The Bombay High court has provided the notices to the centre and Maharashtra government in context to the applicant where the subject seeks to announce as unconstitutional a provision in GST laws that provides the authority with a power to restrict the input tax credit (ITC) on the contract services inside the real estate.
The applicant who is involved in the business of renting and leasing out the movable, as well as immovable properties, questioned section 17(5)(c) of the Central GST (CGST) Act and the same section in the Maharashtra GST Act. The section restricts the ITC to the works contract services on the subject of construction of immovable property excluding the plant and machinery excluding where the same is an input service for another supply of works contract under GST.
The works contract is specifically a contract of service that may certainly engage in the supply of the goods in contract execution.
The applicant comes in the master rental agreement within the company to give it furnished premises on lease. The applicant acquired works contract services to build the premises.
As per the above-mentioned section, the Input tax credit upon works contract services practiced via the applicant is refused.
The tax expert mentioned that the section is unable to consider that these services are utilized by the applicant in extending his business.
The applicant opposed that as the leasing services furnished by it are subjected to tax, the restricted Input Tax credit (ITC) directed towards breaking of the credit chain that opposes the GST compliance. GST was made to eliminate the repeatability of the taxes he added.
“The objective of the GST system is to remove the cascading effect of tax on tax and ensure the flow of credits. As a corollary, any blocked credit will have to pass several tests of reasonability, public interest, and above all constitutionality,” a tax expert commented.
