Retrospective Amendment in Section 17(5)(d) Overrides Safari Retreats Judgment

Budget Insight

In the Union Budget for FY 2025-26, the government has proposed to replace the Section 17(5)(d) of CGST act 2017 clarifying that commercial properties cannot qualify as ‘plant and machinery’ for input tax credit under the Goods and Services Tax.
To override/nullify the Hon’ble Supreme Court of India's landmark judgement in the Safari Retreats case on October 3, 2024, in which the court allowed the companies to claim tax credits for commercial properties.

Industrial Effect

Companies from sectors such as real estate, warehousing and leasing are set face impact of lower input tax credit as the government proposes to amend the rules to incorporate a retrospective amendment.  

Legal Insight

As per Section 17(5) Notwithstanding anything contained in sub-section(1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation- For the purposes of this Chapter and Chapter VI, the expression "plant and machinery" means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

The Hon'ble Supreme Court of India’s landmark Judgement

“If the construction of a building was essential for carrying out the activity of supplying services, such as renting or giving on lease or other transactions in respect of the building or a part thereof, which are covered by clauses (2) and (5) of Schedule II of the CGST (Central Goods and Services Tax) Act, the building could be held to be a plant,” said Justice Abhay S Oka and Justice Sanjay Karol.
The Safari Retreats case revolved around the eligibility of Input Tax Credit on GST paid for constructing commercial properties used for leasing. “The Supreme Court ruled in favor of allowing ITC, interpreting that if the property generates taxable revenue, ITC should not be denied.”

 Conclusion

The Finance Bill 2025 proposes a retrospective amendment (effective July 1, 2017) to override this ruling, explicitly disallowing ITC on immovable property construction, even if used for leasing. This amendment will bring more clarity in terms of applicability of GST and could potentially reduce litigation.

Also Read :Understanding the Safari Retreats Case: ITC on Immovable Property