Judicial Interpretation of “Plant” in GST and Distinction Between “Plant and Machinery” and “Plant or Machinery”
Introduction
The recent Supreme Court judgment in Chief Commissioner of Central Goods and Service Tax & Ors. v. M/s Safari Retreats Private Ltd. & Ors. (2024) has provided a significant interpretation of the term “Plant” under the Goods and Services Tax (GST) regime. The Court examined the distinction between “Plant and Machinery” and “Plant or Machinery” as used in Section 17(5) of the Central Goods and Services Tax Act, 2017 (CGST Act). This ruling has far-reaching implications for Input Tax Credit (ITC) eligibility for immovable properties used in businesses, such as shopping malls, warehouses, and industrial facilities.
Distinction Between “Plant and Machinery” and “Plant or Machinery”
One of the key issues addressed by the Supreme Court was the deliberate legislative distinction
between “Plant and Machinery” and “Plant or Machinery” in Section 17(5)(d) of the CGST Act:
1. Legislative Intent: The term “Plant and Machinery” is consistently used throughout Chapters V and VI of the CGST Act, while “Plant or Machinery” appears only in Section 17(5)(d). This suggests a broader scope for ITC eligibility under certain conditions.
2. Definition Applicability: The explanation to Section 17 defines “Plant and Machinery” as equipment, apparatus, and machinery affixed to the earth for business purposes, excluding land, buildings, and other civil structures. However, this definition does not apply to “Plant or Machinery” in Section 17(5)(d).
3. ITC Implications: Under Section 17(5)(d), ITC is blocked for goods and services used in the construction of immovable property unless the property qualifies as a “Plant or Machinery.” This distinction allows businesses to claim ITC if they can prove the asset functions as a “Plant.”
Judicial Interpretations of “Plant” in Taxation Laws
The Supreme Court referred to several landmark judgments that have shaped the meaning of
“Plant” under Indian tax laws. A comparative summary of these rulings is presented below:
| Case Name | Court | Key Interpretation of “Plant” |
| CIT, Andhra Pradesh v. Taj Mahal Hotel (1971) | Supreme Court | “Plant” includes buildings and structures essential for business operations. |
| Solid and Correct Engineering Works (2010) | Supreme Court | The functionality test should be applied; an asset is a “Plant” if it is an essential part of the business process. |
| CIT v. Anand Theatres (2000) | Supreme Court | Hotels and cinema theatres do not qualify as “Plant” since they serve as business premises rather than functional business tools. |
| Karnataka Power Corporation v. CIT (2002) | Supreme Court | A power station qualifies as a “Plant” due to its functional role in generating electricity. |
| Victory Aqua Farm Ltd. (2016) | Supreme Court | Prawn farming ponds were classified as “Plant” since they were specially designed for business use. |
| Indcon Structurals (P) Ltd. v. CCE, Chennai (2006) | Supreme Court | The term “Plant” should be interpreted based on trade and commercial usage. |
Key Tests for Determining “Plant” under GST
To establish whether an immovable asset qualifies as a “Plant” under GST, courts have applied
various legal tests:
1. Functionality Test: If an asset is essential to the business operation and not merely a setting in which business is conducted, it qualifies as a “Plant.”
2. Essentiality Test: The asset must be indispensable for business activities, such as a power plant for electricity generation.
3. Movability Test: If an asset is permanently fixed, it generally does not qualify as a “Plant,” but exceptions exist where its fixed nature is integral to its function (e.g., a dry dock). Conclusion and Implications for Businesses
The Supreme Court’s decision provides clarity on ITC eligibility for businesses engaged in constructing immovable properties for commercial use. This ruling particularly benefits sectors such as real estate, manufacturing, hospitality, and warehousing, where the classification of assets as “Plant” can significantly impact tax liabilities.
For businesses, this judgment underscores the importance of proper classification of immovable assets and maintaining documentation to support ITC claims. Tax authorities and businesses must adopt a case-by-case approach, evaluating the functional role of an asset in determining ITC eligibility.
Final Thought
While the judgment clarifies several aspects of ITC under GST, it also leaves room for further litigation, especially concerning the classification of specific assets. Businesses should consider seeking expert tax opinions and conducting internal assessments to align with the latest legal interpretations.
Author Bio
In its Budget document, the finance ministry said that “clause (d) of sub-section (5) of section 17 is being amended to substitute the words ‘plant or machinery’ with words ‘plant and machinery’.”
Thus, dis-allowing GST credit on construction activities for leasing and warehousing businesses based on the functionality test
yes, The Union Budget 2025-26 introduces a significant amendment to Section 17(5)(d) of the CGST Act, replacing the term ‘plant or machinery’ with ‘plant and machinery,’ effective retrospectively from July 1, 2017. This legislative change directly overturns the Hon’ble Supreme Court’s ruling in the landmark Safari Retreats case, where the Court had previously allowed businesses to claim input tax credit (ITC) on properties classified as ‘plant’ under the functionality test.
From the perspective of taxpayers, this amendment carries far-reaching consequences, particularly for industries that structured their ITC claims based on the Safari Retreats ruling or the prevailing interpretation of the existing provisions. With this change, such businesses must now urgently reassess their tax positions. The retrospective nature of the amendment could result in significant financial and compliance burdens, potentially leading to disputes concerning past tax periods.
Furthermore, the Finance Ministry’s review petition in the Safari Retreats case, currently pending before the Supreme Court, adds another layer of complexity to the situation. The Court’s decision regarding this amendment will be crucial in shaping its effect on ongoing and future litigations. As the GST framework continues to evolve, businesses must stay vigilant, proactively reassess their tax strategies, and prepare for potential legal challenges that may arise from this development.