In a significant judgement, the Supreme Court today allowed the Revenue Department’s appeal in the Safari Retreats Pvt Ltd case, reaffirming the department’s stance on the contentious issue of blocking Goods and Services Tax ( GST ) Input Tax Credit ( ITC ) for construction of immovable property intended for leasing.
However, in the specific case, the Supreme Court Bench rejected contention of department and accepted contentions of the assessee whereby it has claimed ITC of GST paid on building construction, in fact where renting of building was taxable. The Supreme Court held that if construction of a building is essential for supplying services such as renting out it could fall into the “plant” exception to section 17(5)(d) of CGST Act which provides that ITC cannot be claimed for construction material for immovable property construction.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click Here
On the other hand, the apex court rejected the constitutional challenge posed by Safari Retreats, effectively overturning the earlier ruling by the Orissa High Court.
The High Court had previously favoured the taxpayer, allowing ITC on goods and services used for constructing shopping malls that are leased out, thereby enabling the offsetting of GST payable on rental income.
Safari Retreats Pvt Ltd, engaged in constructing shopping malls for leasing purposes, had argued that denying ITC led to a cascading effect of taxes—contradicting the fundamental objectives of the GST regime, which aims to eliminate “taxation on tax” and ensure a seamless flow of credit across the supply chain.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click Here
The Orissa High Court had sided with Safari Retreats, stating that a narrow interpretation of Section 17(5)(d) would frustrate the objectives of the GST Act. The High Court opined that when GST is paid on rental income, denying ITC on the inputs used for constructing the leased property results in an unjust burden on the taxpayer.
The Supreme Court dismissed the contention that denying ITC in such cases violates constitutional rights, upholding the validity of Section 17(5)(d) of the Central Goods and Services Tax Act, 2017.
Notably, the taxpayer’s submission under Section 17(5)(d) has been accepted, suggesting that certain nuances in the application of this provision may allow for ITC claims in specific circumstances.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click Here
The Court clarified that the classification of malls could be considered under “plant and machinery” based on specific facts of each case. There are no absolute restrictions classifying a mall strictly as an immovable building for ITC purposes.
The core of the dispute revolves around the interpretation of Section 17(5)(d) of the CGST Act, which restricts ITC on goods or services used for the construction of an immovable property on one’s own account, except when such property is classified as “plant and machinery.”
The Revenue had argued that leasing a shopping mall does not qualify as construction “on one’s own account,” thus invoking the restriction under Section 17(5)(d).
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click Here
The Supreme Court’s decision has far-reaching implications for businesses involved in the construction and leasing of immovable properties.
While it upholds the government’s authority to restrict ITC in certain scenarios, it also opens avenues for taxpayers to argue the classification of their assets under “plant and machinery” based on specific facts.
A detailed follow up story will follow, once the judgement is uploaded by the Supreme Court.
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