Availability of ITC on Construction of Building for Letting Out

[vaibhav agrawal]

After the judgment of the Hon'ble Supreme Court in the case of Safari Retreats Private Limited - 2024 (10) TMI 286 - Supreme Court and the subsequent amendment made through the Finance Act, 2025 in Section 17(5)(d) of the CGST Act, I seek your views on the availability of Input Tax Credit (ITC) on the construction of a building intended for letting out on rent.

Key considerations:

1. Amendment to 'Plant or Machinery':
   The term 'plant or machinery' has been substituted with 'plant and machinery' retrospectively from 1 July 2017. Further, an explanation has been inserted with effect from October 2025, clarifying that:

   'For the purposes of clause (d), it is hereby clarified that notwithstanding anything to the contrary contained in any judgment, decree or order of any court, tribunal, or other authority, any reference to 'plant or machinery' shall be construed and shall always be deemed to have been construed as a reference to 'plant and machinery'.'

2. Supreme Court ruling in Safari Retreats Pvt. Ltd.:
   The Hon'ble Supreme Court held that construction undertaken for the purpose of leasing out the property cannot be considered as construction on one's own account.

Query:

In light of the above judgment and the retrospective amendment to Section 17(5)(d), whether ITC would still be available on the construction of a building intended for leasing / letting out,

I would appreciate insights from professionals on whether the amendment effectively overrides the interpretation arising from the Safari Retreats judgment or if ITC may still be claimed under certain circumstances.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

The Supreme Court in the Safari Retreats case upheld allowing Input Tax Credit for materials/services used in building construction meant for renting/leasing, considering as a "plant".

The Central Government has specifically brought retrospective amendment to the CGST Act subsequently in 2025 to Section 17(5)(d) of the CGST Act through the Finance Act 2025, for the words "Plant or Machinery" to "Plant and Machinery", blocking ITC on works contracts for building construction even if intended for leasing.

Such a subsequent retrospective amendment to the CGST Act has essentially nullified its benefits for ongoing and future construction projects.

There is an Advance Ruling of Gujarat State in M/s Agratas Energy Storage Solutions Pvt. Ltd. (No. GUJ/GAAR/R/2025-46 dated 3-11-2025), a wholly owned subsidiary of Tata Group, leased 321 acres of land from the Government of Gujarat to construct a battery-cell manufacturing plant, paid GST on annual lease rental under RCM and applied for advance ruling whether they could claim Input Tax Credit (ITC) in respect of "before construction", "after construction", "during repairs", and even for "vacant land".

The Authority examining Section 17(5)(d), earlier AAR rulings Bayer Vapi and GACL-NALCO Alkalies and Chemicals Pvt. Ltd., and the Supreme Court's view in Safari Retreats and held that "any land kept vacant for meeting the mandatory environment guidelines would be a part of the industry being constructed by the applicant on the leased land" and that the entire leased land constitutes industrial land meant for construction. On this basis, the authority concluded that ITC of GST paid on lease rental for the vacant portion is also blocked under Section 17(5).

AI Summary

Input Tax Credit on construction for leasing curtailed by retrospective amendment, restricting claims despite prior judicial interpretation. The retrospective substitution of 'plant or machinery' with 'plant and machinery' in Section 17(5)(d) curtails Input Tax Credit for works contracts relating to building construction intended for leasing, overriding earlier judicial acceptance that construction for leasing could qualify as a 'plant' for ITC. An advance ruling applying the amended provision denied ITC on lease-related payments for vacant land and on inputs before, during and after construction, indicating the amendment's practical effect to restrict ITC claims on leased-property construction.