Recent decisions of the GST Appellate Tribunal (GSTAT) and Advance Ruling Authorities provide important guidance on input tax credit (ITC), interest liability, and tax treatment of capital-raising expenses. These rulings clarify several contentious issues while also highlighting areas where litigation is likely to continue.
1. Resort Building Not Treated as Plant and Machinery for ITC Purposes
In Flora Kingdom Farm Resort v. CCT, the taxpayer, operating a resort providing accommodation, restaurant, and event services, claimed ITC on the construction cost of the resort. The authorities denied the credit under Section 17(5)(d) of the CGST Act. The taxpayer contended that the resort building should be regarded as a "plant" and alternatively argued that the construction was not undertaken on its own account.
The GSTAT rejected both arguments. It observed that the Finance Act, 2025 retrospectively amended the law from July 2017 by replacing the phrase "plant or machinery" with "plant and machinery". The statutory definition specifically excludes buildings and civil structures, thereby preventing resort or hotel buildings from qualifying as plant and machinery. The Tribunal also noted that the Supreme Court's ruling in Safari Retreats did not extend the functionality test to hotel or resort buildings.
On the issue of "own account", the Tribunal relied on Safari Retreats and reiterated that ITC on construction expenses may be available where the constructed property is sold, leased, or rented. Since the resort building was being used by the taxpayer for its own hotel business and was neither sold nor leased, the ITC restriction applied.
This decision reinforces the principle that businesses constructing immovable properties for their own operational use face significant limitations in claiming ITC. However, taxpayers engaged in leasing or renting constructed properties may still have a strong basis to claim credit, subject to the facts of each case and ongoing judicial developments.
2. Supplier Certificate Alone Not Sufficient to Establish ITC Eligibility
In Anant Decor v. CSGST, ITC relating to FY 2018-19 was denied due to discrepancies between GSTR-3B and GSTR-2A. During appellate proceedings, the taxpayer submitted a supplier certificate issued under Circular No. 183/15/2022-GST, stating that certain invoices had been incorrectly reported as B2C instead of B2B transactions.
The GSTAT accepted the legal proposition that, for FY 2018-19, ITC cannot be denied merely because the invoices do not appear in GSTR-2A, especially when Section 16(2)(aa) was not yet in force. Nevertheless, the Tribunal emphasized that Section 155 places the burden of proof on the recipient claiming ITC.
According to the Tribunal, the supplier certificate prescribed by Circular 183 serves only as supporting evidence and cannot be treated as conclusive proof. The certificate was produced only after the commencement of proceedings, and the taxpayer failed to furnish corresponding GSTR-1 details or other corroborative evidence establishing the reporting error. Consequently, the Tribunal held that the burden of proof had not been discharged.
While the principle that GSTR-2A mismatch alone cannot lead to ITC denial is welcome, the ruling raises concerns because neither the GST law nor Circular 183 specifically mandates the production of GSTR-1 extracts. Taxpayers should therefore maintain comprehensive documentation, including supplier confirmations, GSTR filings, invoice copies, and proof of tax payment, to strengthen their claims in litigation.
3. Interest Payable Despite Sufficient Balance in Electronic Cash Ledger
The ruling in Shri Shyam Ispat India Private Limited v. CSGST addressed whether interest is payable when a taxpayer has deposited sufficient funds in the Electronic Cash Ledger (ECL) before the due date but files the return belatedly.
The taxpayer argued that since adequate funds had already been deposited into the ECL prior to the due date, no interest should be payable. However, the GSTAT rejected this contention and held that a distinction exists between depositing money into the ECL and actual payment of tax. Tax is considered paid only when the taxpayer debits the ECL while filing the return.
The Tribunal further noted that Notification No. 12/2024-Central Tax inserted a proviso in Rule 88B(1) excluding amounts already lying in the ECL while calculating interest. However, this amendment is prospective and applicable only from 10 July 2024.
Although the Tribunal's interpretation is legally consistent with the statutory framework, several High Courts have granted relief in similar cases even for periods preceding the amendment. Given these conflicting judicial views, the matter may ultimately require resolution by the Supreme Court.
4. ITC on IPO Expenses: Allowed for Fresh Issue but Denied for Offer for Sale
In Sai Silks Kalamandir Limited, the applicant sought a ruling on ITC eligibility concerning various IPO-related expenses, including merchant banking fees, legal charges, underwriting fees, advertising expenses, registrar fees, and listing fees. The IPO consisted of both a fresh issue of shares and an offer for sale (OFS) by existing shareholders.
The Authority for Advance Ruling held that Section 16(1) permits ITC on expenses incurred "in the course or furtherance of business," a phrase broader than a taxpayer's core operational activities. Since the fresh issue was intended to generate funds for business expansion, working capital requirements, warehouse development, and loan repayment, ITC on expenses attributable to the fresh issue was considered admissible.
However, the Authority denied ITC relating to the OFS component, reasoning that the proceeds of such sales accrue directly to the selling shareholders rather than to the company itself.
This conclusion may be open to challenge. Many companies incur IPO-related expenses as part of their overall fundraising and corporate strategy, including facilitating exits for investors. Such expenses are generally recognized as business expenditures under corporate and income-tax laws. Therefore, a strong argument exists that ITC should be available even on expenses connected with the OFS component.
The ruling is particularly relevant for transactions such as IPOs, FPOs, QIPs, buy-backs, and similar capital market activities. Companies should carefully document how funds raised through such transactions support business objectives. Another related area of dispute concerns whether these transactions constitute "transactions in securities" requiring proportionate ITC reversal under Section 17(2). Divergent rulings on this issue indicate that further litigation is likely.
Conclusion
These recent rulings underscore three recurring themes in GST litigation: the strict interpretation of blocked credit provisions, the burden of proof resting on taxpayers for ITC claims, and the continuing judicial debate surrounding interest and capital-market-related expenses. Taxpayers should maintain robust documentation, evaluate ITC positions carefully before undertaking major projects, and monitor ongoing judicial developments, particularly in areas where higher courts may provide final clarity.
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