IMMOVABLE PROPERTY IS MOVING...UNPACKING SECTION 17(5)(d) OF THE CGST ACT

1. For years, the phrase "construction of an immovable property" in Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 operated as a near-unconquerable barrier for capital-intensive industries. Tax authorities routinely adopted a mechanical rule of thumb: if an asset was heavy, anchored to earth, fastened to a concrete plinth, or required engineering alignment, it was summarily branded "immovable property".

2.The inevitable consequence was the denial of Input Tax Credit (ITC). Even after legislative attempts to tighten the statutory rope-including the retrospective clarification under Explanation 2 to Section 17(5)(d) emphasizing "plant and machinery" rather than "plant or machinery"-the ground reality has fundamentally shifted. A series of landmark judgments from the Hon'ble Supreme Court and High Courts has dismantled the orthodox understanding of what is truly "immovable," creating a definitive roadmap for stakeholders to secure legitimate ITC.

3.The root of administrative overreach lies in a superficial reading of Section 3 of the Transfer of Property Act, 1882 (TPA), which defines things "attached to the earth" as being rooted, imbedded, or attached for the permanent beneficial enjoyment of that to which it is attached. Historically, audit teams and adjudicating authorities mixed fastening for operational stability with permanent subterranean embedment. If a machine was bolted to the ground to keep it from vibrating or to maintain precision, authorities treated the machine and the soil as an indivisible civil mass. This rigid presumption denied industries hundreds of crores in legitimate tax credits on modular, capital-intensive infrastructure-ranging from telecom networks and wind energy farms to captive railway sidings and specialized industrial equipment.

4.The first major jurisprudential breakthrough came with the Hon'ble Supreme Court's decisive rulings on telecommunication towers and renewable energy apparatus:

A. In Commissioner, CGST Appeal 1, Delhi Etc. Versus Bharti Airtel Limited Etc. - 2026 (8) TMI 1297 - SC Order, sustaining the Hon'ble Delhi High Court's landmark judgment, the Hon'ble Supreme Court rejected the Revenue's long-standing position that telecom towers anchored to concrete foundations are immovable property. The Apex Court affirmed that because these towers comprise prefabricated structural components, nuts, bolts, and lattice members that can be unfastened, dismantled, and relocated to another site without fatal damage or loss of commercial identity, they remain movable goods attracting eligibility of input tax credit under Section 16(1) of the Act.

B. Extending this logic in The Assistant Commissioner St & Ors. Versus M/s. Siemens Gamesa Renewable Power Private Limited - 2026 (8) TMI 847 - SC Order, the Apex Court held that Wind Turbine Generators (WTGs), despite their towering height, massive weight, and foundation anchors, retain their character as movable capital apparatus for entitlement of ITC purposes under Section 16(1) of the Act.

5.Earth-fastening is merely an engineering necessity for operational balance, vibration control, and safety under dynamic loads. It does not alter the underlying legal character of demountable, modular equipment. If it can be unbolted and relocated intact, it is not immovable property under Section 17(5)(d) of the Act.

6.Even where an asset cannot strictly pass the pure "movability" test and possesses elements of civil fixation, the Hon'ble Supreme Court in Chief Commissioner of Central Goods and Service Tax & Ors. Versus M/s Safari Retreats Private Ltd. & Ors. - 2024 (10) TMI 286 - Supreme Court injected a critical doctrine, "the Functionality Test". Construction undertaken to commercially exploit an asset-such as generating taxable output supplies or continuous leasing-does not constitute construction on one's "own account" in the narrow, restrictive sense considered by the statutory bar.

7.Whether a structure qualifies as "plant and machinery" must be evaluated based on whether it serves as an indispensable operational tool without which the business or manufacturing process cannot function. The impact of Safari Retreats ruling is already actively reshaping High Court jurisprudence across the country:

A. Madras High Court in Esnp Property Builder And Developers Private Limited, Represented By Its Authorised Signatory, Mr. Abhishek Agrawal, Esnp Property Builder And Developers Private Limited, Represented By Its Authorised Signatory, Mr. Abhishek Agrawal, Versus State Tax Officer (st), Group-V, VI, Joint Commissioner (state Tax) (intelligence) And Esnp Property Builders And Developers Private Limited, Represented By Its Authorised Signatory, Ms. Lata Vishnoi M Versus Assistant Commissioner (st), State Tax Officer (st) Group - V, VI, Joint Commissioner (state Tax) (intelligence), Commissioner Of Commercial Taxes - 2026 (9) TMI 280 - MADRAS HIGH COURT has quashed mechanical credit denials and recovery orders, holding that authorities are bound by law to apply the Safari Retreats ratio before invoking Section 17(5)(d). Likewise the Division Bench of the Delhi High Court in Riveria Commercial Developers Limited And Delhi International Airport Ltd Versus Union Of India & Ors. - 2026 (8) TMI 1369 - DELHI HIGH COURT has reiterated the "Functionality Test" to determine the entitlement of input tax credit under Section 17(5)(d) of the Act.

B. Explicitly held that the functionality test requires factual appreciation on a case-to-case basis by adjudicating authorities, and that past departmental circulars restricting credit must be read down in strict conformity with the Hon'ble Supreme Court's doctrine (supra).

8.The introduction of Explanation 2 to Section 17(5)(d)-clarifying retrospectively that "plant or machinery" must always be read conjunctively as "plant and machinery"-was designed by the legislature to reinforce statutory boundaries. However, this statutory amendment does not rescue the Revenue from the binding force of Bharti Airtel Ltd and Safari Retreats rulings.

9. Section 17(5)(d) applies strictly and solely to "immovable property." If an installation is demountable and relocatable, it is movable goods. The retrospective amendment to "plant and machinery" does not even come into play because the threshold condition of "immovable property" is never met.

10.Even where an asset is fixed to the earth, the Explanation to Section 17 explicitly excludes "plant and machinery" from the credit block. Under the Supreme Court's functionality test (supra), an asset that directly and indispensably drives outward taxable supplies qualifies as operational "plant."

11.To successfully claim and defend ITC on capital installations, enterprises must move beyond generic legal assertions and construct an audit-proof factual and operational record.

A. First, businesses must exercise rigorous contract discipline by unbundling large EPC contracts. Purchase orders must distinctly separate the supply of core apparatus (such as PV modules, rails, inverters, or lattice towers) from pure civil works like boundary walls, roads, and administrative structures.

B. Second, taxpayers must compile concrete demountability dossiers. This involves maintaining detailed technical drawings, engineering manuals, and vendor certificates proving that the installed assets are assembled using mechanical fasteners, clips, and bolts that permit disassembly and relocation without structural damage.

C. Third, the operational indispensability of the asset must be mapped directly to the company's outward taxable supplies. The documentation must clearly establish that the manufacturing line or business operations cannot function without the asset in question, thereby fulfilling the Supreme Court's functionality test.

D. Finally, strict accounting and tax discipline must be maintained. The asset should be capitalized specifically under "Plant and Machinery" in the financial statements. Crucially, in terms of Section 16(3) of the CGST Act, no depreciation should ever be claimed on the GST component under Section 32 of the Income Tax Act, 1961, as double benefit under tax laws leads to an automatic forfeiture of credit.

12.The traditional dogma that "anything fastened to earth is forever immovable" is dead. The Supreme Court has fundamentally redefined the landscape of Section 17(5)(d) through a twin doctrine: physical demountability on the one hand, and commercial functionality on the other. By applying these settled principles of law, industries are no longer required to absorb unconstitutional tax cascading. The law has evolved-and stakeholders must proactively assert their statutory right to credit under Section 16(1) of the CGST Act, 2017.

13. Ultimately, tax authorities must move past the reflex of mechanical credit denials and evaluate capital infrastructure through the modern jurisprudence articulated by the Apex Court. Upholding the rule of law under Article 141 of the Constitution requires field formations to examine every claim on its genuine physical and operational merits-giving full life to the legislative promise of seamless Input Tax Credit and serving the true ends of justice. Routinely ignoring this binding mandate under the protective shield of action taken "in good faith" only perpetuates unnecessary litigation, defeats the Constitutional objective of tax neutrality, and finally erodes the trust reposed by the lawmakers in the quasi-judicial machinery of the GST regime.