The eligibility of Input Tax Credit (ITC) on advances remains one of the most debated topics under the Goods and Services Tax (GST) framework in India. A major concern raised by taxpayers is the apparent inconsistency in GST law—while GST is often payable on advances received, the corresponding ITC is generally allowed only after the actual supply of goods or services.
Another major issue frequently debated is the refund of accumulated ITC in joint venture (JV) projects, especially when such projects conclude and the entity ceases operations. A significant judgment delivered in the L&T IHI Consortium case (WP No. 2980 of 2019 dated 14 November 2024) provides important legal insights on both these issues.
Although the judgment does not create a broad precedent, it offers valuable interpretational guidance for GST professionals, tax litigators, and businesses dealing with large infrastructure projects.
Background of the Case
The case involved the L&T IHI Consortium, which executed the Mumbai Trans Harbour Link (Atal Setu) infrastructure project. During the execution of the project, the consortium received advance payments from the project authority and paid GST on those advances as required under GST law.
However, disputes arose regarding:
- Eligibility to claim ITC on advances based on receipt vouchers
- Refund of accumulated ITC after the project was completed
- Constitutional validity of certain GST provisions
The case involved detailed arguments regarding the interpretation of GST provisions governing supply, time of supply, input tax credit eligibility, and refund mechanisms.
Major Legal Issues Examined
The petition challenged the interpretation and validity of several important provisions under the GST law, including:
- Section 7 – Definition of supply
- Sections 12 and 13 – Time of supply provisions
- Section 16(2)(b) – Conditions for claiming Input Tax Credit
- Section 54(3) – Refund of unutilized input tax credit
The petitioner argued that certain provisions resulted in financial hardship and discriminatory outcomes, particularly in cases where GST was paid on advances but ITC could not be utilized immediately.
Key Findings of the Court
1. Constitutional Validity of GST Provisions Upheld
The court rejected the challenge to the constitutional validity of Sections 7, 12, 13, and 16(2)(b) of the GST law.
It held that the definition of supply under Section 7 is valid and does not violate constitutional provisions. The court confirmed that the law can validly cover supplies agreed to be made in the future, including transactions involving advances.
The provisions were also held to be consistent with constitutional protections relating to equality before law, freedom of trade, and property rights.
2. ITC Allowed Based on Receipt Voucher in the Specific Facts of the Case
A significant observation in the case was the court’s decision to allow Input Tax Credit based on receipt vouchers issued for advances.
The court considered the unique circumstances of the project, where GST had already been paid on advances received for the infrastructure project. In such peculiar facts, the court allowed ITC under Section 16.
However, the court clearly stated that this relief was limited to the specific facts of the case and cannot automatically be treated as a general precedent applicable to all taxpayers.
The statutory principle that ITC is normally available only after receipt of goods or services remains unchanged.
3. Utilization of ITC Left Open for Future Determination
The court clarified that the question regarding how ITC can be utilized under GST law remains open.
This means the judgment does not conclusively decide broader issues relating to ITC utilization rights under GST, leaving scope for further legal interpretation in future disputes.
4. Refund of Accumulated ITC for Joint Venture Projects
Another important issue raised in the case was the refund of accumulated ITC when a joint venture project is completed and operations cease.
In many infrastructure projects, joint ventures are created solely for the duration of the project. Once the project is completed, the entity may no longer have taxable supplies, leaving unutilized ITC balances.
The petitioner argued that denial of refund in such cases is discriminatory, particularly for unincorporated joint ventures.
However, the court did not provide a final ruling on this issue because a statutory appeal regarding the matter was already pending. Therefore, the question regarding refund eligibility under Section 54(3) was kept open.
5. Refund Claims Not Finally Adjudicated
Because issues relating to ITC utilization and refund were pending in appellate proceedings, the court did not finally adjudicate the refund claims.
Instead, both parties were given liberty to present their arguments in the ongoing appeals.
6. Issue Regarding Receipt Vouchers and ITC Documentation
The case also highlighted a technical issue in GST compliance.
Receipt vouchers issued for advances are not specifically included as valid tax-paying documents under Rule 36. This exclusion can create difficulties for taxpayers attempting to claim ITC when GST has already been paid on advances.
The case therefore brought attention to a potential gap in GST rules relating to documentation for claiming ITC on advance transactions.
Importance of the Judgment for GST Litigation
Although the decision does not establish a universal legal precedent, it remains an important reference for GST practitioners.
The case provides:
- A detailed interpretation of ITC eligibility on advances
- Judicial analysis of supply and time of supply provisions
- Important arguments regarding refund of accumulated ITC in project-based entities
- Insights useful for GST litigation and advisory work
For tax litigators, the judgment offers a valuable opportunity to re-examine GST provisions from new legal perspectives.
Conclusion
The L&T IHI Consortium judgment provides important insights into two complex GST issues—ITC eligibility on advances and refund of accumulated ITC for project-based entities.
While the court upheld the validity of key GST provisions, it granted limited relief based on the unique facts of the case and left broader issues regarding ITC utilization and refund eligibility open for future determination.For businesses involved in large infrastructure projects, joint ventures, and advance-based contracts, this case highlights the need for careful GST planning, documentation, and legal analysis when dealing with Input Tax Credit and refund claims.