Safari Retreats Pvt. Ltd. v. Chief Commissioner of CGST

[vikash YADAV]

What is the present legal position regarding the judgment in Safari Retreats Pvt. Ltd. v. Chief Commissioner of CGST - 2024 (10) TMI 286 - Supreme Court? Specifically, whether taxpayers are still eligible to avail Input Tax Credit (ITC) on construction of immovable property used for renting or leasing services in view of the retrospective amendment to Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 substituting the expression 'plant or machinery' with 'plant and machinery', which may have the effect of nullifying the Supreme Court's ruling

[Suresh Yadav]

Safari Retreats Pvt. Ltd. v. Chief Commissioner of CGST - 2024 (10) TMI 286 - Supreme Court

This Judgment has to be considered as Null& void after retrospective amendment to Section 17(5)(d) of the Central Goods and Services Tax Act, 2017

[vikash YADAV]

taxpayer had earlier reversed ITC under Table 4.B.1 in GSTR 3B as per the proportionate reversal requirements. Following the Supreme Court's judgment in the Safari Retreat case dated 03 October 2024, the taxpayer re availed the same ITC in Table 4.A.5. Subsequently, a mismatch was noticed between GSTR 2A and GSTR 3B. In Table 9C, the taxpayer cited "one time relaxation" as the reason for the difference.

In such circumstances, is the GST department empowered to initiate proceedings for wrongful availment of ITC despite the taxpayer's reliance on the Supreme Court ruling and the stated relaxation?

[YAGAY andSUN]

In Safari Retreats, the Supreme Court considered the scope of the restriction on input tax credit (ITC) under Section 17(5)(d), which blocks ITC on goods or services used for construction of immovable property on one's own account, except where such construction relates to “plant or machinery.” The Court interpreted the expression disjunctively and held that an asset may qualify either as “plant” or as “machinery.” Applying the functional test recognised in tax jurisprudence, the Court observed that where a building is constructed as an essential tool of a taxable business activity such as a shopping mall or commercial complex developed for renting or leasing, the building itself may assume the character of “plant.” Accordingly, the Court held that ITC could not be denied mechanically in such cases and that eligibility must be examined with reference to the functional role of the asset in the taxpayer's business.

Subsequently, Parliament amended Section 17(5)(d) by substituting the words “plant or machinery” with the expression “plant and machinery,” with retrospective effect from 1 July 2017. The amendment further clarifies that any reference to “plant or machinery” shall be deemed always to have been “plant and machinery,” notwithstanding any judgment or order of any court.

This change is legally significant because “plant and machinery” is a defined term under the Explanation to Section 17, which includes apparatus, equipment, and machinery fixed to earth but expressly excludes land, buildings, and other civil structures. By linking the exception in Section 17(5)(d) to this composite defined term, the amendment removes the interpretative scope that earlier allowed a building to be treated independently as “plant.” Since buildings and civil structures are expressly excluded from the definition, immovable property constructed for the purpose of renting or leasing services cannot qualify as “plant and machinery.”

Accordingly, the retrospective substitution effectively neutralises the interpretative basis of the ruling in Safari Retreats. Under the present statutory framework, ITC on goods or services used for construction of immovable property, where the cost is capitalised and the property consists of a building or civil structure, remains blocked even if such property is used for providing taxable renting or leasing services, subject to any future constitutional challenge to the retrospective amendment.

[KASTURI SETHI]

Q. In such circumstances, is the GST department empowered to initiate proceedings for wrongful availment of ITC despite the taxpayers reliance on the Supreme Court ruling and the stated relaxation ?

Ans. YES. You acted in a hurry. The Order of Supreme Court is also subject to review. Only Supreme Court can review its own order. In the year 2025 the number was highest. Though issues were different.

[Shilpi Jain]

The SC has defined what is "own account". That position remains even after the retrospective amendment, In my view the decision is not completely done away with. It still holds good for certain credits related to construction, in case of leasing services.

AI Summary

Input Tax Credit eligibility curtailed by retrospective 'plant and machinery' amendment, limiting ITC for construction of buildings. The Supreme Court in Safari Retreats applied a functional test to allow ITC where a building functions as plant or machinery, but a retrospective substitution of 'plant or machinery' with the defined composite term plant and machinery, which excludes buildings and civil structures, removes that interpretative basis. Consequently, capitalised costs for construction of buildings used for renting or leasing are now outside the exception and ITC remains blocked under the amended statutory framework, exposing taxpayers who relied on the judgment to departmental scrutiny.