Safari Retreats and “Plant or Machinery” Puzzle: Why the Supreme Court’s ITC Relief on Malls, Hotels and Warehouses Was Short-Lived
Summary: The article reviews the Supreme Court’s decision in Chief Commissioner of Central Goods and Service Tax & Ors. v. M/s Safari Retreats Private Ltd. & Ors. and the subsequent retrospective amendment to Section 17(5)(d) of the CGST Act, 2017 by Section 119 of the Finance Act, 2025. It explains that the Supreme Court upheld the constitutional validity of Section 17(5)(c) and (d) while holding that the expression “plant or machinery” in Section 17(5)(d) could not automatically be equated with “plant and machinery”, and remanded the matter for a factual determination using a functionality test. The article further states that the Finance Act, 2025 retrospectively substituted “plant or machinery” with “plant and machinery” with effect from 1 July 2017, accompanied by a deeming provision overriding contrary judicial decisions. It also notes that the Supreme Court dismissed the Government’s review petition in May 2025, finding no error apparent in its earlier judgment. The article discusses the impact of the retrospective amendment on construction-related ITC claims, issues concerning immovable property constructed on one’s own account, and possible future challenges to the retrospective amendment.
Introduction
Few GST rulings have travelled as eventful a road as Chief Commissioner of Central Goods and Service Tax & Ors. v. M/s Safari Retreats Private Ltd. & Ors. On 3rd October 2024, the Supreme Court handed the real estate and commercial leasing sector a rare win by reading a functional meaning into the words “plant or machinery” in Section 17(5)(d) of the CGST Act, 2017 — potentially opening the door to input tax credit (ITC) on the construction of shopping malls, warehouses, and similar income-generating structures. Barely four months later, the Finance Act, 2025 rewrote the same provision retrospectively from 1st July 2017, effectively closing that door again. For practitioners advising clients on construction-linked ITC claims, understanding both halves of this story, the judgment and the legislative response that followed it, is now essential.
Background: The Blocked Credit Under Section 17(5)(d)
Section 17(5) of the CGST Act carries a non-obstante clause and lists categories of “blocked credit” — situations where ITC cannot be availed even though the general conditions of Section 16 are otherwise met. Clause (d), as it stood before the 2025 amendment, denied ITC on goods or services received for construction of an immovable property “on his own account,” except where such goods or services were used for “plant or machinery.”
The peculiarity lay in the word “or.” Elsewhere in Section 17 — including in clause (c), which deals with works contract services — the legislature used the conjunctive phrase “plant and machinery,” a term separately defined in the Explanation to Section 17. Clause (d) alone used the disjunctive “plant or machinery.” Tax authorities routinely denied ITC on buildings such as malls, arguing that a building could never itself be “plant” or “machinery.” Taxpayers who constructed immovable property for leasing — where the rental income itself attracts GST — found themselves paying output tax without any corresponding input credit, creating a cascading cost that the GST regime was designed to eliminate.
Facts of the Safari Retreats Case
Safari Retreats Pvt. Ltd. constructed a shopping mall in Odisha to let out to tenants and accumulated ITC of over Rs. 34 crore on goods and services used in construction. When the company sought to set off this credit against the GST payable on rental income, the department relied on Section 17(5)(d) to deny it. Safari Retreats approached the Orissa High Court, which in April 2019 read down Section 17(5)(d), holding — relying on the Supreme Court’s earlier decision in Eicher Motors Ltd. v. Union of India [(1999) 2 SCC 361] — that if GST is charged on rental income, the corresponding ITC on construction cannot be denied. The Revenue’s appeal against this ruling, along with a batch of writ petitions challenging the constitutional validity of Section 17(5)(c) and (d) and Section 16(4), reached the Supreme Court.
What the Supreme Court Held
The Court’s decision worked on two distinct tracks, and it is important not to conflate them.
On constitutional validity, the Revenue succeeded. The Court declined to strike down Section 17(5)(c) and (d), holding that the classification between immovable property and other goods satisfies the “intelligible differentia” test under Article 14, and that ITC is a statutory concession rather than a fundamental or constitutional right — following ALD Automotive Pvt. Ltd. v. Commercial Tax Officer [(2019) 13 SCC 225]. Consistent with settled precedent such as R.K. Garg v. Union of India [(1981) 4 SCC 675], the Court reiterated that legislatures enjoy wide latitude in matters of economic and fiscal classification, and that courts must be circumspect before interfering with taxing statutes.
On interpretation, the taxpayer succeeded — at least in principle. The Court held that “plant or machinery” in Section 17(5)(d) cannot automatically be read as identical to the defined term “plant and machinery” used elsewhere in Section 17. It reasoned that the deliberate use of “or” — left uncorrected through several years of litigation — reflected legislative intent rather than a drafting slip. Drawing on income-tax jurisprudence such as CIT, A.P. v. Taj Mahal Hotel, Secunderabad [(1971) 3 SCC 550] and CIT, Karnataka v. Karnataka Power Corporation [(2002) 9 SCC 571], the Court imported a functionality test: whether a building qualifies as a “plant” depends on the nature of the taxpayer’s business, the role the structure plays in that business, and whether its construction was essential to supplying the relevant service. On this reasoning, a mall built specifically to be let out could, in principle, be a “plant” for the business of leasing — making the ITC on its construction available, subject to satisfying the other conditions of Chapter V of the CGST Act.
The Court did not grant Safari Retreats a final, unconditional victory. It set aside the Orissa High Court’s judgment and remanded the matter for a factual determination of whether the mall in question actually meets the functionality test. Other pending writ petitions on the point were left to be decided on their own facts using the same test — the Court also declined to accept the government’s argument that Section 17(5)(c) and (d) were unconstitutionally vague, and rejected the High Court’s approach of “reading down” the provision, since it found no constitutional infirmity requiring that remedy.
The Legislative Reversal: Finance Act 2025
The judgment’s practical significance for the sector was considerable — and short-lived. Clause 119 of the Finance Bill, 2025 amended Section 17(5)(d) to replace “plant or machinery” with “plant and machinery,” aligning the clause with the defined Explanation and with clause (c). Critically, this amendment was made retrospective to 1st July 2017 — the very date GST was introduced — and was accompanied by a deeming provision stating that this substitution applies notwithstanding anything to the contrary in any judgment, decree, or order of any court or tribunal. In substance, Parliament legislated over the functionality test before most taxpayers could even test it before the assessing authorities.
The government also carried a review petition against the October 2024 judgment. In May 2025, a Supreme Court bench of Justices Abhay S. Oka and Sanjay Karol dismissed that review petition, finding “no error apparent on the record” in the original ruling. The irony is not lost on practitioners: the judiciary declined to disturb its own interpretation of “plant or machinery,” even as the legislature had, by then, already rewritten the statute to negate the practical effect of that very interpretation.
Where Does This Leave Taxpayers Today
For any construction undertaken from 1st July 2017 onward, the retrospective substitution means ITC on immovable property built “on his own account” is now restricted to true plant and machinery in the defined sense — apparatus, equipment, and machinery fixed to earth by foundation or structural support that is used for making outward supplies, excluding land, buildings, and other civil structures. A shopping mall, hotel building, or warehouse constructed for the taxpayer’s own leasing business, however central to that business functionally, no longer qualifies merely by satisfying the Safari Retreats functionality test.
A few points remain relevant for practice:
- Constructions for sale, lease, or licence versus “on own account”: Clause (d) restricts credit only where construction is “on his own account.” Where the immovable property is constructed with the intention of sale (attracting GST as works contract or under-construction sale) rather than being retained and leased by the same entity, the analysis under clause (d) may differ, and this distinction continues to matter post-amendment.
- Taxpayers who already claimed ITC relying on the 2024 judgment now face a materially higher risk of demand notices, interest, and possibly penalty proceedings, given the amendment’s retrospective character. A documented, functionality-test-based claim that looked defensible between October 2024 and the enactment of the Finance Act, 2025 does not automatically survive the retrospective substitution.
- Constitutional challenge to the retrospective amendment itself is a live possibility. Retrospective tax legislation that overturns a judicial interpretation is not unprecedented and has survived challenge before (the classic instance being retrospective validation of taxes following adverse rulings), but each such amendment is tested on its own facts — including whether it merely removes the basis of the judgment or seeks to reopen concluded assessments unfairly. Practitioners should watch for writ petitions challenging the 2025 amendment on this ground.
- Documentation discipline remains valuable regardless of outcome. Even though the functionality test is no longer the gateway to ITC for immovable property construction, the underlying documentation it encouraged — clear linkage between construction, the nature of the business, and the essentiality of the structure to the taxable output supply — remains useful evidence in disputes over classification of what does and does not fall within “plant and machinery” as defined.
Conclusion
Safari Retreats will likely be remembered less for the relief it ultimately delivered and more for the sequence it triggered: a taxpayer-favourable interpretive ruling, followed swiftly by a retrospective legislative correction, followed by the Supreme Court declining to revisit its own reasoning even after the ground had shifted beneath it. For advisors, the case is a reminder that a favourable interpretation of a GST provision — however well-reasoned — is only as durable as the next Finance Bill, particularly where the government has shown a clear intent to protect the revenue base on construction-linked credits. Clients currently building malls, hotels, warehouses, or other leased commercial space should be advised that ITC on such construction remains blocked under Section 17(5)(d) as it now stands, and that any claim structured around the pre-amendment functionality test needs to be reassessed in light of the retrospective substitution.
Statutory Reference: Section 17(5)(d), CGST Act, 2017, as amended by Section 119 of the Finance Act, 2025 (retrospective effect from 1st July 2017).
Cases Referred: Eicher Motors Ltd. v. Union of India (1999) 2 SCC 361; R.K. Garg v. Union of India (1981) 4 SCC 675; ALD Automotive Pvt. Ltd. v. Commercial Tax Officer (2019) 13 SCC 225; CIT, A.P. v. Taj Mahal Hotel, Secunderabad (1971) 3 SCC 550; CIT, Karnataka v. Karnataka Power Corporation (2002) 9 SCC 571.
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Disclaimer: This article is for general informational purposes only and reflects the author’s understanding of the law as of the date of writing. It does not constitute professional or legal advice. Readers should evaluate the applicability of the retrospective amendment to their specific facts and consult a qualified professional before taking any position on ITC claims relating to immovable property construction.
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