The Goods and Services Tax (GST) department has filed a petition in the Supreme Court seeking review of its judgment on Safari Retreats.
The move is being viewed as a strategy to substantiate the retrospective amendment proposed by the GST Council in its 55th meeting to replace ‘plant or machinery’ with the term ‘plant and machinery,’ as constitutional.
The question pertained to whether the explanation that laid down the meaning of the expression “plant and machinery” in Section 17 would apply to the expression “plant or machinery” used in Section 17 (5)(d) of the CGST Act.
The expression “plant and machinery” appeared at 10 different places in Chapters V (Input Tax Credit) and VI (Tax Invoice, Credit and Debit Notes) of the Act.
The department argued that the expression “plant or machinery” appeared only in clause (d) of Section 17(5). Use of the word “or” in clause (d) was a mistake of the legislature, it added.
The assessee contended 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 machinery’ was used in clauses (c) and (d).
However, while enacting the CGST Act, the legislature was consciously chosen to use the expression “plant or machinery” only in clause (d).
In Chief Commissioner Of Central Goods And Service Tax And Ors. vs M/S Safari Retreats Private Limited And Ors case, the Supreme Court ruled that builders were eligible for input tax credit (ITC) on construction costs if a building was constructed for renting services.
The Bench of Justice Abhay Oka and Justice Sanjay Karol applied the functionality test to determine the availability of input tax credit while distinguishing between the definitions of ‘plant or machinery’ and ‘plant and machinery’.
It held that if the construction of a building was essential for carrying out an activity of supplying services such as renting or giving on lease or other transactions in respect of the buildings or part thereof which were covered by clauses 2 and 5 of the Schedule 2 of the CGST Act, the building could be held as a plant.
CBIC Chairman Sanjay Kumar Agarwal had recently said that there was error In drafting of the GST Act, 2017.
Addressing the press conference of the 55th GST Council Meet, Agarwal, replying to a query regarding the Safari Retreats verdict, said that it was a pure drafting error because the term ‘Plant and Machinery’ had been used at 11 places.
Only in one place, it has been mentioned as ‘Plant or Machinery’, so the drafting error has to be corrected with effect from July 1, 2017. This would require amendment in the GST Act, he added.
The GST Council proposed amending the GST Act retrospectively to address the implications of the Apex Court verdict in the Safari Retreats case.
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