Proposed an amendment in Section 17(d) in GST act.

The Centre has proposed an amendment in clause (d) of sub-section (5) in Section 17 of the CGST Act, 2017, substituting the words 'plant or machinery' with the words 'plant and machinery'.

'Clause (d) of sub-section (5) is being amended to substitute the words 'plant or machinery' with the words 'plant and machinery' with effect from 1st July, 2017.

The proposal comes days after the ministry of finance filed a review petition before the Supreme Court following its recent judgment in the Safari Retreats case.

The top court ruling permits commercial real estate companies to claim an input tax credit (ITC) on construction costs for rental properties.

The Union Budget 2025-26 brings a crucial amendment to Section 17(5)(d) of the CGST Act, replacing ‘plant or machinery’ with ‘plant and machinery’ retrospectively from July 1, 2017. This legislative change effectively overrides the Hon’ble Supreme Court’s ruling in the landmark Safari Retreats case, where the Court had permitted businesses to claim input tax credit (ITC) on properties classified as ‘plant’ under the functionality test.

From a tax payers perspective, this amendment has far-reaching implications as industries that have structured their ITC claims based on the Safari Retreats ruling or the prevailing interpretation of existing provisions now need to urgently reassess their tax positions. The retrospective nature of this amendment may lead to substantial financial and compliance repercussions, potentially triggering disputes over past periods.

Additionally, the Finance Ministry’s review petition in the Safari Retreats case before the Supreme Court adds another layer of complexity. The Court’s stance on this amendment will be pivotal in determining its impact on ongoing and future litigations. Businesses must remain vigilant, proactively evaluate their tax strategies, and anticipate potential legal challenges as the GST framework continues to evolve.

Credit and debit notes

Seeks to explicitly mandate for requirement of reversal of corresponding ITC in respect of a credit-note, if availed, by the registered recipient, for the purpose of reduction of tax liability of the supplier in respect of the said credit note.

The proposed amendment stipulates two conditions for a supplier to benefit from reduced output tax liability when issuing a credit note. Firstly, the supplier must ensure that the registered recipient has reversed the ITC related to the credit note. Secondly, the supplier must confirm that the tax burden on the supply has not been transferred to another person.

The Proviso to sub-section (2) is being amended to explicitly provide for requirement of reversal of conesponding input tax credit in respect of a credit-note issued by a supplier, if benefit of same is availed, by the registered recipient, for the purpose of reduction of tax liability of the supplier in respect of the said credit note.

To implement this, Section 34(2) of the CGST Act, is being amended to clearly specify that the recipient must reverse the ITC attributable to a credit note, thereby enabling the supplier to reduce their output tax liability accordingly.

If a supplier issues a credit note, the adjustment of the tax component against their outward tax liability is permitted only when the recipient reverses the ITC corresponding to the credit note. This ensures that the reduction in tax liability for the supplier is valid only when the buyer or recipient does not retain the credit associated with the tax component of the credit note.

Additionally, Form GSTR-3B has been automated to ensure compliance with this requirement.

Further, in the Invoice Matching System (IMS), an action by the recipient cannot be kept in ‘Pending’ action for the original credit note or upward/ downward amendment of the original credit note issued by the supplier, reinforcing the seamless reconciliation of tax adjustments between Suppliers and recipients.