Chief Commissioner of Central Goods and Service Tax & Ors Vs Safari Retreats Private Limited & Ors (Supreme Court of India)
The Supreme Court of India on May 20, 2025, dismissed a review petition filed by the Chief Commissioner of Central Goods and Service Tax against the judgment in the case of Chief Commissioner of Central Goods and Service Tax & Ors. Vs Safari Retreats Private Limited & Ors. (Civil Appeal No. 2948 of 2023). The review petition, challenging the October 3, 2024, judgment, was dismissed on the grounds of “no error apparent on the record,” according to the brief order issued by the apex court. This decision maintains the earlier interpretation of Section 17(5) of the Central Goods and Services Tax (CGST) Act, which pertains to Input Tax Credit (ITC) on immovable properties.
The original judgment of October 3, 2024, in the Safari Retreats case, had introduced a “functionality test” for determining ITC eligibility on construction costs of immovable properties. This test aims to ascertain if a property is integral to a business’s operations and plays an essential role in generating taxable supplies. The case stemmed from M/s Safari Retreats Pvt. Ltd. being denied ITC on the construction of a shopping mall intended for commercial leasing. The tax authorities had cited Section 17(5)(d) of the CGST Act, which generally blocks ITC on properties constructed “on one’s own account.”
The Supreme Court, in its October 2024 ruling, had remitted the Safari Retreats case back to the Orissa High Court for reconsideration. This reconsideration was to be based on whether the shopping mall could be classified as “plant” under the newly introduced functionality test, thereby potentially allowing ITC. This interpretation suggests that if an immovable property is directly linked to taxable activities, such as renting or leasing, it may qualify for ITC.
The Supreme Court’s consistent stance, as reaffirmed by the dismissal of the review petition, underscores the potential for businesses, particularly those in commercial real estate, hospitality, and retail, to claim ITC on construction costs. This is contingent on demonstrating that the property is a functional and essential component of their taxable business operations. The ruling aligns with the broader GST objective of a seamless credit flow and aims to avoid the cascading effect of taxes. While the judiciary has provided an interpretation, the Supreme Court also noted that it is not the role of the courts to modify tax policies, suggesting that the GST Council may need to review Section 17(5) to address any inconsistencies arising from this interpretation. Businesses are now advised to re-evaluate their tax positions and meticulously document their ITC claims based on the functionality test.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER on review petition
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