Page 23 - Banking Finance November 2024

LEGAL UPDATE

ing their tax liabilities. However, tax- ing the shopping mall is a 'plant', held GST authority rules in
payers who contested the reassess- that functionality test will have to be
ments on grounds other than the time applied to decide whether a building is favour of Tata Sons in Rs.
limitation may still find some relief." a plant. 1,500-cr Tax case
Expert terms this ruling as a boon for The Adjudicating Authority of the
Commercial building to be the industry. "The outcome of the rul- Goods and Service Tax (GST) depart-
treated as plant, can avail ing that 'functionality test' should be ment has dismissed a demand of over
applied to buildings to determine Rs 1,500 crore on Tata Sons over a
input tax credit whether they qualify as plant is very settlement deal with Docomo. The
In a boost to commercial real estate positive for the industry. With this rul- department could now contest this
and infrastructure projects, the Su- ing, by applying the functionality test, decision before the high court. Accord-
preme Court ruled that if the building if one is able to prove the nexus/role a ing to a report in The Economic Times
is constructed for supplying services particular product with the business of that quoted officials, the AA order will
such as renting or leasing out, it can a taxpayer, credit should ideally be act as a precedent for companies en-
be regarded as a plant and input tax admissible" said Harpreet Singh, Part- gaged in arbitration.
credit (ITC) under GST will be eligible. ner at Deloitte. The Directorate General of GST Intel-
However, it rejected constitutional "The eligibility of input tax credit (ITC) ligence (DGGI) had claimed 18 per
validity challenge to blocked credit cent GST on the $1.27 billion that Tata
will be determined based on the func-
provisions in the GST law. Group paid to Docomo in 2019 to
tionality and essentiality tests," ex- settle a dispute with Tata Teleservices.
"If the construction of a building was plained Abhishek A Rastogi, Founder of The group had argued that since the
essential for carrying out the activity Rastogi Chambers, who represented payment was made on behalf of Tata
of supplying services, such as renting or multiple petitioners in the case before Teleservices, it should be treated as a
giving on lease or other transactions in the Supreme Court. "In essence, the loan to a group firm and hence liable
respect of the building or a part for 18 per cent GST.
thereof, the building could be held to Court has effiectively read down the
provisions of Section 17(5)(c) and (d) of Tata Sons also argued that the pay-
be a plant," a division Bench compris- the GST Act. ment was the result of an arbitration
ing Justices Abhay S Oka and Sanjay proceedings in London and hence not
Karol said. The ITC can only be denied in situations liable for GST. It eventually cited
where the nature of the taxpayer's
With this the apex court upheld Odisha circulars by the Central Board of Indi-
High Court's ruling in the matter of business and the claimed credits fail to rect Taxes and Customs (CBIC) in 2022
Safari Retreats. The issue here re- satisfy these two critical tests. and 2023 to claim that GST could not
volved around section 17(5) of the According to Rohit Jain, Deputy Man- be levied on liquidated damages.
CGST Act, which prohibits ITC for works aging Partner at Economic Laws Prac- NTT Docomo had acquired 26.5 per
contract services when supplied for tice, the top Court has upheld the ex- cent stake in Tata Teleservices in 2009
construction of an immovable prop- isting provisions and interpreted that when the Japanese company had de-
erty. However, this will exclude plant building for leasing qualifies as a cided to exit the venture at a pre-de-
and machinery. The big question was "plant" and no restriction of ITC is ap- termined minimum price, which it
around what constitutes 'plant and plicable. "There is no need to make sought to exercise in 2015.
machinery'? any changes in the law," he said.
Tata Sons declined to pay the agreed
The High Court had held that if the Sudipta Bhattacharjee, Partner at amount citing Reserve Bank of India's
assessee is required to pay GST on the Khaitan & Co felt by reiterating this view that such an exit could take place
rental income from the mall, it is en- broader principle in the context of GST, at fair market value as per the
titled to ITC on the GST paid on the the Supreme Court has given a lot of amended rule of 2013. Docomo filed
construction of the mall. Aggrieved by hope to taxpayers across the country, for international arbitration and said it
this, the Tax Department moved the especially those whose input costs in- received $1.27 billion by an interna-
Apex Court. After going through all the clude substantial construction ex- tional arbitration court for its stake in
submissions, the top Court while say- penses. Tata Teleservices.

BANKING FINANCE | NOVEMBER | 2024 | 21