Facts of The case

Safari Retreats ‘The petitioners’ were mainly carrying on business activity of constructing shopping malls for the purpose of letting out of the same to numerous tenants and lessees. In the instant case, the petitioner had purchased various goods and services for carrying out construction of one such shopping mall.

The activity of letting out the units of the shopping mall attracted GST on the amount of rent received by the petitioner because the activity of letting out the Units in the said Mall amounted to supply of service under the Act.

The petitioner having accumulated input Credit of GST in respect of purchases of inputs in the form of goods and services was desirous of availing of the credit of input tax charged on such purchase, the petitioner has approached the revenue authorities to seek guidance. However, the petitioner was advised to deposit the GST collected without taking input credit in view of restrictions placed as per section 17(5)(d).


Section 17(5)(d) of the CGST Act, imposes restriction on availing input tax credit in respect of the goods and 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.

It was contended by the petitioner that, the sale of immovable property post issuance of completion certificate does not attract any levy of GST. Consequently, in such a situation, there is a break in the tax chain and, therefore, there is full justification for denial of input tax credit. However the position is totally different where the immovable property is constructed for the purpose of letting out. On the let out property supply chain does not break as rental income is subject to levy of GST.

Judgement by the High Court

The very purpose of the Act is to make the uniform provision for levy collection of tax, intra-State supply of goods and services both central and State and to prevent multi-taxation.

In the instant case, the petitioner is retaining the property and is not using for his own purpose but he is letting out the property on which he is covered under the GST, but still he has to pay huge amount of GST, to which he is not liable.

In that view of the matter, the provision of section 17(5)(d) is to be read down and the narrow restriction as imposed, reading of the provision by the Department, is not required to be accepted, the very purpose of the credit is to give benefit to the assessee.

 If the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, it is required to have tax credit paid on input goods and services.

Our Comment

It is a landmark judgement of High Court for ITC of construction. GST was implemented to remove the cascading effect but by virtue of this provision it was creating the biggest cascading effect. In this judgement The High Court pronounced the ruling as per the logical interpretation of law rather than literal interpretation.

Latest Update on 13.05.2020- Department have filed SLP against the said Order of Orissa High Court before the Apex Court.

Source-  Safari Retreats Private Limited Vs Chief Commissioner of Central Goods & Service tax (Orissa High Court); W.P. (C) No. 20463 of 2018; 17/04/2019

Author Bio

Qualification: CA in Job / Business
Company: I.P Pasricha & Co.
Location: New Delhi, New Delhi, IN
Member Since: 10 May 2020 | Total Posts: 3
Chartered Accountant, 3 years experience in taxation View Full Profile

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  1. KN.MUTHIAH says:

    I request the author to give his opinion on he following:-
    If I take ITC on inputs for construction of my commercial building given for rent to others and if the Supreme Court decision is against the decision of Orissa High Court, then what will happen. Will I have to pay penalty, interest and so on for having taken wrong credit of ITC.


    For Your information Department have filed SLP against the said Order of Orissa High Court before the Apex Court.

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