GST Credit on Resort Construction: What Safari Retreats Actually Decided and Why Bengaluru GSTAT Denied ITC

Summary: The availability of input tax credit on construction of hotels, resorts and other commercial buildings remains governed by the restrictions under Section 17(5) of the GST law. In Chief Commissioner of Central Goods and Service Tax v. Safari Retreats Private Ltd., the Supreme Court upheld the constitutional validity of the blocked-credit provisions but recognised a fact-dependent functionality test under the original expression “plant or machinery” in Section 17(5)(d). The Court did not grant unrestricted credit on commercial buildings. Subsequently, the Finance Act, 2025 retrospectively substituted “plant and machinery” for “plant or machinery”, with deemed effect from 1 July 2017. Against this statutory background, the Bengaluru GSTAT, in Flora Kingdom Farm Resort, denied ITC on construction of an owner-operated resort building, while recognising the need to distinguish construction expenditure from separately identifiable eligible equipment and other purchases. The decision also highlights the taxpayer’s burden under Section 155 to establish entitlement through appropriate invoices and evidence. The distinction between premises used for one’s own hospitality business and property genuinely constructed for leasing remains relevant, but neither business use nor taxable outward supplies automatically establishes ITC eligibility. Taxpayers must examine the amended statutory language, the nature of each inward supply, the construction restriction and the factual basis of their claims.

1. A business building is not a personal building—but that does not settle ITC

A resort owner may reasonably ask:

“I have constructed this resort only for business. I collect GST from my customers. I have paid GST on construction materials and services. Why should the construction credit be denied?”

That question explains the commercial hardship. But the legal answer depends on the specific restriction in Section 17(5), not merely on whether the expenditure relates to business.

The Supreme Court’s decision in Chief Commissioner of Central Goods and Service Tax & Ors. v. Safari Retreats Private Ltd. & Ors., 2024 INSC 756, dated 3 October 2024, did not remove the restriction on construction credit. It upheld the constitutional validity of Sections 17(5)(c) and 17(5)(d), while opening a fact-dependent route under the language then appearing in clause (d).

The Bengaluru GSTAT’s recent decision in Flora Kingdom Farm Resort must be understood against that background and the amendment made in 2025. It is not enough to compare the newspaper headlines of the two decisions.

2. What Section 17(5)(d) restricts

Before the amendment, Section 17(5)(d) blocked credit on goods or services received for construction of immovable property, other than “plant or machinery”, on the taxable person’s own account—including where those goods or services were used in the course or furtherance of business.

The words “including … in the course or furtherance of business” are important.

They mean that business use, by itself, does not overcome the restriction. Otherwise, those words would serve no purpose.

The correct inquiry is therefore not merely:

Is the building used for business?

It is:

Does the particular credit fall within the construction restriction, and, if so, is there a legally available exception?

Illustration: A factory building

A manufacturer constructs an ordinary factory building and uses it to manufacture taxable goods.

The business connection is clear. Nevertheless, that connection does not, by itself, remove the restriction on construction of the building. Credit on manufacturing machinery must be examined separately from credit on the factory’s civil structure.

3. Safari Retreats: The facts behind the Supreme Court decision

Safari Retreats constructed a shopping mall intended to be let out to different tenants.

Construction involved cement, steel, electrical equipment, lifts, escalators, air-conditioning systems and professional services. The taxpayer stated that the accumulated input tax credit exceeded ₹34 crore.

Its case was straightforward: renting the mall premises attracted GST, and therefore the GST paid in constructing those premises should be available as credit against the rental liability.

The Orissa High Court, by its judgment dated 17 April 2019, accepted a taxpayer-favourable approach and read down Section 17(5)(d).

The Revenue appealed to the Supreme Court.

4. What the Supreme Court actually decided

The restriction was not struck down

The Supreme Court upheld the constitutional validity of the blocked-credit provisions. It did not accept a general proposition that payment of GST on outward supplies necessarily entitles a person to construction ITC.

This distinction matters. Commercial hardship and cascading taxation may explain a demand for legislative relief, but they do not automatically displace an express statutory restriction.

“Plant or machinery” was different from “plant and machinery”

At the time of the judgment:

Section 17(5)(c) used “plant and machinery”.

Section 17(5)(d) used “plant or machinery”.

The statutory explanation defined “plant and machinery”, excluding buildings and other civil structures.

The Supreme Court held that the defined expression could not simply be substituted for the different expression used in clause (d). Consequently, the word “plant” in the original clause (d) required separate consideration.

That difference between “or” and “and” was central to the relief considered by the Court.

A building could qualify as “plant” depending on its function

The Court adopted a functionality test.

In substance, the inquiry was whether the building was merely the place in which the business operated, or whether it functioned as an instrument through which the business was carried on.

Its planning, construction, special requirements and actual business role were relevant. The mere fact that a business could not operate without premises was not an automatic answer.

The Court did not finally grant unrestricted credit to the mall

The Supreme Court required factual examination of whether the particular mall satisfied the functionality test. It remitted the matter for that determination.

Therefore, the statement “the Supreme Court allowed ITC on every commercial building” is incorrect. The judgment created a fact-dependent possibility under the original wording; it did not issue a universal construction-credit exemption.

5. “On his own account”: The passage taxpayers must read fully

Paragraph 32 is especially important.

The Supreme Court explained that construction is on a taxable person’s own account where:

It is for personal use and not for service; or

The property is used by the person constructing it as the setting in which that person carries on business.

The Court also stated that construction cannot be said to be on one’s own account where it is intended to be sold or given on lease or licence.

The error arises when only the first limb—personal use—is quoted and the second limb—setting for one’s own business—is omitted.

Illustration: Owner-operated resort

A firm constructs a resort and itself supplies accommodation, food, catering and event services.

It cannot establish eligibility merely by saying:

“The property is commercial, not personal.”

The further question is whether the property is the setting for its own hospitality business. That is how the Bengaluru Tribunal approached Flora Kingdom Farm Resort.

Illustration: Building genuinely constructed for leasing

An owner constructs premises specifically to lease them to another business.

Paragraph 32 provides a material argument that this construction is not on the owner’s own account.

However, it would be unsafe to convert that observation into an assurance of full ITC. The Supreme Court also required examination of the mall under the functionality test, and Section 17(5)(c), where applicable to works-contract services, requires separate consideration. The judgment must be read as a whole.

6. Hotels and resorts: Why the “plant” argument faced difficulty

Safari Retreats discussed earlier income-tax decisions concerning whether buildings could constitute plant.

The discussion preserved the distinction concerning hotel and cinema-theatre buildings; it did not treat all commercial buildings alike. Contemporary analysis of the judgment identified buildings other than hotels and cinema theatres as the field for the fact-specific functionality inquiry.

The Bengaluru Tribunal relied on that distinction. It considered the resort building, in substance, a hotel building and held that the functionality test, as framed in Safari Retreats, did not bring it within the original exception.

A taxpayer may seek to distinguish the facts of a particular structure. But an ordinary resort building cannot safely be described as “plant” merely because rooms and common areas are necessary for supplying hospitality services.

7. The 2025 amendment changed the statutory foundation

Section 124 of the Finance Act, 2025 substituted “plant and machinery” for “plant or machinery” in Section 17(5)(d), with deemed effect from 1 July 2017.

It also inserted Explanation 2, directing that references to “plant or machinery” must be construed as “plant and machinery”, notwithstanding anything contrary in a judgment, decree or order.

Notification No. 16/2025–Central Tax, dated 17 September 2025, brought the relevant amendment provisions into force on 1 October 2025. The substitution itself carries the stated retrospective effect.

Two dates must therefore be kept distinct:

Matter	Relevant date
Commencement of the notified amendment provisions	1 October 2025
Deemed effect of substitution in Section 17(5)(d)	1 July 2017

Both follow from the amendment and commencement notification.

The practical consequence is that the route based on treating a building as “plant” under the earlier, undefined expression faces the statutory definition that excludes buildings and civil structures.

This is why reliance on Safari Retreats without discussing the amendment can mislead a taxpayer.

8. What happened in Flora Kingdom Farm Resort

The Bengaluru Bench decided the appeal on 30 September 2026.

The reported particulars are:

Particular	Details
Appellant	Flora Kingdom Farm Resort
Appeal	APL/05/BUR/2026
Reported citation	2026 LLBiz GSTAT (BLR) 52
Bench	Prabhakaran P.M., Judicial Member, and Ravi Jesuraj S., Technical Member (State)
Period	FY 2019–20
Business	Accommodation, restaurant and catering services, weddings, events and photo shoots

The resort operated at Kaup, Udupi, Karnataka.

The Tribunal upheld the reported demand of ₹9,32,177, comprising tax of ₹8,45,972, interest of ₹1,607 and penalty of ₹84,598.

The resort’s principal arguments

The resort contended that:

Its building constituted plant.

Construction for taxable business supplies was outside “on his own account”.

Eligible equipment and other purchases required separate examination rather than blanket disallowance.

The Tribunal’s reasoning

The Tribunal rejected the building credit on three connected grounds:

The retrospective amendment applied to the disputed period.

Buildings and civil structures were excluded from the defined expression “plant and machinery”.

The resort had been constructed for the appellant’s own hospitality business and was therefore constructed on its own account.

It also held that the original Safari Retreats functionality route did not extend to the resort building on the reasoning before it.

9. Did the Tribunal allow credit only for “fittings”?

That description needs refinement.

The adjudicating authority had already allowed ₹1,47,922.92 on identified items, including electrical equipment, air-conditioners and certain purchases treated as expenses.

The Tribunal did not announce that every fitting is eligible or that only fittings qualify. It noted the existing allowance and found that the appellant had not identified additional eligible invoices outside the restriction. It referred to the taxpayer’s burden under Section 155 to establish entitlement.

Accordingly:

“Fittings” is not a statutory passport to credit, and “resort expenditure” is not a statutory ground for rejecting every invoice.

The item’s nature, use and relationship with construction must be demonstrated.

10. Practical illustrations: Separate the building from the business assets

The following are illustrations of the analysis, not blanket eligibility rulings.

Illustration 1: Cement and steel for guest-room construction

A resort purchases cement and steel to construct its own guest-room block.

These are construction inputs for the building. Charging GST on room accommodation does not, by itself, remove Section 17(5)(d). This is the essential difficulty illustrated by Flora Kingdom.

Illustration 2: Independently identifiable equipment

A resort buys identifiable equipment for business use and claims that it is not a component of building construction.

The claim requires invoices, specifications, installation details and evidence of actual use. Flora Kingdom demonstrates that equipment claims must be separated and proved, rather than included in a general claim that the entire resort is plant.

Illustration 3: Furniture and movable assets

A resort purchases movable furniture for use after completion of construction.

Such purchases require separate examination; they should not be rejected merely because they are located inside a resort. Equally, an item described as a “fixture” may require closer scrutiny if it was received for and integrated into construction of immovable property.

Illustration 4: One undivided construction ledger

A taxpayer records civil work, machinery, furniture and equipment under a single “resort project” account.

That accounting presentation makes the evidentiary task harder. A practical response is an invoice-wise schedule identifying the item, its use, its installation and the precise legal basis for credit. The Tribunal’s reliance on Section 155 makes this exercise particularly important.

Illustration 5: The owner leases the whole property to an operator

An owner constructs a property and leases it to an independent hotel operator instead of operating the resort itself.

This differs factually from Flora Kingdom. Paragraph 32’s observation concerning intended lease or licence becomes relevant.

Nevertheless, eligibility is not automatic: the precise contractual arrangement, the applicable clause of Section 17(5), the nature of the inward supplies and the retrospective amendment must all be addressed.

11. What remains of the lease-or-licence argument after amendment?

This issue should neither be ignored nor overstated.

The amendment changed the exception concerning plant and machinery. It did not delete the words “on his own account”.[incometaxindia.gov]

Therefore, an argument based on the Supreme Court’s interpretation of those words is conceptually different from an argument that the building itself is plant.

But the existence of that argument is not the same as an established right to full credit. The Supreme Court’s remand for a functionality examination, and the separate restriction concerning works-contract services, prevent a simple conclusion that every leased building automatically qualifies.

A representation should identify the precise route being relied upon. It should not mix:

“The building is plant”;

“Construction is not on my own account”; and

“The item is independent equipment”,

as though they were the same argument.

12. Natural justice: A fair hearing does not mean automatic credit

Taxpayers are entitled to a fair examination of their actual claim. But fairness must operate on both sides of the legal analysis.

A taxpayer should disclose and address the retrospective amendment rather than cite only the favourable passages of Safari Retreats. The department, equally, should not treat the denial of building credit as a reason to reject every equipment invoice without examining the taxpayer’s evidence. Flora Kingdom itself records that some credit had been allowed.

For a properly prepared representation, the following issues should be separately placed before the authority:

Which invoices relate to building construction?

Which relate to independent equipment or movable assets?

What evidence establishes their nature and use?

Is the taxpayer operating its own business from the building or supplying the premises under a genuine lease or licence?

Which part of Safari Retreats is relied upon, and how is the amendment addressed?

These are practical submissions suggested by the distinctions in the two decisions—not a finding that any particular assessment has violated natural justice.

An adverse decision is not, merely because it is adverse, a denial of natural justice. The real concern is whether the material claim and supporting evidence received a fair, reasoned examination.

13. Did Bengaluru GSTAT disregard the Supreme Court?

The reported reasoning does not support that broad allegation.

The Tribunal considered Safari Retreats, distinguished the resort from the buildings potentially covered by its functionality inquiry, and applied the subsequently amended provision.

There is an important difference between disregarding a Supreme Court judgment and applying legislation that subsequently changes the statutory basis on which the judgment proceeded.

Whether the retrospective amendment can successfully be challenged is a separate question. The original Safari Retreats judgment, delivered before that amendment, did not decide its constitutional validity. Its existing interpretation cannot simply be treated as permission to ignore the amended text.

14. Conclusion

Safari Retreats was important, but it was not an unrestricted approval of construction ITC. It upheld the blocked-credit provisions, recognised the significance of the original words “plant or machinery”, and required a factual inquiry into the function of the particular building. Its explanation of “on his own account” included both personal use and use as the setting for one’s own business.

Flora Kingdom Farm Resort applied the retrospective amendment and denied credit on the owner-operated resort building. At the same time, it did not erase the distinction between a building and separately eligible purchases.

For taxpayers, the sound approach is to claim credit with classification and evidence—not on the assumption that paying output GST makes every inward tax credit available. For authorities, the corresponding obligation is to examine the actual items and legal grounds, rather than use “construction of resort” as a substitute for analysis.

Publication note: The Supreme Court judgment and the enacted central amendment were checked against official sources. The Bengaluru Tribunal discussion above relies on published reporting and available reproduced extracts; its complete authenticated order should be checked before using paragraph-specific propositions in an appeal or publishing a formal case commentary. No paragraph numbers from that Tribunal order have been invented.