News By/Courtesy: Vagish | 22 May 2019 23:52pm IST

HIGHLIGHTS

  • Many cases have come up where hotels and real estate companies have moved the court as they have been denied input tax credit under goods and services tax mechanism.
  • A writ petition was filed in the Delhi High Court where a change in the GST framework was challenged.
  • Input tax credit was being denied to real estate companies, malls and hotels where construction of buildings was undertaken by the company itself.

Many cases have come up where hotels and real estate companies have moved the court as they have been denied input tax credit under goods and services tax mechanism. The government has also become a party in the proceedings.  A writ petition was filed in the Delhi High Court where a change in the GST framework was challenged. As a consequence of this change, input tax credit was denied to real estate companies, malls and hotels where construction of buildings was undertaken by the company itself. Input tax credit is the amount saved on by output tax by already paying by inputs.

The amendment to Section 17(5) of the Central Goods and Services Tax (CGST) Act deals with blocked credit. Section 17(5) of CGST Act  is as follows :
Notwithstanding anything that sub-section (1) of section 16 and subsection (1) of section 18 contains, ITC will not be available in respect of the following,
namely:
motor vehicles and other conveyances apart from when they are used–

for transporting the goods; or

for making the following taxable supplies, namely:

further supplying such vehicles or conveyances; or

transporting the passengers; or

imparting training on driving, navigating, flying such vehicles or conveyances;

the following supply of goods or services or both—

food and beverages, beauty treatment, cosmetic and plastic surgery, health services, outdoor catering, except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

membership of a club, health and fitness centre;

rent-a-cab, life insurance and health insurance except where––

the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or

such inward supply of goods or services or both of particular categories is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and

travel benefits extended to employees on vacation such as leave or
home travel concession;

works contract services when supplied for construction of immovable property (other than plant and machinery) except where it is an input service for the further supply of works contract service;

goods or services or both received by a taxable person for construction of 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

Section 17(5) of the CGST Act and the respective state Acts have led to a paradoxical situation by denying credits as the objective of the GST is free flow of credits when the output is in the course or furtherance of business,” said Abhishek A Rastogi, partner at law firm Khaitan & Co, who filed the writ petition on behalf of real estate companiesInput tax credit is structured in order to avoid double taxation system which was one of the major flaws in the previous tax system.

“The impugned provisions are against the objectives of GST and have accordingly been challenged on the grounds of arbitrariness and vagueness.” Tax experts said the phrase ‘on his own account’ in the GST law will need to be interpreted differently if one were to take input tax credit. Tax experts say that many companies were unable to claim credit when they themselves constructed malls, buildings or hotels. “The distinction will have to be created between business to business (B2B) and business to consumer (B2C) transactions so that the benefit of credits is not denied,” Rastogi said.

Section Editor: Shreyashi Tiwari | 22 May 2019 23:56pm IST


Tags : #Input_Tax-Credit #ITC #Realtors #GST #Delh_HC

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