GST ITC Safari Retreats Case. Fight between two words AND v/s OR. Quick Analysis By CA Umesh Sharma

Summary

In this video, CA Umesh Sharma discusses the significant Supreme Court judgment on the Safari Retreat case, focusing on the eligibility for Input Tax Credit (ITC) in the context of immovable property rental. The case revolves around the debate between the terms 'plant and machinery' and 'plant or machinery,' which determines whether ITC can be claimed on construction expenses for properties like shopping malls. The Supreme Court has remanded the case back to the Orissa High Court, directing them to apply a functionality test to determine whether the property qualifies as plant or machinery for ITC eligibility.

Takeaways

• 😀 The core issue in the Safari Retreat case revolves around whether ITC (Input Tax Credit) can be claimed on the rental income from immovable property.
• 😀 The Supreme Court's judgment focused on the debate between the terms 'plant and machinery' versus 'plant or machinery' under Section 175C and 175D of the GST Act.
• 😀 The dispute began with Safari Retreat, a shopping mall that claimed ITC of ₹34 crores for construction and offset it against rental income from leasing out the mall.
• 😀 The case centered around whether ITC could be allowed for immovable property leasing, and if so, under which circumstances.
• 😀 A significant point in the case was the interpretation of the terms 'plant and machinery' and 'plant or machinery' as per the provisions in Section 175C and 175D.
• 😀 Safari Retreat's argument was that the intent of the legislation (Section 175C) was to allow ITC on plant and machinery, while Section 175D focused on whether specific goods qualify as plant or machinery.
• 😀 The Department contested the claim, arguing that Section 175D did not allow ITC on items that were not considered plant and machinery under GST.
• 😀 The Supreme Court ruled that a functionality test should be applied to determine whether the immovable property qualifies as 'plant' or 'machinery' based on its use and integration into the business.
• 😀 The case was remanded back to the Odisha High Court for a detailed assessment of whether the mall qualifies as 'plant' under the GST definition, considering its business function.
• 😀 The issue could impact pending cases related to ITC claims for immovable property, as it sets the stage for future discussions on whether such properties qualify for ITC based on their functional role in business.

Q & A

What was the core issue in the Safari Retreat case discussed in the script?

The core issue was whether Input Tax Credit (ITC) could be claimed on rental income generated from immovable property like shopping malls or leased properties, specifically regarding the construction of such properties.

What is the significance of the terms 'plant and machinery' vs. 'plant' in this case?

The terms 'plant and machinery' are key because the Supreme Court deliberated whether these terms, as defined in the CGST Act, applied to the shopping mall in question, impacting the eligibility for ITC on the construction costs.

Why did the Supreme Court remand the case back to the Odisha High Court?

The Supreme Court remanded the case to the Odisha High Court for further investigation into whether the shopping mall qualifies as 'plant' under the CGST Act by applying a 'functionality test' to assess its business integration.

What was the argument from Safari Retreat regarding the ITC claim?

Safari Retreat argued that the legislative intention behind Section 175C of the CGST Act was to provide ITC for plant and machinery, and that the shopping mall they constructed, which generated rental income, should qualify for ITC.

What is the difference between Section 175C and Section 175D of the CGST Act in the context of this case?

Section 175C applies to plant and machinery, whereas Section 175D uses the term 'plant and machinery' and includes restrictions. The key difference in this case was whether the shopping mall could qualify for ITC based on these definitions.

What was the controversy regarding the 'plant and machinery' definition?

The controversy was about whether the shopping mall construction should be categorized as 'plant' or 'plant and machinery,' which would determine if Safari Retreat could claim ITC under the relevant sections of the CGST Act.

How did the Supreme Court suggest resolving the dispute?

The Supreme Court suggested applying a 'functionality test' to determine whether the particular immovable property (the shopping mall) fits the definition of 'plant' or 'machinery,' which would influence the eligibility for ITC.

What is the significance of the 'functionality test' recommended by the Supreme Court?

The 'functionality test' is important as it will assess whether the property is used in the business in such a way that it qualifies as 'plant' under the CGST Act, which would affect whether ITC can be claimed.

What was the outcome of the Odisha High Court ruling in 2019?

The Odisha High Court ruled in favor of Safari Retreat, stating that they were eligible for ITC on the construction of the shopping mall. However, the department appealed this decision to the Supreme Court.

What impact could the GST Council's upcoming meetings have on this issue?

The GST Council's upcoming meetings may provide further clarification on this issue, especially if the government releases a report addressing the eligibility of ITC on immovable property construction costs, which could influence future rulings.