APRIL 22, 2022

By R K Singh

SELDOM has any other judgement of the High Court been shown scant respect as the judgement of Orissa High Court in the case of Safari Retreat Pvt. Ltd: 2019-TIOL-1088-HC-Orissa-GST (hereinafter referred to as the said judgement). It is so because the operating paragraphs of the said judgement (namely paragraphs nos. 19 and 20) are nearly cryptic, non-speaking, disjointed, grammatically poor and at some places even factually inaccurate. The degree of scant respect can be gauged from the fact that several legal professionals are advising their clients not to rely on the said judgement and refrain from taking ITC on goods and services for construction immovable property even if such immovable property is meant to supply taxable service (viz. leasing service).

2. The purpose of this article is to argue that regardless of the considerable infirmities in the said judgement, it remains a judgement of the High Court and has been authored by no less than the Chief Justice heading the Bench. There is no gainsaying that the said judgement in the wake of the constitutional provisions enshrined in Articles 14 and 19 reads down section 17(5)(d) of CGST Act so as to make ITC on goods and services for construction of immovable property which is meant to be leased, admissible. The department filed an appeal against the said judgement in Supreme Court which has issued notices without granting any stay. It implies that Supreme Court did not find the judgement so devoid of merit as to deem it fit to stay the same.

3. At this juncture, it is pertinent to mention that going by Supreme Court's judgement in the case of Kusum Ingots and Alloys Ltd: 2004-TIOL-117-SC-CX-LB, the said judgement of Orissa High Court reading down s.17(5)(d) ibid in the wake of Articles 14 and 19 has all India applicability. Thus, currently the law laid down by Orissa High Court in the said judgement is the law of the land. In other words, CESTAT will have to interpret s. 17(5)(d) ibid in the 'read-down' form.

4. It needs to be appreciated that while the judgement does suffer from considerable infirmities mentioned above, the submissions of the respective advocates (which have been duly recorded and taken note of in the said judgement) have been detailed and pithy. For example, the advocate for the department clearly brought out that in the matters of taxation, government/Parliament has wide latitude and the scope for judicial intervention is very limited. On the other hand, the advocate for the assessee explained as to how such denial of credit is an antithesis to the central philosophy of GST. He was able to demonstrate the inherent in consistency /contradiction in such denial. It was pointed out that in cases where goods and services are for construction of immovable property for which (partial or even full) payment is received before the issuance of completion certificate, ITC thereon is allowed (in effect disregarding the provisions of s. 17(5)(d) ibid) treating it as supply of service and, therefore, disallowing ITC on goods and services for construction of immovable property which is meant to supply leasing service constitutes violation of Article 14 and 19 so grave as to justifiably invite, nay, warrant judicial intervention even while being mindful of the limited scope for such intervention in taxation matters.

5. Inherent in the s cant respect shown to the said judgement by some professionals is their belief that in view of its considerable infirmities it is likely to be set aside by Supreme Court. Their concern is that when that happens the assesses will be required to reverse the ITC (if taken on the basis of the said judgement) along with 18% interest which will be a huge burden. On practical considerations, it is not a frivolous concern. However, if an assessee takes the ITC and informs the department, the latter is likely to ask for its reversal which can be done under protest. That way, while the said interest burden will not arise, the credit will remain revivable in case the Supreme Court upholds the said judgement. Also, in the unlikely scenario of the department, instead of merely asking for reversal of ITC, issues a show cause notice (SCN) for recovery thereof, it will be able to confirm the demand if and only when Supreme Court allows its appeal (because before that, the law of the land i.e. the said judgement allows the said ITC). Even in a scenario where the department's appeal is allowed, any credit taken three years prior to the date of the of Supreme Court's order will become time-barred for recovery because, unlike in the existing law, under s.73 of CGST Act, SCN has to be adjudicated within three years not from the date of the SCN but from the relevant date. Thus, in all possible scenarios, it makes business sense to take ITC on the goods and services for construction of immovable property (which is to be leased) on the strength of the said judgement.

6. As already stated, Supreme Court has not found the said order so egregious as to warrant a stay and, accordingly, has not granted stay. Also, Supreme Court is unlikely to remand the case back to High Court for removal of the said infirmities and will decide the department's appeal on merit. Going by the detailed and pithy arguments of the assessee's advocate as recorded in the said judgement, it should not come as a complete surprise if Supreme Court through a speaking order upholds the said judgement.

7. What is brought out in the preceding paras is that the said judgement deserves greater respect than is being shown to it if only because nothing (including its considerable infirmities) withstanding, currently it represents the law of the land. Not taking advantage of it, or to put it more stoically, not following it, will be to the assessee's own peril.

[The author is former Member CESTAT and Sr. Partner, TLC Legal Advocates. The views expressed are strictly personal.]