Plant & Machinery: The Dilemma Continues

The sigh of relief heaved by the industry in the wake of the judgement of the Hon'ble Supreme Court in the case of Chief Commissioner of Central Goods and Service Tax & Ors v. M/s Safari Retreats Private Ltd. & Ors [Civil Appeal No. 2948 OF 2023] has been brought into question by the recommendation of the GST Council in its 55^th Meeting held on 21.12.2024.

The Supreme Court in Safari Retreat held that the expression used in Section 17(5)(d) is 'plant or machinery' which is distinct from the expression 'plant and machinery' employed in Section 17(5)(c) which excludes land and building from its ambit. Therefore, the definition of 'plant and machinery' as provided in the Explanation of Section 17 is not applicable for Section 17(5)(d).

The Apex Court highlighted that in the Model GST Law circulated in November 2016 by the GST Council Secretariat for inviting suggestions and comments, the expression 'plant and machinery' was used in both clause (c) and (d) of Section 17(5). However, while enacting the CGST Act, 2017, the legislature changed the expression to 'plant or machinery' for clause (d) of Section 17(5) only. Therefore, the legislative intention is evident and the two expressions ought to be interpreted differently. Hence 'and' cannot be read as 'or' in the Section 17(5)(d) of the CGST Act, 2017.

The Supreme Court then went on to clarify as to what may qualify as a "plant" and emphasised on the functionality test. The Court held that whether a building can qualify as a plant is a question of fact. Specifically, if a building is designed and constructed to meet an assessee's special technical requirements, it can be considered a plant. Given that the expression 'plant' in contrast to the expression 'plant and machinery' as defined in the act, does not put a blanket prohibition on inclusion of land, buildings, and other civil structures within its ambit. Therefore, in certain cases, a building may be treated as a plant, making it exempt from the restriction in claiming ITC as set out in Section 17(5)(d) of the CGST Act, 2017.

However, the recent recommendation by the GST Council, a constitutional body formed under Article 279A of the Constitution of India and vested with wide recommendatory powers on matters related to GST , seek to nullify the effect of the Supreme Court judgement.

The GST Council in its 55^th meeting has recommended that the expression 'plant or machinery' in Section 17(5)(d) should be replaced with the expression 'plant and machinery', retrospectively, with effect from 01.07.2017, so that the said phrase may be interpreted as per the Explanation at the end of section 17 of CGST Act, 2017. In effect, excluding land, buildings and civil structures from the ambit of 'plant' and restricting ITC on the same irrespective of the function of the said building.

However, as has been clarified by the Hon'ble Supreme Court in the case of Union of India v. Mohit Minerals [2022 (61) G.S.T.L. 257 (S.C.)], that the recommendations of the GST Council are not binding on the Union and States and only have a persuasive value.

The ongoing events again bring to light the delicate balance between the branches of the Government. Where, the Apex Court's decision had set an important legal precedent and brought clarity as to what may constitute as 'plant', a question that had been a bone of contention between the assessee and revenue department since long.

On the other hand, the GST Council's intent to bring a retrospective amendment which in effect overturns the judgement, reflects the complexities of aligning judicial interpretation with practical administration .

Now, it remains to be seen as to whether the Government will retrospectively amend Section 17(5)(d) in line with the recommendation of the GST Council will shape the legal landscape, until then the dilemma continues for all the stakeholders.