered person, whether acting as

an agent or otherwise, before or

during movement of goods, either by

way of transfer of documents of title

to goods or otherwise;

(ii) where the services are provided by

the supplier to any person on the

direction of and on account of such

registered person.

(ba) the details of input tax

credit in respect of the said

supply communicated to such

registered person under

Section 38 has not been

restricted;

(c) subject to the provisions of Section 41 [*

* *], the tax charged in respect of such

supply has been actually paid to the

Government, either in cash or through

utilisation of input tax credit admissible in

respect of the said supply; and

(d) he has furnished the return under

Section 39:

Provided that where the goods against an

invoice are received in lots or instalments,

the registered person shall be entitled to

take credit upon receipt of the last lot or

instalment:

Provided further that where a recipient fails

to pay to the supplier of goods or services

or both, other than the supplies on which

tax is payable on reverse charge basis, the

amount towards the value of supply along

with tax payable thereon within a period of

Civil Appeal No.2948 of 2023 etc. Page 39 of 91

one hundred and eighty days from the date

of issue of invoice by the supplier, an

amount equal to the input tax credit

availed by the recipient shall be paid by

him along with interest payable under

Section 50, in such manner as may be

prescribed:

Provided also that the recipient shall be

entitled to avail of the credit of input tax on

payment made by him to the supplier of the

amount towards the value of supply of

goods or services or both along with tax

payable thereon.

(3) Where the registered person has

claimed depreciation on the tax component

of the cost of capital goods and plant and

machinery under the provisions of the

Income-tax Act, 1961 (43 of 1961), the

input tax credit on the said tax component

shall not be allowed.

(4) A registered person shall not be entitled

to take input tax credit in respect of any

invoice or debit note for supply of goods or

services or both after the thirtieth day of

November following the end of financial

year to which such invoice or debit note

pertains or furnishing of the relevant

annual return, whichever is earlier:

Provided that the registered person shall be

entitled to take input tax credit after the

due date of furnishing of the return under

Section 39 for the month of September,

2018 till the due date of furnishing of the

return under the said section for the month

of March, 2019 in respect of any invoice

or debit note for supply of goods or services

or both made during the financial year

2017-18, the details of which have been

uploaded by the supplier under sub -

Civil Appeal No.2948 of 2023 etc. Page 40 of 91

section (1) of Section 37 till the due date for

furnishing the details under sub-section (1)

of said section for the month of March,

2019.

(5) Notwithstanding anything contained in

sub-section (4), in respect of an invoice or

debit note for supply of goods or services or

both pertaining to the Financial Years

2017-18, 2018-19, 2019-20 and 2020-21,

the registered person shall be entitled to

take input tax credit in any return under

section 39 which is filed up to the thirtieth

day of November, 2021.

(6) Where registration of a registered

person is cancelled under Section 29 and

subsequently the cancellation of

registration is revoked by any order, either

under Section 30 or pursuant to any order

made by the Appellate Authority or the

Appellate Tribunal or court and where

availment of input tax credit in respect of

an invoice or debit note was not restricted

under sub-section (4) on the date of order

of cancellation of registration, the said

person shall be entitled to take the input

tax credit in respect of such invoice or debit

note for supply of goods or services or both,

in a return under Section 39,—

(i) filed up to thirtieth day of

November following the financial year

to which such invoice or debit note

pertains or furnishing of the relevant

annual return, whichever is earlier;

or

(ii) for the period from the date of

cancellation of registration or the

effective date of cancellation of

registration, as the case may be, till

the date of order of revocation of

Civil Appeal No.2948 of 2023 etc. Page 41 of 91

cancellation of registration, where

such return is filed within thirty days

from the date of order of revocation of

cancellation of registration,

whichever is later.”

(emphasis added)

From sub-section (1) of Section 16, it is apparent that only a

registered person, as defined by Section 2(94) of the CGST Act,

can avail of ITC. A person who is registered under Section 25

of the CGST Act becomes a registered person. The availability

of ITC is subject to such conditions and restrictions as may be

prescribed. The word “prescribed” is defined to mean

prescribed by the rules made under the CGST Act. Therefore,

the entitlement to ITC is subject to conditions and restrictions

as may be provided in the Rules framed under the CGST Act.

ITC has to be availed in the manner laid down by Section 49.

Sub-section (2) of Section 49 and other sub-sections deal with

how ITC can be availed. Under sub-section (1) of Section 16, a

registered person is entitled to take credit of the input tax

charged on any supply of goods or services or both to him,

which are used or intended to be used in the course of or in

furtherance of his business. Input tax is defined by Section

2(62). In relation to a registered person, it means Central,

State, Integrated or Union Territory tax charged on the supply

of goods or services or both made to him. It includes the tax

payable by him on a reverse charge basis under sub-sections

(3) and (4) of Section 9. Further conditions for the use of ITC

are prescribed by sub-section (2) of Section 16.

Civil Appeal No.2948 of 2023 etc. Page 42 of 91

28. Sub-section (3) of Section 16 is of some relevance as it

provides that if a registered person has claimed depreciation on

the tax component of the cost of capital goods and plant and

machinery under the provisions of the Income Tax Act, 1961,

he is disentitled to ITC on the said tax component. In short, a

registered person will not be entitled to ITC on the tax

component of the cost of capital goods and plant and

machinery if he claims depreciation on the said tax component

under the Income Tax Act. The object is that a registered

person does not take advantage of both depreciation and ITC.

29. Now we come to sub-Section (4) of Section 16. Before the

amendment made by the Finance Act, 2022, the sub -section

read thus:

“16. .. .. .. .. .. .. .. .. ..

(4) A registered person shall not be entitled

to take input tax credit in respect of any

invoice or debit note for supply of goods or

services or both after the due date of

furnishing of the return under section 39

for the month of September following the

end of financial year to which such invoice

or debit note pertains or furnishing of the

relevant annual return, whichever is

earlier.

Provided that the registered person shall be

entitled to take input tax credit after the

due date of furnishing of the return under

section 39 for the month of September,

2018 till the due date of furnishing of the

return under the said section for the month

of March, 2019 in respect of any invoice or

invoice relating to such debit note for

supply of goods or services or both made

Civil Appeal No.2948 of 2023 etc. Page 43 of 91

during the financial year 2017-18, the

details of which have been uploaded by the

supplier under sub-section (1) of section 37

till the due date for furnishing the details

under sub-section (1) of said section for the

month of March, 2019.”

The Finance Act, 2022, substituted the words “due date of

furnishing return under Section 39 for the month of

September” with “thirtieth day of November” with effect from

1

st October 2022. Under Section 39(1), every registered person

other than an Input Service Distributor is required to furnish

for every calendar month or part thereof a return of inward and

outward supplies of goods or services or both, ITC availed, tax

payable, tax paid, etc. The meaning of sub-section (4) of

Section 16 as amended is that a registered person can avail of

ITC in respect of any invoice or debit note for the supply of

goods or services before 30

th day of November following the end

of the financial year to which such invoice or debit note

pertains, or furnishing of annual return, whichever is earlier.

30. Section 17 deals with apportionment of credit and

blocked credits. The provision regarding blocked credits is in

sub-section (5) of Section 17. Sub-sections (5) and (6) of

Section 17 read thus:

“17. .. .. .. .. .. .. .. .. ..

(5) 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 following, namely :—

Civil Appeal No.2948 of 2023 etc. Page 44 of 91

(a) motor vehicles for transportation of

persons having approved seating capacity

of not more than thirteen persons

(including the driver), except when they are

used for making the following taxable

supplies, namely:—

(A) further supply of such motor

vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving

such motor vehicles;

(aa) vessels and aircraft except when

they are used—

(i) for making the following taxable

supplies, namely:—

(A) further supply of such

vessels or aircraft; or

(B) transportation of

passengers; or

(C) imparting training on

navigating such vessels; or

(D) imparting training on flying

such aircraft;

(ii) for transportation of goods;

(ab) services of general insurance,

servicing, repair and maintenance in so

far as they relate to motor vehicles,

vessels or aircraft referred to in clause (a)

or clause (aa):

Provided that the input tax credit in

respect of such services shall be

available—

Civil Appeal No.2948 of 2023 etc. Page 45 of 91

(i) where the motor vehicles, vessels

or aircraft referred to in clause (a) or

clause (aa) are used for the purposes

specified therein;

(ii) where received by a taxable

person engaged—

(I) in the manufacture of such

motor vehicles, vessels or

aircraft; or

(II) in the supply of general

insurance services in respect of

such motor vehicles, vessels or

aircraft insured by him;

(b) the following supply of goods or

services or both—

(i) food and beverages, outdoor

catering, beauty treatment, health

services, cosmetic and plastic

surgery, leasing, renting or hiring of

motor vehicles, vessels or aircraft

referred to in clause (a) or clause (aa)

except when used for the purposes

specified therein, life insurance and

health insurance:

Provided that the input tax credit in

respect of such goods or services or

both shall be available where an

inward supply of such goods or

services or both is used by a

registered person for making an

outward taxable supply of the same

category of goods or services or both

or as an element of a taxable

composite or mixed supply;

(ii) membership of a club, health and

fitness centre; and

Civil Appeal No.2948 of 2023 etc. Page 46 of 91

(iii) travel benefits extended to

employees on vacation such as leave

or home travel concession:

Provided that the input tax credit in

respect of such goods or services or

both shall be available, where it is

obligatory for an employer to provide

the same to its employees under any

law for the time being in force.

(c) works contract services when

supplied for construction of an

immovable property (other than plant

and machinery) except where it is an

input service for further supply of

works contract service;

(d) goods or services or both received

by a taxable person for construction of

an immovable property (other than

plant or machinery) on his own

account including when such goods or

services or both are used in the course

or furtherance of business.

Explanation.—For the purposes of

clauses (c) and (d), the expression

“construction” includes re -

construction, renovation, additions or

alterations or repairs, to the extent of

capitalisation, to the said immovable

property;

(e) goods or services or both on which tax

has been paid under Section 10;

(f) goods or services or both received by a

non-resident taxable person except on

goods imported by him;

(fa) goods or services or both received by

a taxable person, which are used or

Civil Appeal No.2948 of 2023 etc. Page 47 of 91

intended to be used for activities relating

to his obligations under corporate social

responsibility referred to in Section 135

of the Companies Act, 2013 (18 of 2013);

(g) goods or services or both used for

personal consumption;

(h) goods lost, stolen, destroyed, written

off or disposed of by way of gift or free

samples; and

(i) any tax paid in accordance with the

provisions of Section 74 in respect of any

period up to Financial Year 2023-24.

(6) The Government may prescribe the

manner in which the credit referred to in

sub-sections (1) and (2) may be

attributed.

Explanation.—For the purposes of this

Chapter and Chapter VI, the

expression “plant and machinery”

means apparatus, equipment, and

machinery fixed to earth by

foundation or structural support that

are used for making outward supply of

goods or services or both and includes

such foundation and structural

supports but excludes—

(i) land, building or any other civil

structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the

factory premises.”

(emphasis added)

Civil Appeal No.2948 of 2023 etc. Page 48 of 91

Section 17(5) begins with a non-obstante clause. A non-

obstante clause is a device used by the legislature that is

usually employed to give an overriding effect to certain

provisions over some contrary provisions that may be found in

the same or some other enactments. Such a clause is used to

indicate that the said provision should prevail despite anything

to the contrary in the provisions mentioned in the non-obstante

clause. It is pertinent to note that in view of the non-obstante

clause used at the beginning of sub-section (5), it seeks to

override both sub-section (1) of Section 16 and sub-section (1)

of Section 18. As noted earlier, sub-section (1) of Section 16

lays down the eligibility and conditions for taking ITC. Sub-

section (1) of Section 18 deals with the availability of ITC in

special circumstances. Therefore, in the cases covered by sub-

section (5), ITC is not available. In a sense, sub-section (5) of

Section 17 carves out an exception to the provisions of sub-

section (1) of Sections 16 and 18, which confer the benefit of

ITC.

ANALYSIS OF CLAUSES (c) AND (d)

31. Now, we analyse clauses (c) and (d) of Section 17(5).

Clause (c) applies when works contract services are supplied

for constructing immovable property. The definition of “works

contract” under Section 2(119) is extensive. It reads thus:

“2.Definitions:-

.. .. .. .. .. .. .. .. .. ..

(119) “works contract” means a

contract for building, construction,

fabrication, completion, erection,

installation, fitting out,

Civil Appeal No.2948 of 2023 etc. Page 49 of 91

improvement, modification, repair,

maintenance, renovation, alteration

or commissioning of any immovable

property wherein transfer of

property in goods (whether as goods

or in some other form) is involved in

the execution of such contract;”

Thus, in the case of works contract services supplied for the

construction of immovable property, the benefit of ITC is not

available. However, there are exceptions to clause (c). First is

when goods or services, or both, are received by a taxable

person for the construction of “plant and machinery”, as

defined in the explanation to Section 17. The second exception

is where the works contract service supplied for the

construction of immovable property is an input service for

further supply of the works contract.

32. Clause (d) of Section 17(5) is different from clause (c) in

various aspects. Clause (d) seeks to exclude from the purview

of sub-section (1) of Sections 16 and 18, goods or services or

both received by a taxable person to construct an immovable

property on his own account. There are two exceptions in

clause (d) to the exclusion from ITC provided in the first part of

Clause (d). The first exception is where goods or services or

both are received by a taxable person to construct an

immovable property consisting of a “plant or machinery”. The

second exception is where goods and services or both are

received by a taxable person for the construction of an

immovable property made not on his own account.

Construction is said to be on a taxable person’s “own account”

Civil Appeal No.2948 of 2023 etc. Page 50 of 91

when (i) it is made for his personal use and not for service or

(ii) it is to be used by the person constructing as a setting in

which business is carried out. However, construction cannot

said to be on a taxable person’s “own account” if it is intended

to be sold or given on lease or license.

33. Section 17(5) incorporates an explanation which provides

that the word “construction” used in clauses (c) and (d)

includes reconstruction, renovation, additions, alterations or

repairs, to the extent of capitalisation, to the immovable

property. Thus, a very wide meaning has been assigned to the

expression “construction” by the said explanation.

34. There is hardly a similarity between clauses (c) and (d) of

Section 17(5) except for the fact that both clauses apply as an

exception to sub-section (1) of Section 16. Perhaps the only

other similarity is that both apply to the construction of an

immovable property. Clause (c) uses the expression “plant and

machinery”, which is specifically defined in the explanation.

Clause (d) uses an expression of “plant or machinery”, which is

not specifically defined.

35. Now, what is material is the explanation to Section 17,

which reads thus:

“Explanation.––For the purposes of

this Chapter and Chapter VI, the

expression ―plant and machinery

means apparatus, equipment, and

machinery fixed to earth by

foundation or structural support

that are used for making outward

supply of goods or services or both

Civil Appeal No.2948 of 2023 etc. Page 51 of 91

and includes such foundation and

structural supports but excludes—

(i) land, building or any other

civil structures;

(ii) telecommunication towers;

and

(iii) pipelines laid outside the

factory premises.”

The explanation defines the meaning of the expression “plant

and machinery”. However, as stated earlier, the expression

“plant or machinery” has not been defined under the CGST Act.

It is pertinent to note that clauses (c) and (d) do not altogether

exclude every class of immovable property from the

applicability of ITC. In the case of clause (c), if the construction

is of “plant and machinery” as defined, the benefit of ITC will

accrue. Similarly, under clause (d), if the construction is of a

“plant or machinery”, ITC will be available.

36. The Union legislature cannot levy taxes on lands and

buildings as it is exclusively a State subject at item no.49 in

List II of Schedule VII of the Constitution of India. It is,

therefore, necessary to consider the categories of services

concerning land and buildings, which are within the purview

of the CGST Act. Section 2(102) defines service as meaning

anything other than goods, money and securities but includes

activities relating to the use of money or its conversion by cash

or by any other mode, from one form, currency or

denomination, to another form, currency or denomination for

which a separate consideration is charged. Under the CGST

Act, the supply of service is taxable. The scope of supply of

Civil Appeal No.2948 of 2023 etc. Page 52 of 91

services or goods is laid down in Section 7 of the CGST Act,

which reads thus:

“7. Scope of supply.—(1) For the purposes

of this Act, the expression “supply”

includes—

(a) all forms of supply of goods or

services or both such as sale,

transfer, barter, exchange, licence,

rental, lease or disposal made or

agreed to be made for a

consideration by a person in the

course or furtherance of business;

(aa) the activities or transactions, by a

person, other than an individual, to its

members or constituents or vice-

versa, for cash, deferred payment or

other valuable consideration.

Explanation.—For the purposes of this

clause, it is hereby clarified that,

notwithstanding anything contained

in any other law for the time being in

force or any judgment, decree or order

of any Court, tribunal or authority, the

person and its members or

constituents shall be deemed to be two

separate persons and the supply of

activities or transactions inter se shall

be deemed to take place from one such

person to another;

(b) import of services for a

consideration whether or not in the

course or furtherance of business; and

(c) the activities specified in

Schedule I, made or agreed to be

made without a consideration;

Civil Appeal No.2948 of 2023 etc. Page 53 of 91

(1-A) where certain activities or

transactions constitute a supply in

accordance with the provisions of

sub-section (1), they shall be treated

either as supply of goods or supply

of services as referred to in

Schedule II.

(2) Notwithstanding anything contained in

sub-section (1),—

(a) activities or transactions specified

in Schedule III; or

(b) such activities or transactions

undertaken by the Central

Government, a State Government or

any local authority in which they are

engaged as public authorities, as may

be notified by the Government on the

recommendations of the Council,

shall be treated neither as a supply of

goods nor a supply of services.

(3) Subject to the provisions of sub-

sections (1), (1-A) and (2), the Government

may, on the recommendations of the

Council, specify, by notification, the

transactions that are to be treated as—

(a) a supply of goods and not as a

supply of services; or

(b) a supply of services and not as a

supply of goods.”

(emphasis added)

37. In view of clause (a) of sub-section (1) of Section 7, a

supply of services such as sale, transfer, licence, rental or lease

made for consideration is a supply. Whether the activities or

transactions covered by sub-section (1) of Section 7 constitute

Civil Appeal No.2948 of 2023 etc. Page 54 of 91

a supply has to be considered in light of Schedule II. Schedule

II has a title: “Activities or transactions to be treated as supply

of goods or supply of services”. The activities/transactions

incorporated in Schedule II are treated as a supply of service.

As far as lands and buildings are concerned, clauses (2) and (5)

of Schedule II are relevant, which read thus:

“2. Land and Building

(a) any lease, tenancy, easement, licence

to occupy land is a supply of services;

(b) any lease or letting out of the building

including a commercial, industrial or

residential complex for business or

commerce, either wholly or partly, is a

supply of services.

.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..

5. Supply of services

The following shall be treated as supply

of services, namely:—

(a) renting of immovable property;

(b) construction of a complex, building,

civil structure or a part thereof,

including a complex or building intended

for sale to a buyer, wholly or partly,

except where the entire consideration

has been received after issuance of

completion certificate, where required,

by the competent authority or after its

first occupation, whichever is earlier.

Explanation.—For the purposes of this

clause—

(1) the expression "competent authority"

means the Government or any authority

authorised to issue completion

Civil Appeal No.2948 of 2023 etc. Page 55 of 91

certificate under any law for the time

being in force and in case of non -

requirement of such certificate from

such authority, from any of the following,

namely:—

(i) an architect registered with the

Council of Architecture constituted

under the Architects Act, 1972; or

(ii) a chartered engineer registered with

the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective

local body of the city or town or village or

development or planning authority;

(2) the expression "construction"

includes additions, alterations,

replacements or remodelling of any

existing civil structure;

(c) temporary transfer or permitting the

use or enjoyment of any intellectual

property right;

(d) development, design, programming,

customisation, adaptation, upgradation,

enhancement, implementation of

information technology software;

(e) agreeing to the obligation to refrain

from an act, or to tolerate an act or a

situation, or to do an act; and

(f) transfer of the right to use any goods

for any purpose (whether or not for a

specified period) for cash, deferred

payment or other valuable

consideration.”

38. Clause 5(b) of Schedule II has to be read with the

provisions of Schedule III, which has a title: “Activities or

Civil Appeal No.2948 of 2023 etc. Page 56 of 91

transactions which shall be treated neither as a supply of goods

nor a supply of services”. Clause (5) of Schedule III reads thus:

“5. Sale of land and, subject to

clause (b) of paragraph 5 of

Schedule II, sale of building.”

39. Analysis of the provisions of Section 7 read with Schedule

II and III shows that:

a. Any lease, tenancy, easement or licence to occupy land is

a supply of services. Clause 2(a) is not qualified by the

purpose of the use. But the sale of a land is not a supply

of service;

b. Any lease or letting out of buildings for business or

commerce, wholly or partly, is a supply of services .

Clause 2(b) will not apply if the lease or letting out of a

building is for a residential purpose;

c. Renting of an immovable property is a supply of service;

d. Construction of a complex, building, civil structure or a

part thereof, including a complex, building or civil

structure intended for sale to a buyer, wholly or partly, is

a supply of service. However, the construction of a

complex, building or civil structure, referred to above, is

excluded from the category of supply of service if the

entire consideration for sale is received after issuance of

the completion certificate, wherever required or its first

occupation, whichever is earlier. Broadly speaking, if a

building or a part thereof to which clause 5(b) is

Civil Appeal No.2948 of 2023 etc. Page 57 of 91

applicable is sold before it is ready for occupation, the

construction thereof becomes a supply of service.

Therefore, if a building is sold by accepting consideration

before issuance of a completion certificate or before its

first occupation, whichever is earlier, the construction

thereof becomes a supply of service;

40. If there is a complex, building or civil structure

constructed which is intended for sale to a buyer, wholly or

partly, construction becomes a supply of service only if

consideration for sale is received before the issuance of a

completion certificate or after its first occupation, whichever is

earlier. Thus, if the consideration for sale is paid after the

competition certificate is issued or its first occupation,

whichever is earlier, the sale transaction will not amount to the

supply of service. However, no such distinction has been made

in the case of lease, tenancy, or licence concerning land or

letting of buildings. Even if the entire consideration for lease,

tenancy or a licence to occupy land or a lease of a building is

paid after the issuance of the completion certificate or its first

occupation, whichever is earlier, it continues to be a supply of

service.

41. It is also necessary to bear in mind the philosophy of the

GST regime, which is discussed in the case of Mohit

Minerals

14. This Court held that the philosophy of the GST is

to incorporate a consumption and destination-based test. The

emphasis is on taxing supplies of goods and services. If we

apply the well-settled principles on the interpretation of taxing

Civil Appeal No.2948 of 2023 etc. Page 58 of 91

statutes, as discussed in the earlier part of this judgment, there

is no scope to give any meaning to clause (c) of Section 17(5)

other than its plain and natural meaning. The expression

“plant and machinery” has been specifically defined in the

explanation of Section 17. Works contract service has been

defined under the CGST Act. We cannot add anything to clause

(c) or subtract anything from clause (c). ITC is a creation of

legislature. Therefore, it can exclude specific categories of

goods or services from ITC. Exclusion of the category of works

contracts by clause (c) will not, per se¸, defeat the object of the

CGST Act.

MEANING OF THE EXPRESSION “PLANT OR MACHINERY ”

IN CLAUSE (d) OF SECTION 17(5)

42. The question is whether the explanation that lays down

the meaning of the expression “plant and machinery” in Section

17 will apply to the expression “plant or machinery” used in

Section 17 (5)(d).

43. Learned ASG himself accepted that the expression “plant

and machinery” appears at ten different places in Chapters V

(Input Tax Credit) and VI (Tax Invoice, Credit and Debit Notes)

of the CGST Act. According to him, the expression “plant or

machinery” appears only in clause (d) of Section 17(5). His

submission is that the use of the word “or” in clause (d) is a

mistake of the legislature. To counter this, it was submitted

that in the Model GST Law, which the GST Council Secretariat

circulated in November 2016 to invite suggestions and

comments from the public, the expression ‘plant and

Civil Appeal No.2948 of 2023 etc. Page 59 of 91

machinery’ was used in clauses (c) and (d). However, while

enacting the CGST Act, the legislature has consciously chosen

to use the expression “plant or machinery” only in clause (d).

The impugned judgment in the main Civil Appeal is more than

five years old. The writ petition in which the impugned decision

was rendered is a six-year-old writ petition. If it was a drafting

mistake, as suggested by learned ASG, the legislature could

have stepped in to correct it. However, that was not done. In

such circumstances, it must be inferred that the legislature has

intentionally used the expression “plant or machinery” in

clause (d) as distinguished from the expression “plant and

machinery”, which has been used in several places. As the

expression “plant or machinery” appears to be intentionally

incorporated, it is not possible to accept the contention of the

learned ASG that the word “or” in clause (d) should be read as

“and”. If the said contention is accepted, there will not be any

difference between the expressions “plant and machinery” and

“plant or machinery”. This will defeat the legislative intent.

44. The explanation to Section 17 defines “plant and

machinery”. The explanation seeks to define the expression

“plant and machinery” used in Chapter V and Chapter VI. In

Chapter VI, the expression “plant and machinery” appears in

several places, but the expression “plant or machinery” is

found only in Section 17(5)(d). If the legislature intended to

give the expression “plant or machinery” the same meaning as

“plant and machinery” as defined in the explanation, the

legislature would not have specifically used the expression

Civil Appeal No.2948 of 2023 etc. Page 60 of 91

“plant or machinery” in Section 17(5)(d). The legislature has

made this distinction consciously. Therefore, the expression

“plant and machinery” and “plant or machinery” cannot be

given the same meaning. It may also be noted here that the

expression ‘plant or machinery’ is used in dealing with a

peculiar case of goods or services being received by a taxable

person for the construction of an immovable property on his

own account, even when such goods or services or both are

used in the course of furtherance of business. Therefore, if the

expression “plant or machinery” is given the same meaning as

the expression “plant and machinery” as per the definition

contained in the explanation to Section 17, we will be doing

violence to the words used in the statute. While interpreting

taxing statutes, it is not a function of the Court to supply the

deficiencies.

45. Now, the question which arises is what meaning should

be given to the expression “plant or machinery”. When the

legislature uses the expression “plant and machinery,” only a

plant will not be covered by the definition unless there is an

element of machinery or vice versa. This expression cannot be

read as “plant or machinery”. That is so clear from the

explanation in Section 17, which says that plant and

machinery means apparatus, equipment and machinery fixed

to the earth by foundation or structural support that are used

for making outward supply of goods or services or both. The

expression includes such foundation and structural support

Civil Appeal No.2948 of 2023 etc. Page 61 of 91

fixed to the earth. However, the definition excludes land,

buildings or any other civil structure.

46. The expression “plant or machinery” has a different

connotation. It can be either a plant or machinery. Section

17(5)(d) deals with the construction of an immovable property.

The very fact that the expression “immovable property other

than “plants or machinery” is used shows that there could be

a plant that is an immovable property. As the word ‘plant’ has

not been defined under the CGST Act or the rules framed

thereunder, its ordinary meaning in commercial terms will

have to be attached to it.

47. There are few decisions relied upon on this aspect. The

first is Commissioner of Central Excise, Ahmedabad v.

Solid and Correct Engineering Works & Ors.

35. The case

arose from the demand for duty and penalty under the Central

Excise Act, 1944 (Excise Act). The assessee was manufacturing

parts and components for road and civil construction

machinery and equipment like Asphalt Drum/Hot Mix Plants,

etc. One of the questions examined by the Tribunal was

whether the plants so manufactured could be termed as goods.

The issue before this Court was whether setting up an Asphalt

Drum/Hot Mix Plant by using duty-paid components amounts

to the manufacture of excisable goods within the meaning of

the Excise Act. It was argued before this Court that the plants

in question did not satisfy the test of marketability and

35

(2010) 5 SCC 122

Civil Appeal No.2948 of 2023 etc. Page 62 of 91

movability. This Court referred to the definition of movable

property in Section 3(36) of the General Clauses Act, 1897,

which defines movable property as property of every

description except immovable property. The same enactment

defines immovable property in Section 3(26), which is an

inclusive definition which includes land, benefits to arise out

of land, and things attached to the earth or permanently

fastened to anything attached to the earth. This Court

considered the definition of the expression “attached to the

earth” in Section 3 of the Transfer of Property Act, 1882. In the

facts of the case, it was held that the plants subject matter of

the case, were not per se immovable property as the same

cannot be said to get attached to the earth. This Court applied

the movability test by holding that the setting up of the plant

itself is not intended to be permanent at a given place. The

plant can be removed or is indeed removed after the road

construction or repair project is completed. The issue that we

were called upon to decide about the meaning of the plant did

not arise in this case.

48. Another decision of this Court in the case of Taj Mahal

Hotel

18 was pressed into service. The assessee was running a

hotel. The issue arose in a cognate enactment in the sense in

the enactment providing for levy of income-tax. The issue

referred to the opinion of the High Court was whether sanitary

fittings and pipelines installed in the hotel constituted a ‘plant’

within the meaning of Section 10(5) of the Income Tax Act,

1922. The definition of plant in Section 10(5) of the Income Tax

Civil Appeal No.2948 of 2023 etc. Page 63 of 91

Act, 1922 provided that ‘plant’ includes vehicles, scientific

apparatus, surgical equipment, and books purchased for the

purposes of business, profession or vocation. The Court

considered whether the word plant should be given a broader

meaning. In paragraph 6 of the said decision, this Court held

thus:

“6. Now it is well settled that where the

definition of a word has not been given,

it must be construed in its popular sense

if it is a word of everyday use. Popular

sense means “that sense which people

conversant with the subject-matter with

which the statute is dea ling, would

attribute to it”. In the present case, Section

10(5) enlarges the definition of the word

“plant” by including in it the words which

have already been mentioned before. The

very fact that even books have been included

shows that the meaning intended to be given

to “plant” is wide. The word “includes” is

often used in interpretation clauses in order

to enlarge the meaning of the words or

phrases occurring in the body of the statute.

When it is so used, those words and phrases

must be construed as comprehending not

only such things as they signify according to

their nature and import but also those

things which the interpretation clause

declares that they shall include. The word

“include” is also susceptible of other

constructions which it is unnecessary to go

into.”

(emphasis added)

Thereafter, in paragraphs 8 and 9, this Court held thus:

“8. It cannot be denied that the business

of a hotelier is carried on by adapting a

building or premises in a suitable way to

Civil Appeal No.2948 of 2023 etc. Page 64 of 91

be used as a residential hotel where

visitors come and stay and where there is

arrangement for meals and other

amenities are provided for their comfort

and convenience. To have sanitary fittings

etc. in a bathroom is one of the essential

amenities or conveniences which are

normally provided in any good hotel, in the

present times. If the partitions in Jarrold

case [(1887) 19 QB 647] could be treated as

having been used for the purpose of the

business of the trader, it is incomprehensible

how sanitary fittings can be said to have no

connection with the business of the hotelier.

He can reasonably expect to get more custom

and earn larger profit by charging higher

rates for the use of rooms if the bathrooms

have sanitary fittings and similar amenities.

We are unable to see how the sanitary fittings

in the bathrooms in a hotel will not be “plant”

within Section 10(vi)(b) read with Section

10(5) when it is quite clear that the intention

of the legislature was to give it a wide

meaning and that is why, articles like books

and surgical instruments were expressly

included in the definition of “plant”. In

decided cases, the High Courts have rightly

understood the meaning of the term “plant”

in a wide sense. (See CIT v. Indian Turpentine

and Rosin Co. Ltd. [(1970) 75 ITR 533].

9. If the dictionary meaning of the word plant

were to be taken into consideration on the

principle that the literal construction of a

statute must be adhered to unless the

context renders it plain that such a

construction cannot be put on the words in

question — this is what is stated in Webster's

Third New International Dictionary:

Civil Appeal No.2948 of 2023 etc. Page 65 of 91

“Land, buildings, machinery, apparatus and

fixtures employed in carrying on trade or

other industrial business....”

(emphasis added)

49. The next decision in the line is in the case of Anand

Theatres

19. This was a case where the issue was whether a

building which is used as a hotel or a cinema theatre can be

considered as apparatus or a tool for running a business so

that it can be termed as a plant and depreciation can be

allowed on the same under the Income Tax Act, 1961. This

Court dealt with Section 32, which provided for granting

depreciation to buildings, machinery, and plants. This Court

extensively referred to its earlier decision in the case of Taj

Mahal Hotel

18 and other decisions of this Court and High

Courts. This Court decided the question of whether a building

used for running a hotel or cinema business could be held to

be a plant. This Court considered British decisions on the

point. Paragraphs 61 to 63 of the decision are material, which

read thus:

“61. Further, there are hotels of all kinds and

hotel business can be carried on in all kinds

of buildings, may be pucca or kuccha

constructions. A building intended to be used

or in fact used earlier either as a residential

accommodation or business purpose can be

converted for running hotel business. Section

32 itself contemplates a hotel business being

carried on in a residential accommodation

including an accommodation which is in the

nature of guest house. On occasions hotel

buildings may be constructed with a special

design and features so as to attract and

accommodate a certain class of tourist.

Civil Appeal No.2948 of 2023 etc. Page 66 of 91

Similarly with regard to cinema business, it

can be carried on in a specially-designed and

constructed building and also in other

buildings. Still, however, it would be difficult

to draw a distinction and differentiate by

holding that a building which is specially

designed and constructed for running a hotel

or cinema would be covered by a “plant” and

other buildings used for the same purpose

would not get depreciation as “plant”, even

though such business is carried on in such

premises. In our view, the Delhi High Court

has in the case of R.C. Chemical

Industry [(1982) 134 ITR 330 (Del)] rightly

observed that mere fact that manufacture of

saccharine would be better carried on in a

building having atmospheric controls would

not convert the building from “the setting” to

“the means” for carrying the business.

Similarly, the Rajasthan High Court also

in Lake Palace Hotels and Motels [(1997) 226

ITR 561 (Raj)] rightly observed that simply

because some special fittings or controlling

equipments are attached for the purpose of

carrying on hotel business, it will not take it

out of the category of building and make it a

plant. In our view special fittings or

equipments to control atmospheric effects

would be plant, but not the building which

houses such equipments.

62. Further for running almost all industries

or for carrying on any trade or business

building is required. On occasions building

may be designed and constructed to suit the

requirement of a particular industry, trade or

business. But that would not make suc h

building a plant. It only shelters running of

such business. For each and every business,

trade or industry, building is required to

carry on such activity. That means building

plays some role and in other words, its

Civil Appeal No.2948 of 2023 etc. Page 67 of 91

function is to shelter the business, but it has

no other function except in some rare cases

such as dry dock where it plays an essential

part in the operations which take place in

getting a ship into the dock, holding it

squarely and then returning it to the river.

Building is more durable. If the contention of

the assessee is accepted, virtually all such

buildings would be considered to be a plant

and the distinction which the legislature has

made between “building” and “machinery” or

“plant” would be obliterated.

63. Learned counsel for the assessee

submitted that the words “plant” and

“building” are not mutually exclusive. “Plant”

may include building in a certain set of

circumstances and, therefore, applying the

functional tests the assessee would be

entitled to depreciation under the head “it is

more beneficial to it”. He submitted that in

the modern era, theatre building and hotel

building are integral part of operation for

carrying out such business and, therefore,

such building should be considered as a

“plant”.

Ultimately, in paragraph 67, this Court held thus:

“67. In the result, it is held that the

building used for running of a hotel or

carrying on cinema business cannot be

held to be a plant because:

(1) The scheme of Section 32, as

discussed above, clearly envisages

separate depreciation for a building,

machinery and plant, furniture and

fittings etc. The word “plant” is given

inclusive meaning under Section 43(3)

which nowhere includes buildings. The

Civil Appeal No.2948 of 2023 etc. Page 68 of 91

Rules prescribing the rates of

depreciation specifically provide grant of

depreciation on buildings, furniture and

fittings, machinery and plant and ships.

Machinery and plant include

cinematograph films and other items

and the building is further given

meaning to include roads, bridges,

culverts, wells and tubewells.

(2) In the case of Taj Mahal Hotel [(1971)

3 SCC 550 : (1971) 82 ITR 44] this Court

has observed that business of a hotelier

is carried on by adopting building or

premises in suitable way. Meaning

thereby building for a hotel is not an

apparatus or adjunct for running of a

hotel. The Court did not proceed to hold

that a building in which the hotel was

run was itself a plant, otherwise the

Court would not have gone into the

question whether the sanitary fittings

used in bathroom was plant.

(3) For a building used for a hotel,

specific provision is made granting

additional depreciation under Section

32(1)(v) of the Act.

(4) Barclay, Curle & Co. case [(1969) 1

WLR 675 : (1969) 1 All ER 732 : (1970)

76 ITR 62 : 1969 SC 30 : 45 TC 221 (HL)]

decided by the House of Lords pertains

to a dry dockyard which itself was

functioning as a plant, that is to say,

structure for the plant was constructed

so that dry dock can operate. It operated

as an essential part in the operations

which took place in getting a ship into

the dock, holding it securely and then

returning it to the river. The dock as a

complete unit contained a large amount

Civil Appeal No.2948 of 2023 etc. Page 69 of 91

of equipment without which the dry dock

could not perform its function.

(5) Even in England, courts have

repeatedly held that the meaning to the

word “plant” given in various decisions is

artificial and imprecise in application,

that is to use the words of Lord Buckley,

“it is now beyond doubt that the word

‘plant’ is used in the relevant section in

an artificial and largely judge-made

sense”. Lord Wilberforce commented by

stating that “no ordinary man, literate or

semi-literate, would think that a horse, a

swimming pool, moveable partitions, or

even a dry dock was plant”.

(6) For the hotel building and hospital in

the case of Carr v. Sayer [65 TC 15 :

1992 CLY 2470 : 1992 STC 396 (Ch D)]

it has been observed that a hotel building

remains a building even when

constructed to a luxury specification and

similarly a hospital building for

infectious diseases which might require

a special layout and other features also

remains a premises and is not a plant.

It is to be added that all these decisions

are based upon the interpretation of the

phrase “machinery or plant” under

Section 41 of the Finance Act, 1971

which was applicable and there appears

no such distinction for grant of

allowance on different heads as provided

under Section 32 of the Income Tax Act.

(7) To differentiate a building for grant of

additional depreciation by holding it to

be a “plant” in one case where the

building is specially designed and

constructed with some special features

to attract the customers and a building

Civil Appeal No.2948 of 2023 etc. Page 70 of 91

not so constructed but used for the same

purpose, namely, as a hotel or theatre

would be unreasonable.”

50. Another decision on the point is in the case of Victory

Aqua Farm Ltd.

21, wherein the issue before this Court was

whether a natural pond used by the assessee, which was

specially designed for rearing prawns, could be a plant within

the meaning of Section 32 of the Income Tax Act, 1961. This

Court heavily relied upon the decision of a three-judge Bench

of this Court in the case of Karnataka Power Corporation

20.

In this case, the question was whether a power -generating

station building is a plant. In the decision rendered by a Bench

of three Hon’ble Judges, it was held that the decision in the

case of Anand Theatres

19 cannot be read broadly. In

paragraphs 5 to 8 of the decision, it was held thus:

“5. It was the case of the assessee that it was

entitled to investment allowance as

applicable to a plant in respect of its power-

generating station building. In a note filed

before the Commissioner (Appeals) it stated

that it had included for the purpose the value

of its potential transformer foundation, cable

duct system, outdoor yard structures and tail

race channel. It explained that the process of

generation started from letting in water from

the reservoir into the penstocks and ducts

which were the water conductor system into

the turbines. Once electricity had been

produced by generation, it had to be

conducted, as it was not possible to store the

same, and the process of generation

continued until the electricity was led to the

transmission towers. The water that was

used for rotation of the turbines had to be

removed and this was done through the tail

Civil Appeal No.2948 of 2023 etc. Page 71 of 91

race channel. For stepping up the electricity,

transformers were used in the outdoor yard.

The conduction of the electricity was through

conductors held in ducts, called the cable

duct system, which were specifically designed

for the purpose. The case of the assessee,

therefore, was that all these were part of the

special engineering works that were an

essential part of a generating plant and,

therefore, it was entitled to have the same

treated as a plant for the purposes of

investment allowance. The Commis sioner

accepted the correctness of the assessee's

case. He held that it was clear that the

generating station buildings had to be treated

as a plant for the purposes of investment

allowance. These buildings could not be

separated from the machinery and the

machinery could not be worked without such

special construction. He, therefore, allowed

investment allowance on the generating

station building, as claimed. The Tribunal

affirmed this finding, as, indeed, did the High

Court.

6. We, therefore, have before us a finding of

fact recorded by the fact-finding authority

that the generating station building is an

integral part of the assessee's generating

system.

7. Our attention has been drawn by learned

counsel for the Revenue to the judgment of

this Court in CIT v. Anand Theatres [(2000) 5

SCC 393 : (2000) 244 ITR 192] . He submits

that, in that judgment, this Court has held

that, except in exceptional cases, the building

in which the plant is situated must be

distinguished from the plant and that,

therefore, the assessee's generating station

building was not to be treated as a plant for

the purposes of investment allowance.

Civil Appeal No.2948 of 2023 etc. Page 72 of 91

8. It is difficult to read the judgment in

the case of Anand Theatres [(2000) 5 SCC

393 : (2000) 244 ITR 192] so broadly. The

question before the Court was whether a

building that was used as a hotel or a

cinema theatre could be given

depreciation on the basis that it was a

“plant” and it was in relation to that

question that the Court considered a host

of authorities of this country and England

and came to the conclusion that a building

which was used as a hotel or a cinema

theatre could not be given depreciation on

the basis that it was a plant. We must add

that the Court said: (SCC p. 430, para 67)

“67. (7) To differentiate a building

for grant of additional

depreciation by holding it to be a

‘plant’ in one case where the

building is specially designed and

constructed with some special

features to attract the customers

and a building not so constructed

but used for the same purpose,

namely, as a hotel or theatre would

be unreasonable.”

This observation is, in our view, limited to

buildings that are used for the purposes of

hotels or cinema theatres and will not

always apply otherwise. The question,

basically, is a question of fact, and where

it is found as a fact that a building has

been so planned and constructed as to

serve an assessee's special technical

requirements, it will qualify to be treated

as a plant for the purposes of investment

allowance.”

(emphasis added)

Civil Appeal No.2948 of 2023 etc. Page 73 of 91

51. We may note here that the decision in the case of Anand

Theatres

19 is by a Bench of two Hon’ble Judges. Thus, the

decision of a larger Bench in the case of Karnataka Power

Corporation

20 limits the applicability of the decision in the

case of Anand Theatres

19 to hotels or cinema theatres.

Therefore, the decision in the case of Anand Theatres

19 cannot

be applied while considering the question of whether a mall or

warehouse or a building other than a hotel or a cinema theatre

can be said to be a “plant”.

52. This Court has laid down the functionality test. This

Court held that whether a building is a plant is a question of

fact. This Court held that if it is found on facts that a building

has been so planned and constructed as to serve an assessee’s

special technical requirements, it will qualify to be treated as a

plant for the purposes of investment allowance. The word

‘plant’ used in a bracketed portion of Section 17(5)(d) cannot

be given the restricted meaning provided in the definition of

“plant and machinery”, which excludes land, buildings or any

other civil structures. Therefore, in a given case, a building can

also be treated as a plant, which is excluded from the purview

of the exception carved out by Section 17(5)(d) as it will be

covered by the expression “plant or machinery”. We have

discussed the provisions of the CGST Act earlier. To give a

plain interpretation to clause (d) of Section 17(5), the word

“plant” will have to be interpreted by taking recourse to the

functionality test.

Civil Appeal No.2948 of 2023 etc. Page 74 of 91

53. One of the submissions of the learned ASG is that as the

Union legislature cannot levy tax on land and buildings, the

chain is broken once a building comes into existence by using

goods and services. As discussed earlier, Schedule II of the

CGST Act recognises the activity of renting or leasing buildings

as a supply of service. Even the activity of the construction of a

building intended for sale is a supply of service if the total

consideration is accepted before the completion certificate is

granted. Therefore, if a building qualifies to be a plant, ITC can

be availed against the supply of services in the form of renting

or leasing the building or premises, provided the other terms

and conditions of the CGST Act and Rules framed thereunder

are fulfilled. Therefore, the argument regarding breaking the

chain cannot be accepted in its entirety. However, if the

construction of a building by the recipient of service is for his

own use, the chain will break, and therefore, ITC would not be

available.

54. One of the arguments of learned ASG was that if different

meanings were given to the words “plant and machinery” and

“plant or machinery”, it could result in discriminatory

treatment. Clause (c) of Section 17(5) operates in a completely

different field, as it applies only to works contract services

supplied for the construction of immovable property. Clause

(d) deals with services received by a taxable person for the

construction of an immovable property on his own account. As

clauses (c) and (d) operate in substantially different areas, the

argument of ASG relying on discrimination cannot be accepted.

Civil Appeal No.2948 of 2023 etc. Page 75 of 91

55. Under the CGST Act, as observed earlier, renting or

leasing immovable property is deemed to be a supply of service,

and it can be taxed as output supply. Therefore, if the building

in which the premises are situated qualifies for the definition

of plant, ITC can be allowed on goods and services used in

setting up the immovable property, which is a plant.

56. In the main appeal, which is the subject matter of this

group, the High Court has not decided whether the mall in

question will satisfy the functionality test of being a plant. The

reason is that the High Court has done the exercise of reading

down the provision. Each mall is different. Therefore, in each

case, fact-finding enquiry is contemplated. Thus, in the facts of

the case, we will have to send the case back to the High Court

to decide whether, on facts, the mall in question satisfies the

functionality test so that it can be termed as a plant within the

meaning of bracketed portion in Section 17(5)(d). The same

applies to warehouses or other buildings except hotels and

cinema theatres. A developer may construct a mall

predominantly to sell the premises therein after obtaining an

occupation certificate. Therefore, it will be out of the purview

of clause 5(b) of Schedule II. Each case will have to be tested

on merits as the question whether an immovable property or a

building is a plant is a factual question to be decided.

CONSTITUTIONAL VALIDITY CHALLENGE

57. Now, we turn to the issue of constitutional validity

challenge. While dealing with the issue of the constitutional

validity of clauses (c) and (d) of Section 17(5) of the CGST Act,

Civil Appeal No.2948 of 2023 etc. Page 76 of 91

it is necessary to consider the law laid down by this Court in

paragraphs 104 to 110 of the decision in the case of VKC

Footsteps

26 which read thus:

“104. As a matter of first principle, it is not

possible to accept the premise that the

guiding principles which impart a measure of

flexibility to the legislature in designing

appropriate classifications for the purpose of

a fiscal regime should be confined only to the

revenue harvesting measures of a statute.

The precedents of this Court provide

abundant justification for the

fundamental principle that a

discriminatory provision under tax

legislation is not per se invalid. A cause of

invalidity arises where equals are treated

as unequally and unequals are treated as

equals. Both under the Constitution and

the CGST Act, goods and services and

input goods and input services are not

treated as one and the same and they are

distinct species.

105. Parliament engrafted a provision for

refund Section 54(3). In enacting such a

provision, Parliament is entitled to make

policy choices and adopt appropriate

classifications, given the latitude which

our constitutional jurisprudence allows it

in matters involving tax legislation and to

provide for exemptions, concessions and

benefits on terms, as it considers

appropriate. The consistent line of precedent

of this Court emphasises certain basic

precepts which govern both judicial review

and judicial interpretation of tax legislation.

These precepts are:

105.1. Selecting the objects to be taxed,

determining the quantum of tax,

Civil Appeal No.2948 of 2023 etc. Page 77 of 91

legislating for the conditions for the levy

and the socio-economic goals which a tax

must achieve are matters of legislative

policy. M. Hidayatullah, C.J., speaking for

the Constitution Bench in Commr. of Urban

Land Tax v. Buckingham & Carnatic Co.

Ltd. [Commr. of Urban Land

Tax v. Buckingham & Carnatic Co. Ltd.,

(1969) 2 SCC 55] held : (SCC p. 67, para 10)

“10. … The objects to be taxed, the

quantum of tax to be levied, the

conditions subject to which it is

levied and the social and economic

policies which a tax is designed to

subserve are all matters of political

character and these matters have

been entrusted to the legislature

and not to the courts. In applying

the test of reasonableness it is also

essential to notice that the power of

taxation is generally regarded as an

essential attribute of sovereignty and

constitutional provisions relating to

the power of taxation are regarded

not as grant of po wer but as

limitation upon the power which

would otherwise be practically

without limit.”

105.2. The same principle has been

reiterated in Federation of Hotel &

Restaurant Assn. of India v. Union of

India [Federation of Hotel & Restaurant Assn.

of India v. Union of India, (1989) 3 SCC 634],

where M.N. Venkatachaliah, J. (as the

learned Chief Justice then was), speaking for

the Constitution Bench held : (SCC pp. 658-

59, paras 46-47)

“46. It is now well settled that

though taxing laws are not outside

Article 14, however, having regard

Civil Appeal No.2948 of 2023 etc. Page 78 of 91

to the wide variety of diverse

economic criteria that go into the

formulation of a fiscal policy

legislature enjoys a wide latitude

in the matter of selection of

persons, subject-matter, events,

etc. for taxation. The tests of the

vice of discrimination in a taxing

law are, accordingly, less rigorous.

In examining the allegations of a

hostile, discriminatory treatment

what is looked into is not its

phraseology, but the real effect of its

provisions. A legislature does not, as

an old saying goes, have to tax

everything in order to be able to tax

something. If there is equality and

uniformity within each group, the

law would not be discriminatory.

Decisions of this Court on the matter

have permitted the legislatures to

exercise an extremely wide discretion

in classifying items for tax purposes,

so long as it refrains from clear and

hostile discrimination against

particular persons or classes.

47. But, with all this latitude certain

irreducible desiderata of equality

shall govern classifications for

differential treatment in taxation

laws as well. The classification must

be rational and based on some

qualities and characteristics which

are to be found in all the persons

grouped together and absent in the

others left out of the class. But this

alone is not sufficient. Differentia

must have a rational nexus with the

object sought to be achieved by the

law. The State, in the exercise of its

governmental power, has, of

Civil Appeal No.2948 of 2023 etc. Page 79 of 91

necessity, to make laws operating

differently in relation to different

groups or classes of persons to attain

certain ends and must, therefore,

possess the power to distinguish and

classify persons or things. It is also

recognised that no precise or set

formulae or doctrinaire tests or

precise scientific principles of

exclusion or inclusion are to be

applied. The test could only be one of

palpable arbitrariness applied in the

context of the felt needs of the times

and societal exigencies informed by

experience.”

105.3. In matters of classification,

involving fiscal legislation, the legislature

is permitted a larger discretion so long as

there is no transgression of the

fundamental principle underlying the

doctrine of classification. In Hiralal

Rattanlal [Hiralal Rattanlal v. State of U.P.,

(1973) 1 SCC 216 : 1973 SCC (Tax) 307] , K.S.

Hegde, J., speaking for a four-Judge Bench

observed : (SCC p. 223, para 20)

“20. It must be noticed that generally

speaking the primary purpose of the

levy of all taxes is to raise funds for

public good. Which person should be

taxed, what transaction should be

taxed or what goods should be taxed,

depends upon social, economic and

administrative considerations. In a

democratic set up it is for the

legislature to decide what economic

or social policy it should pursue or

what administrative considerations it

should bear in mind. The

classification between the processed

or split pulses and unprocessed or

Civil Appeal No.2948 of 2023 etc. Page 80 of 91

unsplit pulses is a reasonable

classification. It is based on the use

to which those goods can be put.

Hence, in our opinion, the impugned

classification is not violative of Article

14.”

105.4. More recently in Union of

India v. Nitdip Textile Processors (P)

Ltd. [Union of India v. Nitdip Textile

Processors (P) Ltd., (2012) 1 SCC 226] , a two-

Judge Bench observed : (SCC p. 255, para 67)

“67. It has been laid down in a large

number of decisions of this Court

that a taxation statute, for the

reasons of functional expediency

and even otherwise, can pick and

choose to tax some. A power to

classify being extremely broad and

based on diverse considerations of

executive pragmatism, the

judicature cannot rush in where

even the legislature warily treads.

All these operational restraints on

judicial power must weigh more

emphatically where the subject is

taxation. Discrimination resulting

from fortuitous circumstances

arising out of particular situations,

in which some of the taxpayers

find themselves, is not hit by

Article 14 if the legislation, as

such, is of general application and

does not single them out for harsh

treatment. Advantages or

disadvantages to individual

assessees are accidental and

inevitable and are inherent in

every taxing statute as it has to

draw a line somewhere and some

Civil Appeal No.2948 of 2023 etc. Page 81 of 91

cases necessarily fall on the other

side of the line.”

106. The principles governing a benefit, by

way of a refund of tax paid, may well be

construed on an analogous frame with an

exemption from the payment of tax or a

reduction in liability (CCT v. Dharmendra

Trading Co. [CCT v. Dharmendra Trading

Co., (1988) 3 SCC 570 : 1988 SCC (Tax) 432]).

107. In Elel Hotels & Investments

Ltd. v. Union of India [Elel Hotels &

Investments Ltd. v. Union of India, (1989) 3

SCC 698] , M.N. Venkatachaliah, J. (as the

learned Chief Justice then was) held that :

(SCC p. 708, para 20)

“20. … It is now well settled that a

very wide latitude is available to

the legislature in the matter of

classification of objects, persons

and things for purposes of

taxation. It must need to be so,

having regard to the complexities

involved in the formulation o f a

taxation policy. Taxation is not

now a mere source of raising

money to defray expenses of

Government. It is a recognised

fiscal tool to achieve fiscal and

social objectives. The differentia of

classification presupposes and

proceeds on the premise that it

distinguishes and keeps apart as a

distinct class hotels with higher

economic status reflected in one of

the indicia of such economic

superiority. The presumption of

constitutionality has not been

dislodged by the petitioners by

demonstrating how even hotels, not

Civil Appeal No.2948 of 2023 etc. Page 82 of 91

brought into the class, have also

equal or higher chargeable receipts

and how the assumption of economic

superiority of hotels to which the Act

is applied is erroneous or irrelevant.”

108. In Spences Hotel (P) Ltd. v. State of

W.B. [Spences Hotel (P) Ltd. v. State of W.B.,

(1991) 2 SCC 154] , a two -Judge Bench,

speaking through K.N. Saikia, J. revisited the

precedents of this Court governing the

principles of classification in tax legislation

and held : (SCC pp. 168-69, para 24)

“24. … The history of taxation is one

of evolution as is the case in all

human affairs. Its progress is one of

constant growth and development in

keeping with the advancing economic

and social conditions; and the fiscal

intelligence of the State has been

advancing concomitantly, subjecting

by new means and methods hitherto

untaxed property, income, service

and provisions to taxation. With the

change of scientific, commercial and

economic conditions and ways of life

new species of property, both

tangible and intangible gaining

enormous values have come into

existence and new means of reaching

and subjecting the same to

contribute towards public finance

are being developed, perfected and

put into practical operation by the

legislatures and courts of this

country, of cour se within

constitutional limitations.”

109. The Court held that the principle of

equality does not preclude the classification

of property, trade, profession and events for

Civil Appeal No.2948 of 2023 etc. Page 83 of 91

taxation — subjecting one kind to one rate of

taxation and another to a different rate. The

State may exempt certain classes of property

from any taxation at all and impose different

specific taxes upon different species which it

seeks to regulate. The Court held : (Spences

Hotel case [Spences Hotel (P) Ltd. v. State of

W.B., (1991) 2 SCC 154] , SCC p. 171, para

27)

“27. ‘Perfect equality in taxation has

been said time and again, to be

impossible and unattainable.

Approximation to it is all that can be

had. Under any system of taxation,

however, wisely and carefully

framed, a disproportionate share of

the public burdens would be thrown

on certain kinds of property, because

they are visible and tangible, while

others are of a nature to elude

vigilance. It is only where statutes are

passed which impose taxes on false

and unjust principle, or operate to

produce gross inequality, so that

they cannot be deemed in any just

sense proportional in their effect on

those who are to bear the public

charges that courts can interpose

and arrest the course of legislation by

declaring such enactments void.’

‘Perfectly equal taxation’, it has been

said, ‘will remain an unattainable

good as long as laws and government

and man are imperfect.’ ‘Perfect

uniformity and perfect equality of

taxation’, in all the aspects in which

the human mind can view it, is a

baseless dream.’

110. Parliament while enacting the

provisions of Section 54(3), legislated within

Civil Appeal No.2948 of 2023 etc. Page 84 of 91

the fold of the GST regime to prescribe a

refund. While doing so, it has confined the

grant of refund in terms of the first proviso to

Section 54(3) to the two categories which are

governed by clauses (i) and (ii). A claim to

refund is governed by statute. There is no

constitutional entitlement to seek a refund.

Parliament has in clause (i) of the first proviso

allowed a refund of the unutilised ITC in the

case of zero-rated supplies made without

payment of tax. Under clause (ii) of the first

proviso, Parliament has envisaged a refund of

unutilised ITC, where the credit has

accumulated on account of the rate of tax on

inputs being higher than the rate of tax on

output supplies. When there is neither a

constitutional guarantee nor a statutory

entitlement to refund, the submission that

goods and services must necessarily be

treated on a par on a matter of a refund of

unutilised ITC cannot be accepted. Such an

interpretation, if carried to its logical

conclusion would involve unforeseen

consequences, circumscribing the legislative

discretion of Parliament to fashion the rate of

tax, concessions and exemptions. If the

judiciary were to do so, it would run the risk

of encroaching upon legislative choices, and

on policy decisions which are the prerogative

of the executive. Many of the considerations

which underlie these choices are based on

complex balances drawn between political,

economic and social needs and aspirations

and are a result of careful analysis of the data

and information regarding the levy of taxes

and their collection. That is precisely the

reason why courts are averse to entering the

area of policy matters on fiscal issues. We are

therefore unable to accept the challenge to

the constitutional validity of Section 54(3).”

(emphasis added)

Civil Appeal No.2948 of 2023 etc. Page 85 of 91

Paragraph 142 of the decision reads thus:

“142. The above judicial precedents indicate

that in the field of taxation, this Court has

only intervened to read down or interpret a

formula if the formula leads to absurd results

or is unworkable. In the present case

however, the formula is not ambiguous in

nature or unworkable, nor is it opposed to the

intent of the legislature in granting limited

refund on accumulation of unutilised ITC. It

is merely the case that the practical effect of

the formula might result in certain inequities.

The reading down of the formula as proposed

by Mr Natarjan and Mr Sridharan by

prescribing an order of utilisation would take

this Court down the path of recrafting the

formula and walk into the shoes of the

executive or the legislature, which is

impermissible. Accordingly, we shall refrain

from replacing the wisdom of the legislature

or its delegate with our own in such a case.

However, given the anomalies pointed out by

the assessees, we strongly urge the GST

Council to reconsider the formula and take a

policy decision regarding the same.”

At this stage, it will be also necessary to consider the decision

of this Court in the case of Nitdip Textiles

8. In paragraph 66,

this Court held thus:

“66. To sum up, Article 14 does not prohibit

reasonable classification of persons, objects

and transactions by the legislature for the

purpose of attaining specific ends. To satisfy

the test of permissible classification, it must

not be “arbitrary, artificial or evasive” but

must be based on some real and substantial

distinction bearing a just and reasonable

relation to the object sought to be achieved

by the legislature. The taxation laws are no

exception to the application of this principle

Civil Appeal No.2948 of 2023 etc. Page 86 of 91

of equality enshrined in Article 14 of the

Constitution of India. However, it is well

settled that the legislature enjoys very wide

latitude in the matter of classification of

objects, persons and things for the purpose

of taxation in view of inherent complexity of

fiscal adjustment of diverse elements. The

power of the legislature to classify is of

wide range and flexibility so that it can

adjust its system of taxation in all proper

and reasonable ways. Even so, large

latitude is allowed to the State for

classification upon a reasonable basis and

what is reasonable is a question of

practical details and a variety of factors

which the court will be reluctant and

perhaps ill-equipped to investigate.”

(emphasis added)

Apart from these decisions, there are other binding decisions

which hold that the laws relating to economic activities should

be viewed with greater latitude than laws touching civil rights

such as freedom of speech, religion, etc. In the present case,

the legislature was dealing with a complex issue. Therefore,

greater freedom and greater play in the joints has to be allowed

to the legislature.

58. Essentially, the challenge to constitutional validity is

that, in the present case, the provisions do not meet the test of

reasonable classification, which is a part of Article 14 of the

Constitution of India. To satisfy the test, there must be an

intelligible differentia forming the basis of the classification,

and the differentia should have a rational nexus with the object

of legislation. The Union of India rightly contends that

immovable property and immovable goods for the purpose of

Civil Appeal No.2948 of 2023 etc. Page 87 of 91

GST constitute a class by themselves. Clauses (c) and (d) of

Section 17(5) apply only to this class of cases. The right of ITC

is conferred only by the Statute; therefore, unless there is a

statutory provision, ITC cannot be enforced. It is a creation of

a statute, and thus, no one can claim ITC as a matter of right

unless it is expressly provided in the statute. It cannot be

disputed that the legislature can always carve out exceptions

to the entitlement of ITC under Section 16 of the CGST Act.

59. Therefore, the cases covered by clauses (c) and (d) of

Section 17(5) are entirely distinct from the other cases. This

appears to be done to ensure the object of not encroaching

upon the State's legislative powers under Entry 49 of List II.

Therefore, it is not possible to accept the submission that the

difference is not intelligible and has no nexus to the object

sought to be achieved. Moreover, to decide why transactions

covered by clauses (c) and (d) are separately classified, the

Court will have to go into complex questions involving fiscal

adjustments of diverse elements. The Court has no experience

or expertise to embark upon the said exercise.

60. We fail to understand the argument that the classification

is underinclusive and creates discrimination. In this case,

equals are not being treated as unequals. The test of vice of

discrimination in taxing law is less rigorous. Ultimately, the

legislature was dealing with a complex economic problem. By

no stretch of the imagination, clauses (c) and (d) of Section

17(5) can be said to be discriminatory. No amount of verbose

and lengthy arguments will help the assessees prove the

Civil Appeal No.2948 of 2023 etc. Page 88 of 91

discrimination. In the circumstances, it is not possible for us

to accept the plea of clauses (c) and (d) of Section 17(5) being

unconstitutional.

61. Though, violation of Articles 19(1)(g) and 300A has been

alleged, it is not elaborated by the assessees how such a

violation is made out.

62. While dealing with a taxing statute, it can always be said

that, ideally, a particular provision ought not to have been

incorporated or ought to have been incorporated with a

modification. Even if this can be said, per se, the particular

provision does not become unconstitutional. The Court cannot

impose its views on the legislature.

63. Now, we come to the challenge to sub -section (4) of

Section 16 of the CGST Act, which reads thus:

“16. Eligibility and conditions for taking

input tax credit.—

.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..

(4) A registered person shall not be entitled to

take input tax credit in respect of any invoice

or debit note for supply of goods or services

or both after the thirtieth day of November

following the end of financial year to which

such invoice or debit note pertains or

furnishing of the relevant annual return,

whichever is earlier:

Provided that the registered person shall be

entitled to take input tax credit after the due

date of furnishing of the return under Section

39 for the month of September, 2018 till the

due date of furnishing of the return under the

Civil Appeal No.2948 of 2023 etc. Page 89 of 91

said section for the month of March, 2019 in

respect of any invoice or debit note for supply

of goods or services or both made during the

financial year 2017-18, the details of which

have been uploaded by the supplier under

sub-section (1) of Section 37 till the due date

for furnishing the details under sub-section

(1) of said section for the month of March,

2019.”

The words “thirtieth day of November” were substituted with

effect from 1

st October 2022 for the words “due date of

furnishing of the return under Section 39 for the month of

September”. We fail to understand how sub -section (4) of

Section 16 becomes discriminatory when the legislature says

that a registered person shall not be entitled to take ITC in

respect of any invoice or debit note for the supply of goods or

services or both after the thirtieth day of November following

the end of the financial year to which such invoice or debit note

pertains or furnishing of the relevant annual return, whichever

is earlier. It is not shown how the provision is arbitrary and

discriminatory. The fact that the provisions could have been

drafted in a better manner or more articulately is not sufficient

to attract arbitrariness.

64. As we are upholding the constitutional validity of clauses

(c) and (d) of Section 17(5), and as held earlier, its plain

interpretation does not lead to any ambiguity, the question of

reading down the provisions does not arise.

65. Some of our conclusions can be summarised as under:

Civil Appeal No.2948 of 2023 etc. Page 90 of 91

a. The challenge to the constitutional validity of

clauses (c) and (d) of Section 17(5) and Section 16(4)

of the CGST Act is not established;

b. The expression “plant or machinery” used in

Section 17(5)(d) cannot be given the same meaning

as the expression “plant and machinery” defined by

the explanation to Section 17;

c. The question whether a mall, warehouse or any

building 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 Section

17(5)(d) is a factual question which has 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, which are 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 Section

17(5) to sub-section (1) of Section 16. Functionality

test will have to be applied to decide whether a

building is a plant. Therefore, by using the

functionality test, in each case, on facts, in the light

of what we have held earlier, it will have to be

Civil Appeal No.2948 of 2023 etc. Page 91 of 91

decided whether the construction of an immovable

property is a “plant” for the purposes of clause (d)

of Section 17(5).

66. In the light of what we have held above, by setting aside

the impugned judgment in Civil Appeal Nos. 2948 and 2949 of

2023, the writ petitions are remanded to the High Court of

Orissa for limited purposes of deciding whether, in the facts of

the case, the shopping mall is a “plant” in terms of clause (d) of

Section 17(5). Appeals are partly allowed in above terms.

67. While deciding these cases, we cannot make any final

adjudication on the question of whether the construction of

immovable property carried out by the petitioners in Writ

Petitions amounts to plant, and each case will have to be

decided on its merit by applying the functionality test in terms

of this judgment. The issue must be decided in appropriate

proceedings in which adjudication can be made on facts. The

petitioners are free to adopt appropriate proceedings or raise

the issue in appropriate proceedings.

68. The writ petitions are rejected subject to the

interpretation of clause (d) of sub-section (5) of Section 17 of

the CGST Act made by us.

……………………..J.

(Abhay S Oka)

……………………..J.

(Sanjay Karol)

New Delhi;

October 3, 2024.