The Tripura High Court has ruled that the assessee, while offering taxable work contract services for the construction of a hotel building, is eligible to claim an input tax credit for the goods and services used in providing these taxable services.
A division bench of Acting Chief Justice Aparesh Kumar Singh and Justice Arindam Lodh, observed that the assessee fulfills all the conditions related to work contracts. This is because the assessee is engaged in providing work contract services under a contract for constructing a hotel, which involves the transfer of goods as part of the contract execution. It is important to note that the Hotel Polo Pvt. Ltd. is an immovable property, and the assessee is providing work contract services to the hotel owner, rather than for its own purposes.
Brief Facts:
The petitioner, a construction company, entered into a works contract agreement with M/s Hotel Polo Pvt. Ltd. to construct a hotel in Agartala. During the construction process, the petitioner procured materials and utilized subcontractor services, resulting in the payment of GST for inward supply. The petitioner filed returns and paid the necessary taxes, thereby qualifying for input tax credit. However, the respondents raised a demand against the petitioner under Section 74(1) of the CGST Act, alleging that the input tax credit claimed for works contract services violated Section 17(5) of the CGST Act. The petitioner argues that this demand is incorrect and that the respondents were not authorized to collect taxes under input tax credit, as it falls under the jurisdiction of the Income Tax Act.
The assessee received a show cause notice and subsequently submitted an explanation. Orders were then issued based on this matter. Dissatisfied with the outcome, the assessee has filed an appeal with the respondent. The appellate authority upheld the decision made by the adjudicating authority on October 13, 2020.
A demand notice cannot be validly confirmed against the assessee without clearly stating the charges and providing specific statutory provisions that support the proposed demand. The respondent denied the input tax credit (ITC) of Rs. 1,42,33,194 claimed by the assessee for works contract services related to the construction of immovable property, citing a violation of Section 17(5)(c) of the CGST Act.
Observations of the Court:
In view of this court, it is clear that the petitioner has fulfilled all the conditions of work contracts as he is providing work contract services under a contract for construction of building of a Hotel wherein transfer of property in goods is involved in the execution of such contract. The Hotel Polo Pvt. Ltd. is immoveable property. So, the petitioner has been providing work contract services to the owner of the hotel and not for it’s own. Further, in providing taxable work contract services for the said construction of Hotel Building, he is entitled to take Input Tax Credit on the Goods and Services being utilized for providing the taxable work contract services.
So, in this case, the court find that the petitioner do not fall within the definition of Section 17(5)(c) of the CGST Act,2017. The demand raised on 30.09.2019 and the penalty imposed under Section 74(1) of the CGST Act,2017 is ultra vires, contrary to law and thus, the impugned order dated 01.02.2022, passed by the respondent no.3, the appellate authority affirming the order passed by the adjudicating authority on 13.10.2020, was set aside.
The decision of the Court:
The Tripura High Court allowed the petition and set aside the impugned order.
Case Title: M/S SR Constructions Vrs. The Union of India & Ors.
Coram: Hon’ble Chief Justice (Acting) and Justice Arindham Lodh
Case no.: WP (C) 399 OF 2022
Advocate for the Petitioner: Mr. T.K. Deb
Advocate for the Respondent: Mr. B. Majumder
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