Constitutional Validity of GST Section 17(5)(c) & (d) Challenged: Chhattisgarh HC dismisses J.K. Lakshmi Cement’s Petition [Read Order]

The Chhattisgarh High Court while dismissing the petition of J.K. Lakshmi Cement Ltd, challenging constitutional validity of clauses (c) & (d) Of Section 17(5) of the Central Goods and Service Tax (CGST Act), 2017 held that clauses (c) & (d) Of Section 17(5) of CGST Act relates to works contract services and goods and services received for construction of immovable property respectively.

J.K. Lakshmi Cement Ltd, the petitioner/assessee has filed the writ petition challenging the constitutional validity of clauses (c) & (d) of Section 17(5) of the Central Goods and Services Tax Act, 2017. It was submitted that the constitutional validity of the above provisions has already been adjudicated by the Supreme Court and held to be intra vires, therefore, the petitioner be granted liberty to raise the issue with regard to paragraph 10.2 of the writ petition i.e. his case is covered under Section 17(5)(d) of the CGST Act, (other than plant or machinery) and as such, he be given liberty to raise the issue in appropriate proceeding.

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The department contended that the constitutional validity of clauses (c) and (d) of Section 17(5) of the CGST Act has been adjudicated by the Supreme Court in the matter of Chief Commissioner of Central Goods and Service Tax and others v. M/s Safari Retreats Private Ltd. and others.

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.

The apex court held that “ 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 decided whether the construction of an immovable property is a “plant” for the purposes of clause (d) of Section 17(5).”

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It was observed that in M/s Safari Retreats Private Ltd.’s case, it was further held that the question whether the construction of immovable property carried out by the petitioners therein amounts to plant has to be decided on its merit by applying the functionality test in terms of the judgment passed in the aforesaid case. Their Lordships also held that the issue must be decided in appropriate proceedings in which adjudication can be made on facts and granted liberty to the petitioners therein to adopt appropriate proceedings or raise the issue in appropriate proceedings.

In that view of the matter, the division bench of Justice Sanjay K. Agrawal and Justice Radhakishan Agrawal dismissed the writ petition qua the constitutional validity of clauses (c) & (d) of Section 17(5) of the CGST Act and liberty is reserved in favour of the petitioner to raise the issue whether the construction of immovable property carried out by the petitioner amounts to plant within the meaning of Section 17(5)(d) (plant) of Act of 2017. 

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