Introduction:
In a recent case, a construction company has filed a writ petition challenging the legality and validity of an order issued by the appellate authority. The petitioner argues that the order, which denies them the Input Tax Credit (ITC) on works contract services for the construction of a hotel, is in violation of the relevant provisions of the Central Goods and Services Tax (CGST) Act, 2017. Let's delve into the details of the case and analyze the arguments put forth by both parties.
Background:
The petitioner, a construction company, entered into a works contract agreement with M/s Hotel Polo Pvt. Ltd. to construct a hotel in Agartala. Throughout the construction process, the petitioner procured materials and engaged sub-contractors' services. They paid the Goods and Services Tax (GST) on inward supplies and filed the necessary returns, thereby becoming eligible for Input Tax Credit.
However, the respondents raised a demand against the petitioner under Section 74(1) of the CGST Act, claiming that the ITC availed on works contract services for the construction of an immovable property violated Section 17(5) of the CGST Act. A show-cause notice was issued, and after the petitioner provided an explanation, the order was passed by the adjudicating authority. The petitioner then appealed to the respondent no.3, the Additional Commissioner (Appeals), who confirmed the order.
Petitioner's Arguments:
The petitioner's counsel, Mr. Rahul Tangri, contends that the appellate authority's order does not provide any valid reason for denying the petitioner's claim for ITC on works contract services. The counsel argues that the observation made in the order, suggesting that ITC is not applicable to the petitioner, lacks logic and justification.
Furthermore, Mr. Tangri asserts that a demand notice cannot be confirmed without specifying the charges and the exact statutory provisions based on which the demand is made. The respondents have alleged that the petitioner violated Section 17(5)(c) of the CGST Act, but the counsel argues that the charges were not clearly put forth in the impugned order.
Respondents' Arguments:
On the other hand, Mr. P. Datta, counsel for the respondents, argues that the impugned adjudication order is lawful and the appellate authority rightfully upheld the findings of the lower adjudicating authority. He emphasizes that the charges were explicitly mentioned in the impugned order, and the provisions relevant to the case were duly cited.
Analysis and Decision:
Upon reviewing the arguments presented by both parties, it is evident that the petitioner has fulfilled all the conditions of a works contract for the construction of an immovable property. The petitioner is providing work contract services under a contract with M/s Hotel Polo Pvt. Ltd., and the transfer of property in goods is involved in the execution of the contract.
According to Section 17(5)(c) of the CGST Act, the denial of ITC on works contract services is applicable only when it is supplied for the construction of an immovable property for the contractor's own use. In this case, the petitioner is providing work contract services to the owner of the hotel, not for their own use.
Hence, the demand raised against the petitioner and the penalty imposed under Section 74(1) of the CGST Act are inconsistent with the law. The impugned order, dated 01.02.2022, passed by the appellate authority, affirming the order of the adjudicating authority on 13.10.2020, is liable to be set aside and quashed.
Conclusion:
Based on the arguments and the interpretation of the relevant provisions of the CGST Act, the writ petition filed by the petitioner is allowed. The court sets aside and quashes the impugned order, thereby ruling in favor of the petitioner. This case highlights the importance of a clear understanding and application of tax laws to ensure fairness and justice in the taxation system.
SR ConstructionsnVersusn Union of India & Ors
TRIPURA HIGH COURT
Date of order: 04/04/2023
Comment: