The Supreme Court bench of Justice Abhay S. Oka and Justice Sanjay Karol heard the Safari Retreats Case yesterday at 2:00 pm. This was the Second hearing of this month. The Additional Solicitor General (ASG) of India Venkataraman argued that “ITC neither vested nor statutory right”.
On 23rd August, 2023, the Additional Solicitor General (ASG) presented his arguments before the Supreme Court regarding the Input Tax Credit (ITC). He asserted that ITC is viewed as a concession or advantage rather than an inherent or legal entitlement. Its bestowal is contingent upon legislative policy and cannot be conferred through judicial verdicts.
Additionally mentioned that the Input Tax Credit (ITC) applicable to goods or services incorporated into fixed property might not be permissible under the constitution and pertinent laws. When a building transitions into an immovable status, it moves out of the purview of Goods and Services Tax regulations.
Furthermore, the ASG clarified that the application of GST remains unaffected by whether a property is sold, utilized for personal use, leased, or sold subsequent to being leased. In all these situations, GST does not come into effect, making the relevance of Input Tax Credit (ITC) inquiry redundant.
On the other hand, the representative of the taxpayer argued that the notion of a “missing link” in GST is nonexistent. They asserted that the term “immovable property” should be interpreted broadly to encompass (i) rights, (ii) title, and (iii) interest, and that what is subject to GST is the “right to use” the property. Therefore, there seems to be no justification for the denial of Input Tax Credit (ITC) for goods and services employed in the construction of such immovable property.
The Respondent Safari Retreats is engaged in the business activity of constructing shopping malls for the purpose of letting out the same to numerous tenants and lessees.
The respondents was informed by the authorities under the Central Goods and Services Tax (CGST) Act, 2017 and Orissa Goods and Services Tax (OGST) Act, 2017 that in view of Section 17(5)(d), he cannot avail of the benefit of ITC paid on the purchases of input materials and services which have been used in the construction of the shopping mall for set off, against the GST payable on rent received from the tenants of the shopping mall.
The Orissa High Court noted that when immovable property is constructed with the intention of renting it out, the continuity of the tax chain remains unbroken, leading to the generation of GST revenue from the building’s construction.
In this context, disallowing Input Tax Credit (ITC) in such circumstances would be deemed entirely arbitrary, unfair, and burdensome. Such a denial would contradict the fundamental purpose of GST, which is to eliminate the cumulative impact of multiple-stage taxation and the subsequent rise in expenses that ultimately consumers would have to bear.
After extensive discussions, the Orissa High Court concluded that it is permissible to claim ITC concerning the GST paid for the construction of immovable property that is intended for rental purposes.
The next hearing of the case is scheduled on 31st August 2023.
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