The L&T IHI Consortium, a collaboration between Larsen & Toubro Ltd. (L&T) and IHI Infrastructure Systems Co. Ltd., Japan, challenged the constitutional validity of certain provisions of the Central Goods and Services Tax (CGST) Act, 2017, and Maharashtra GST (MGST) Act, 2017. The dispute arose from GST levied on advances received for a government infrastructure project, the Mumbai Trans Harbour Link (MTHL).

1. Project Background (Paras 2-3)

• The consortium undertook the MTHL project, involving constructing a 22-km ocean bridge.
• Issues arose concerning GST applicability on advances paid for mobilization under the contract.

2. Legal Challenge (Para 3)

• The petitioner argued that provisions under Sections 7, 12, 13, and 16 of the CGST Act and MGST Act were ultra vires the Constitution.
• Reliefs sought included refunds of Rs. 64.64 crores paid as GST on advances.

3. Petitioner's Case (Paras 4-16)

• Advances were characterized as interest-free loans recoverable in installments.
• The consortium contended:
  • Tax on "supplies agreed to be made" violated Articles 14, 19(1)(g), 265, and 300A.
  • Denial of Input Tax Credit (ITC) contravened GST’s principles.
  • Refund provisions under Section 54(3) were unreasonably restrictive.

4. Respondents' Arguments (Paras 17-44)

• GST was correctly applied to advances as taxable services under Section 13(2).
• Input Tax Credit was disallowed because the supply of services had not commenced.
• Refunds were restricted as per the statutory framework.

5. Court's Discussion and Conclusion (Paras 76-127)

• The court examined constitutional provisions, statutory interpretation, and financial implications of GST on advances.
• It debated the nature of mobilization advances and their classification under GST.

Acts and Sections Discussed

1. Central Goods and Services Tax Act, 2017

   • Section 7: Definition of supply.
   • Section 12 & 13: Time of supply for goods and services.
   • Section 16: Eligibility and conditions for ITC.
   • Section 54(3): Refund of unutilized ITC.

2. Constitution of India

   • Article 246A: Taxation power of states and the center on goods and services.
   • Article 366(12A): Definition of goods and services.
   • Articles 14, 19(1)(g), 265, and 300A: Fundamental rights and taxation principles.

Ratio Decidendi

The judgment emphasized that:

• GST applicability on advances: Taxing advances for future supplies based on deemed supply could conflict with constitutional provisions.
• Denial of ITC: Inconsistent application of ITC provisions creates an unfair financial burden, contradicting GST’s objective.
• Constitutional Limitations: Tax laws must align with the Constitution, prohibiting taxation on non-existent supplies.

Subjects :

Constitutional Law, GST Disputes
GST, Input Tax Credit, Constitutionality, Taxation on Advances, Infrastructure Projects, Legal Interpretation