Friday, August 14, 2020
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‘Blocked Credits’ under GST: Delhi High Court issues Notice to Centre, State

By Rasheela Basheer -

The Delhi High Court, on Monday issued a notice to the Centre and the State Governments while admitting a petition praying to resolve the issues relating to ‘blocked credits’ under the Goods & Services Tax (GST) regime, which is affecting hotels and malls.

Under section 16 of the GST Act, credit is allowable on inputs at the time of paying tax on output, thus lowering the tax paid in cash. However, this Section is subject to certain restrictions as laid down under Section 17 of the Act. These restrictions are also referred to as ‘blocked credits’.

The petitioner, a five-star hotel approached the High Court. It has been procuring multiple goods and services, including works contract services, for use in the construction of the property.

The petitioner contended that by virtue of provisions under the Act, the input tax credit available on the procurement of goods and services or both, including works contract services used for the construction of the immovable property, is denied to the petitioner.

The petition specifically talks about two provisions related with ‘blocked credits’. Section 17(5)(c) ITC shall not be available in respect of the “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”.

Similarly, Section 17(5)(d) says ITC will not be available for “…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.”

The petitioner prayed before the court to quash and declare both the provisions as violating the fundamental right of the petitioner and, therefore, violation of the right to equality before the law.