Constitutional and legal validity of Section 17(5)(c) and 17(5)(d) - Blocked ITC?

In the present case, petitioner has challanged the constitutional validity and legality of Section 17(5)(c) and Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 and the Circular No.28 dated 01st January, 2018 before Delhi High Court.

In the petition, it has been averred that by the impugned provisions and circular, petitioner has been denied the Input Tax Credit of tax paid by it on works contract services as well as goods and services used in the construction of an immovable property (other than plant and machinery), despite such goods and services being used for purposes of business and to provide taxable supplies liable to GST.

Learned senior counsel for the petitioner submits that the impugned provisions and impugned circular are violative of Article 14 of the Constitution and are a complete departure from the rationale and objective of introducing GST which was to avoid the cascading effect of taxes and removal of breaks in the tax chain.

Learned counsel for the petitioner states that this Court in Bamboo Hotel and Global Centre (Delhi) Pvt. Ltd. v. UOI, W.P.(C) 5457/2019 and Riveria Commercial Developers Limited V. Union of India, W.P.(C) 11633/2019 has issued notice.

The matter is fixed for hearing on 15th September, 2020.

What is Section 17(5) of CGST Act?

Section 17(5) blocks certain input tax credit (ITC) even if the same is used for furtherance of business and to provide taxable supplies under GST. This is the genuine hadship for taxpayers when the ITC is blocked by law despite using the same for business purpose. Below is the relevant provision of Section 17(5)(c) and 17(5)(d) of CGST Act.

Section 17 - Apportionment of credit and blocked credits.

(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

(c) 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;

(d) 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.

Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

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