The issue of Input Tax Credit (ITC) eligibility on advances remains one of the most debated topics under the Goods and Services Tax (GST) regime in India. A key concern often raised by taxpayers is the inconsistency between GST being payable on advances while ITC eligibility is restricted until the supply of goods or services is actually received.
Another closely related issue arises in cases involving refund of accumulated ITC for joint venture (JV) projects, particularly when such projects conclude and the entity ceases operations.
A recent judgment by the Bombay High Court in the case of L&T IHI Consortium v. Union of India provides important insights into these issues. Although the decision does not establish a general precedent, it offers valuable legal reasoning and interpretational guidance for tax professionals and litigators.
Background of the Case
The case involved the L&T IHI Consortium, which executed the Mumbai Trans Harbour Link (Atal Setu) project for the Mumbai Metropolitan Region Development Authority (MMRDA).
The consortium received advance payments for the project and paid GST on those advances. However, disputes arose regarding:
- Eligibility to claim ITC based on receipt vouchers for advances
- Refund of accumulated ITC after completion of the project
- Constitutional validity of certain GST provisions
The arguments presented by Arvind Datar provided a deep analysis of GST law and constitutional principles.
Key Issues Examined by the Court
The petition raised challenges relating to several provisions of the Central Goods and Services Tax Act, 2017, including:
- Section 7 – Definition of supply
- Section 12 and Section 13 – Time of supply
- Section 16(2)(b) – Conditions for claiming ITC
- Section 54(3) – Refund of unutilized ITC
The court carefully examined whether these provisions violated constitutional guarantees.
Key Findings of the Bombay High Court
1. Constitutional Validity of GST Provisions Upheld
The Bombay High Court rejected the petitioner’s challenge to the constitutional validity of Sections 7, 12, 13, and 16(2)(b) of the Central Goods and Services Tax Act, 2017.
The court held that Section 7, which defines “supply,” is not ultra vires the Constitution, including Article 246A and Article 366(12A).
The court also concluded that the provision does not violate fundamental rights under:
- Article 14 (Equality before law)
- Article 19(1)(g) (Freedom to carry on trade or business)
- Article 300A (Right to property)
2. ITC Allowed Based on Receipt Voucher in Specific Circumstances
In the peculiar facts of the case, the court allowed Input Tax Credit under Section 16 based on receipt vouchers issued for advances received from the Mumbai Metropolitan Region Development Authority.
However, the court emphasized an important point:
- Under the statutory framework, ITC is generally available only after receipt of goods or services.
Therefore, the relief granted was limited strictly to the specific facts of the case, meaning it cannot be automatically treated as a binding precedent for other taxpayers unless the facts are closely identical.
3. Utilization of ITC Left Open
The court clarified that all contentions regarding utilization of ITC under the CGST and MGST Acts remain open.
This means that the judgment does not conclusively settle broader issues related to ITC utilization, leaving room for further legal interpretation in future cases.
4. Challenge to Section 54(3) on Refund of ITC Kept Open
Another significant issue involved refund of accumulated ITC when the joint venture ceased operations after completing the project.
The petitioner argued that denial of refund under Section 54(3) is discriminatory, especially for unincorporated joint ventures that exist only for the duration of a project.
However, the court did not decide this issue finally and kept the question open, since a statutory appeal on the matter is still pending.
5. Refund Claim Not Adjudicated
Because issues relating to ITC utilization and refund are pending in appellate proceedings, the court did not adjudicate the refund claims in this writ petition.
Both parties have been given liberty to raise their arguments in the ongoing appeals.
6. Issue with Rule 36 and Receipt Vouchers
Another technical concern highlighted in the case was the non-inclusion of receipt vouchers in Rule 36 as valid documents for claiming ITC.
This gap in the rules was argued to have deprived the petitioner of ITC benefits, particularly in cases where GST was already paid on advances.
Importance of the Judgment for GST Litigation
Although the decision does not create a binding precedent for all taxpayers, it is still significant for several reasons.
The judgment provides:
- Detailed interpretation of GST provisions related to advances and ITC
- Constitutional analysis of supply and ITC provisions
- Legal arguments that may guide future GST litigation
For tax professionals and litigators, the case offers valuable insights into how courts may approach disputes involving ITC eligibility and refund issues.
Conclusion
The ruling of the Bombay High Court in the L&T IHI Consortium v. Union of India case sheds light on complex GST issues such as ITC eligibility on advances and refund of accumulated ITC for joint venture projects.
While the court upheld the constitutional validity of several GST provisions, it granted limited relief based on the specific facts of the case and left important questions regarding ITC utilization and refund under Section 54(3) open for future determination.For GST practitioners, this judgment serves as an important analytical resource and guiding reference when dealing with similar disputes in tax litigation.