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 - 2024 (10) TMI 286 - Supreme Courtcase 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. (2025 (11) TMI 757 - AUTHORITY FOR ADVANCE RULING, GUJARAT), 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 - 2023 (9) TMI 165 - AUTHORITY FOR ADVANCE RULING, GUJARAT and GACL-NALCO Alkalies and Chemicals Pvt. Ltd. - 2021 (12) TMI 36 - AUTHORITY FOR ADVANCE RULING, GUJARAT, and the Supreme Court's view in Safari Retreats - 2024 (10) TMI 286 - Supreme Court 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).

[KASTURI SETHI]

Perfect reply by Sh. Kalleshamurthy Murthy, Sir.

[Sadanand Bulbule]

Also carefully examine the provisions of Section 17[5][c] of the CGST Act, 2017. This provisions is equally serious in terms of blockage of ITC for inward supply of works contract services other than for further supply of the same services.

[KASTURI SETHI]

Dear Sir Ji,

Additional information is a big plus.

[KALLESHAMURTHY MURTHY K.N.]

Sirs,

It is true to keep in view the point in Sl. No.2.

[vaibhav agrawal]

Dear Sirs,

Thank you for providing your insights; they were really helpful.

I understand that the retrospective amendment replacing the term "plant or machinery" with "plant and machinery" in Section 17(5)(d) of the CGST Act may prevail over the Supreme Court judgment to that extent.

However, the Hon'ble Supreme Court in Safari Retreats Pvt. Ltd. - 2024 (10) TMI 286 - Supreme Court held that construction undertaken for the purpose of leasing out property cannot be considered as construction on one's own account. Since the construction of a commercial building for the purpose of renting out is intended for making taxable outward supplies, it may not fall within the scope of "construction on own account" and accordingly ITC shall be available.

[KASTURI SETHI]

Dear Querist,

(i) Hon"ble Supreme Court has just observed while analyzing the definition. The Supreme Court has not "HELD".

(ii) You must be aware of number . of the decision wherein the Supreme Court set aside its own orders. The number of such decision was highest in the year 2025.

(iii) The phrase, "On one"s own account" is very very simple and everybody knows its meaning and sense and essence.

(iv) To cap it all, taking ITC is highly risk-prone.

 

[Sadanand Bulbule]

Dear Sir

This is a very high risk decision. The department has unilaterally come to the conclusion that, ITC for construction of immovable property other than for "Plant and Machinery" under Section 17[5][d] is not at all entitled. Take experts opinion before jumpimg the gun.

[Sadanand Bulbule]

2026 (2) TMI 1384 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA - In Re: M/s. Konkan LNG Private Limited

[Sadanand Bulbule]

2026 (2) TMI 1387 - GUJARAT HIGH COURT - Niket Bipinbhai Patel Through Power of Attorney Holder Bipinbhai Madhavbhai Patel Versus Assistant Commissioner (A.E.) CGST-Central Excise Vadodara-II Commissionerate

[Shilpi Jain]

The amendment has undone only a part of what SC has held. With "own account" not been defined - one could say that the meaning of "own account" in para 32 of the decision of SC, would prevail.

[Sadanand Bulbule]

In Chief Commissioner of CGST v. Safari Retreats Pvt. Ltd. - 2024 (10) TMI 286 - Supreme Court, the core issue before the Supreme Court was whether a mall could qualify as “plant” under Section 17(5)(d), not the definitive interpretation of the phrase “on his own account.” The observations in para 32 touching upon that expression were incidental and not the ratio decidendi of the judgment. Therefore, treating those remarks as a final and binding declaration on the scope of “on own account” would be legally overstated and may invite avoidable litigation risk.

[Sadanand Bulbule]

Dear Sri Sethi Sirji

While welcoming your well considered opinion, I endorse the same in the following words:

The Supreme Court has only made an observation while examining the definition; it has not laid down a categorical finding on the issue. A stray observation cannot be treated as a binding declaration of law. Given that even the Supreme Court has revisited and set aside several of its own rulings in recent times, it would be imprudent to treat such remarks as conclusive. The phrase "on ones own account" is clear and carries a plain meaning. Stretching it to support ITC eligibility appears legally vulnerable. Therefore, availing ITC on this premise is inherently risk-laden and should be approached with due caution.

Further initially I too had taken the same stand before the CGST Authorities during adjudication prior to amendment to Section 17[5][d]. But the authority has discussed the issue and negated the contention. And it was given to my understanding that, it is the firm stand of the department PAN India to disallow ITC other than for Plant & Machinery. Much clear water has flown under & over the bridge post amendment to Section 17[5][d].

With this it is the choice of any taxpayer/tax consultant to choose whichever way is more suitable for them.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, Your experience with the department on the issue coupled with your original thoughts and your interpretation would enlighten ALL.

Your above reply at serial no.10 signifies that one must use ones intellect rather than depending upon any judgement.

I am highly thankful to you for sharing your experience with the department in the interest of the visitors of TMI website.

[gunda ashok kumar]

The Registered person paying CGST and SGST on outward supply of lease/rentals on their immovable property and claiming the ITC on inward supply towards repairs/damages for immovable property. In this context the supplier is eligible the ITC on repairs of immovable property as per Section 16 of CGST Act during the course of furtherance business but the contention of the Department is that the supplier is not eligible the ITC as per Section 17(5)(d) Please clarify the issue whether the Registered Taxable supplier eligible ITC on reparis undertaken for immovable property when the outward supply is taxable on lease/rentals

[Sadanand Bulbule]

Except " Plant and Machinery", ITC is blocked for all other purposes under Section 17(5)(d) of the Act.

[vaibhav agrawal]

As per the Explanation to Section 17 of the CGST Act, 2017, the term "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property. Accordingly, any repairs or maintenance expenses that are not capitalised but are charged as revenue shall not be regarded as "construction" for the purposes of this section.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Do the structural additions to the immovable property, other than minor repairs and maintenance, liable to be capitalised, be treated as non-capitalised by mere showing in revenue expenditure under the P&L Account?

[vaibhav agrawal]

Sir,

The categorisation of expenditure as capital or revenue in nature is required to be determined strictly in accordance with the applicable Accounting Standards or Ind AS, as the case may be.

It is respectfully submitted that the nature of the expenditure cannot be altered merely by its presentation in the Profit & Loss Account. The treatment in the books of accounts, though relevant, is not conclusive. The true nature and purpose of the expenditure-whether it results in creation of a capital asset or enduring benefit-must be evaluated based on established accounting principles and judicial precedents.

Accordingly, if the expenditure pertains to structural additions or improvements to immovable property that result in enduring benefit, the same is liable to be capitalised, irrespective of its classification in the financial statements. The assessee bears the onus to substantiate the nature of such expenditure before the department with supporting documentation and justification.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

Very clear answer in Sl. No. 14.2 by Sri Vaibhav Agrawal, Sir.

Thank you verymuch.

 

[KASTURI SETHI]

Dear Sir, Undoubtedly, the message is crystal clear at serial no.14.2.

In Layman's language, expenditure which lasts for long duration is capital expenditure and expenditure which lasts for short duration is revenue expenditure. Short-term expenditures are shown in Profit & Loss Account.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

More elaborated by Sri Kasturi Sethi Ji. Very easy to understand. Thanks, Sir.

AI Summary

Input tax credit on leasing construction remains contentious after retrospective amendment and blocked-credit rules under GST. Input tax credit on construction of immovable property intended for letting out was discussed in light of the Supreme Court's view in Safari Retreats and the retrospective amendment to section 17(5)(d) of the CGST Act. The discussion proceeds on the basis that the amendment replacing 'plant or machinery' with 'plant and machinery' restricts credit on construction-related inward supplies, while works contract services and construction of immovable property remain blocked except for plant and machinery. It also distinguishes capitalised construction from non-capitalised repairs or maintenance, stating that the accounting treatment is relevant but not conclusive.