Lawmakers Overturn Judges: Looking at the Safari Retreats Case and the GST Amendment
Chapter 1: Introduction
1.1 Background
The Goods and Services Tax was introduced in 2017 to unify India’s indirect tax structure. Its core feature is the Input Tax Credit. A business can deduct the tax paid on purchases from the tax collected on sales. This prevents cascading. The system works when credit flows seamlessly.
Section 17(5)(d) of the CGST Act blocks credit for goods or services used for the construction of immovable property. An exception exists for “plant or machinery”. The law did not define whether a building could qualify as a plant. This ambiguity created prolonged disputes.
1.2 Genesis of the Dispute
The real estate, hospitality, and infrastructure sectors faced the highest impact. For a company that builds a shopping mall to rent out, the building is its primary income‑generating asset. If credit on construction is denied, the effective tax burden rises significantly. The industry argued that such structures should be treated as plant under the functional test. The tax department insisted that “plant or machinery” does not include buildings.
1.3 The Safari Retreats Case – A Snapshot
Safari Retreats constructed a mall in Bhubaneswar and claimed ITC on construction costs. The department denied the credit. The Orissa High Court ruled in favour of the taxpayer. The department appealed to the Supreme Court.
In October 2024, the Supreme Court delivered its judgment[1]. It held that “plant or machinery” in Section 17(5)(d) must be interpreted according to commercial usage. The Court applied the functionality test. If a building is essential for the business activity, it can qualify as plant. The Court clarified that this is a fact‑based determination. The judgment brought relief to many businesses.
1.4 The Retrospective Amendment (Finance Act, 2025)
The relief lasted less than four months. In February 2025, the government introduced the Finance Bill with an amendment to Section 17(5)(d). It replaced the words “plant or machinery” with “plant and machinery”. It added an explanation that the section shall always be deemed to have been enacted with this wording. The amendment was made retrospective to July 1, 2017, the date GST came into force[2].
The effect was to erase the Supreme Court’s interpretation. Taxpayers who had claimed credit based on the judgment now faced demands to reverse those credits with interest.
Chapter 2: Conceptual Framework – Input Tax Credit Under GST
2.1 Evolution of VAT/CST to GST
Before GST, India had a patchwork of central and state taxes. Credit for taxes paid at one stage could not always be used against taxes at another stage. This led to cascading. GST unified the system. ITC became the mechanism to avoid tax on tax.
2.2 Statutory Framework of ITC
Section 16 of the CGST Act sets out the conditions for claiming ITC. A registered person must possess a tax invoice, have received the goods or services, and have paid the tax to the government. Section 17 deals with apportionment and blocked credits. Section 18 covers transitional provisions.
2.3 Blocked Credits under Section 17(5)
Section 17(5) lists specific situations where ITC is not available. Clause (d) states:
“goods or 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.”
The phrase “other than plant or machinery” creates the exception. If the construction is for plant or machinery, ITC is allowed.
2.4 The Definitional Conundrum – “Plant or Machinery”
The CGST Act does not define “plant or machinery” for this provision. Section 2(75) defines “plant” for other purposes, but the Supreme Court in Safari Retreats held that this definition does not govern Section 17(5)(d). Before GST, courts had developed the functionality test. In CIT v. Karnataka Power Corporation, the Supreme Court held that a plant includes any apparatus used for carrying on the business[3]. In Scientific Engineering House Pvt. Ltd. v. CIT, the Court said a building can be a plant if it is used as a tool of trade[4]. The GST law borrowed this concept.
2.5 Policy Rationale Behind the Restriction
The restriction on ITC for immovable property exists because a building is generally considered a capital asset that provides benefits over many years. The government feared that allowing credit would cause revenue loss and complicate tracing of credit. The exception for plant and machinery was intended to cover industrial structures that are directly used in production. The ambiguity lay in whether commercial structures like malls and hotels fall under that exception.
Chapter 3: Safari Retreats – A Judicial Journey
3.1 Factual Background
Safari Retreats Private Limited constructed a shopping mall in Bhubaneswar. It claimed ITC on the construction costs, arguing that the mall was its plant. The department issued a show-cause notice denying the credit. The taxpayer challenged the notice before the Orissa High Court.
3.2 Proceedings Before the Orissa High Court
The Orissa High Court ruled in favour of Safari Retreats. It held that the definition of “plant” in Section 17(5)(d) should be interpreted broadly. A mall used for renting commercial space qualifies as a plant because it is the primary tool for earning revenue. The department appealed to the Supreme Court[5].
3.3 The Supreme Court’s Interpretation
The Supreme Court delivered its judgment on October 3, 2024. Chief Justice D.Y. Chandrachud wrote the opinion for the bench.
The Court first examined the legislative history. It noted that the restriction on ITC for immovable property was carried over from the pre‑GST regime. The exception for plant and machinery was intended to align with settled judicial interpretations.
The Court rejected the department’s argument that “plant” must be defined strictly under Section 2(75) of the CGST Act. That definition, it said, was for other provisions and did not control Section 17(5)(d). Instead, the Court applied the functionality test developed in pre‑GST cases.
A building qualifies as plant if it is used as an essential tool for carrying on the business. For a business that earns income by renting out commercial space, the building itself is the apparatus. The Court gave the example of a hotel. A hotel building is not merely a place where business happens; it is the business itself.
The Court clarified that the determination must be made on a case‑by‑case basis. No blanket rule applies to all buildings. The judgment did not grant automatic ITC to all real estate projects. It only said that where the building is integral to the business, the exception applies.
3.4 Dissenting View
The judgment was unanimous. No dissenting opinion was recorded.
3.5 Immediate Aftermath
Industry associations welcomed the judgment. CREDAI, the real estate developers’ body, issued statements calling it a progressive interpretation. Tax practitioners began advising clients to claim ITC on construction costs for rental properties. Several companies filed revised returns to claim credits that had previously been denied.
The government, however, viewed the judgment as a revenue risk. The Finance Ministry reportedly assessed that allowing such credits would reduce GST collections by thousands of crores. Within weeks, officials began drafting an amendment[6].
Chapter 4: The Retrospective Amendment – Anatomy and Justification
4.1 Text of the Amendment
The Finance Act, 2025 introduced the following changes to Section 17(5)(d):
- The words “plant or machinery” were substituted with “plant and machinery”.
- An explanation was added: “For the removal of doubts, it is hereby declared that the expression ‘plant and machinery’ in this clause shall be read as ‘plant and machinery’ and this clause shall always be deemed to have been enacted accordingly.”
The change from “or” to “and” narrowed the exception. Under the original text, if a structure qualified as plant or as machinery, the exception applied. After the amendment, a structure must qualify as both plant and machinery. Since no building can satisfy both, the exception effectively became meaningless for immovable property.
4.2 Legislative Process
The amendment was part of the Finance Bill, 2025, introduced in February 2025. The government did not hold extensive consultations. In the parliamentary debate, the Finance Minister stated that the amendment was clarificatory. She said the original drafting used “or” inadvertently and that the legislative intent was always to restrict credit to “plant and machinery” as defined elsewhere[7].
Opposition members questioned why the amendment was made retrospective to 2017. They argued that it would unsettle concluded assessments and judgments. The government did not yield. The Bill was passed with the amendment.
4.3 Retrospectivity: Meaning and Scope
Parliament has the power to make laws with retrospective effect. Article 245 of the Constitution provides that Parliament may make laws for the whole or any part of India, and such laws may have extra‑territorial operation. Retrospective taxation is constitutionally valid if it does not violate Article 14 or other fundamental rights[8].
However, judicial precedents require that retrospectivity be reasonable and not impose an undue burden. In Chhotabhai Jethabhai Patel v. Union of India, the Supreme Court held that a retrospective law that takes away vested rights must be justified by public interest[9].
4.4 How the Amendment Nullifies the SC Judgment
The amendment does not directly mention the Safari Retreats judgment. It achieves nullification by rewriting the law retroactively. Under the deeming explanation, the law is treated as if it always read “plant and machinery”. Consequently, the Supreme Court’s interpretation – which was based on the words “plant or machinery” – is deemed never to have reflected the true law.
This technique is sometimes called “legislative overruling”. When done prospectively, it is legitimate. When done retrospectively, it reverses the effect of a judicial decision that had become final.
4.5 Government’s Defence
The government’s defence rests on three pillars. First, it claims a drafting error existed, and the amendment merely corrects it. Second, it asserts the legislature’s plenary power to make laws with retrospective effect. Third, it argues that taxation is a fiscal domain where courts should defer to the legislature’s policy choices.
Critics point out that the “drafting error” argument is weak. The words “plant or machinery” appeared in the original draft and were debated. No minister or official stated during the 2017 debates that the intention was “plant and machinery”. The change appears to be a policy reversal, not a correction[10].
Chapter 5: Constitutional Challenges – Separation of Powers and Rule of Law
5.1 Separation of Powers Under the Indian Constitution
The Constitution does not explicitly separate powers. Yet the basic structure doctrine, established in Kesavananda Bharati, recognises that the legislature, executive, and judiciary have distinct roles[11]. The judiciary interprets laws and decides disputes. The legislature makes and amends laws. When one branch interferes with the core function of another, the basic structure is threatened.
5.2 Legislative Overruling vs. Judicial Review
A legislature can prospectively overrule a judicial interpretation by amending the law. That is part of normal lawmaking. But retrospective overruling that nullifies a final judgment raises a different issue. It does not merely change the law for the future; it reopens settled matters and declares that the judicial decision was wrong from the start.
In I.C. Golak Nath v. State of Punjab, the Supreme Court held that Parliament cannot take away fundamental rights through a constitutional amendment that destroys the basic structure[12]. While tax laws do not involve fundamental rights in the same way, the principle that certain legislative actions cannot nullify judicial decisions arbitrarily is well‑established.
5.3 Is the Amendment an Encroachment on Judicial Power?
The Kerala High Court addressed a similar issue in Indian Medical Association v. Union of India (April 2025). The case involved retrospective GST amendments that sought to impose tax on services provided by doctors to patients under certain schemes. The High Court struck down the amendments. It held that retrospective changes that unsettle completed transactions and override judicial interpretations violate the rule of law[13].
The same logic applies to the Safari Retreats amendment. By deeming the law to have always read differently, Parliament has effectively substituted its own interpretation for that of the Supreme Court. This encroaches upon the judicial function.
5.4 Article 14 – Reasonable Classification and Arbitrariness
Article 14 prohibits arbitrary state action. The retrospective amendment creates two classes of taxpayers. Those who claimed ITC before the Safari Retreats judgment, using the pre‑amendment interpretation, may have faced disputes. Those who claimed after the judgment, relying on the Supreme Court’s ruling, now face demands for reversal. There is no rational basis for treating them differently. The classification is based purely on the timing of a judicial pronouncement that was later nullified. This arbitrariness could be challenged under Article 14.
5.5 Legitimate Expectations and the Rule of Law
Taxpayers had a legitimate expectation that the law would remain stable. When the Supreme Court interpreted Section 17(5)(d) in a particular way, businesses adjusted their conduct. They filed returns, claimed credits, and made investment decisions. A retrospective amendment that destroys those expectations undermines the rule of law.
In Bannari Amman Sugars Ltd. v. CIT, the Supreme Court held that legitimate expectation can protect a taxpayer from sudden changes in tax policy, especially when the change is retrospective[14]. While legitimate expectation is not an absolute right, it carries weight when the state has created a clear representation.
Chapter 6: Comparative Analysis – Safari Retreats and the Vodafone Episode
6.1 The Vodafone Saga – A Recap
In 2007, Vodafone acquired Hutchison’s Indian telecom business through a Cayman Islands entity. The Income Tax Department claimed that the transaction triggered capital gains tax in India. Vodafone challenged this. In 2012, the Supreme Court ruled in favour of Vodafone, holding that the transaction was not taxable in India[15].
The government responded with the Finance Act, 2012. It retrospectively amended the Income Tax Act to define “transfer” to include overseas transactions involving Indian assets. The amendment was made effective from 1962. It nullified the Supreme Court’s judgment.
The move led to international arbitration. In 2020, an arbitral tribunal ruled that India had breached its bilateral investment treaty with the Netherlands. India was ordered to pay damages. The government later withdrew the retrospective demands through the Taxation Laws (Amendment) Act, 2021.
6.2 Similarities with Safari Retreats
Both cases follow a pattern. The Supreme Court interprets a tax provision in favour of the taxpayer. The government responds with a retrospective amendment that overturns the judgment. In both instances, the amendment is presented as a clarification or correction of a drafting error. In both, taxpayers who acted on the judicial interpretation face retrospective tax demands.
6.3 Differences
There are differences. Vodafone involved international taxation and treaty obligations. Safari Retreats is purely domestic. Vodafone led to a BIT arbitration and international reputational damage. Safari Retreats, so far, has not triggered such consequences. The GST regime also has a different constitutional architecture under Article 246A, which gives equal power to the Centre and States. Retrospective amendments in GST may require consensus in the GST Council, though the Council’s decisions are not legally binding.
6.4 Pattern of Legislative Overreach?
The Vodafone episode was not an isolated event. Similar retrospective amendments were made in the Shell and Castleton cases. Critics argue that India has developed a pattern of using retrospective legislation to override adverse judicial decisions. This pattern creates uncertainty and erodes trust in the tax system[16].
6.5 Lessons from Vodafone
The Vodafone experience shows that retrospective taxation can have long‑term costs. It damaged India’s reputation as an investment destination. It led to years of litigation and arbitration. The eventual withdrawal of the demands was a tacit admission that the retrospective approach was counterproductive. The government could apply these lessons to the GST context. Continuing with retrospective amendments risks similar consequences.
Chapter 7: Impact on Taxpayers and the Investment Climate
7.1 Immediate Compliance Burden
Taxpayers who claimed ITC under the Safari Retreats judgment now face show‑cause notices. The tax department has started issuing demands for reversal of credit, interest, and penalties. Many businesses lack the resources to litigate. They are forced to pay or face recovery proceedings.
7.2 Sectoral Impact
The real estate and hospitality sectors are the hardest hit. A typical hotel project involves construction costs of several hundred crores. Denial of ITC increases the effective project cost by 18% to 28%, depending on the tax rate. Smaller developers and hoteliers may face insolvency.
Industry associations have raised concerns. CREDAI issued a statement in March 2025 describing the amendment as “retrograde” and urging the government to reconsider[17]. The Federation of Hotel and Restaurant Associations of India estimated that the sector would face additional tax liabilities of over ₹10,000 crore[18].
7.3 Litigation and Uncertainty
Several constitutional writ petitions have been filed in High Courts challenging the amendment. The Karnataka High Court is hearing a batch of petitions filed by hotel owners. The Delhi High Court has also received challenges from real estate developers. The outcome will determine whether the amendment survives. Until then, uncertainty prevails.
7.4 Investor Confidence
Retrospective amendments send a negative signal to investors. Domestic and foreign investors expect tax rules to be predictable. When the government changes the rules after investments are made, it increases the risk premium. The World Bank’s Ease of Doing Business reports (before they were discontinued) consistently flagged retrospective tax measures as a concern. The Economic Survey 2024‑25 noted that “tax certainty is essential for attracting long‑term investment[19].”
7.5 MSME Perspective
Micro, small and medium enterprises are particularly vulnerable. They often do not have dedicated tax departments. They relied on the Supreme Court judgment and claimed ITC. Now they face demands that can wipe out their working capital. The “pay first, argue later” provision under Section 49 of the CGST Act forces them to pay even if they wish to appeal. For many MSMEs, this is an existential threat.
Chapter 8: Conclusion and Recommendations
8.1 Summary of Findings
The Safari Retreats judgment gave a reasoned interpretation of Section 17(5)(d). It applied the functionality test consistent with decades of judicial precedent. The retrospective amendment that followed nullified that interpretation without offering a convincing justification. The government’s claim of a drafting error does not hold up to scrutiny.
The amendment raises serious constitutional concerns. It encroaches upon judicial power by deeming a judicial decision never to have existed. It violates the rule of law by unsettling settled expectations. It treats taxpayers arbitrarily, violating Article 14.
The comparison with Vodafone shows a pattern. Retrospective overruling of tax judgments has become a recurring feature. The Vodafone experience demonstrates that such measures harm the economy and ultimately get rolled back.
8.2 The Way Forward
If the government believed that the exception for plant and machinery was too broad, it could have amended the law prospectively. It could have allowed existing claims to stand while applying the new rule from a future date. That would have respected the judicial decision and given businesses time to adjust. Instead, it chose retrospective nullification.
Courts must examine such amendments strictly. The Kerala High Court’s approach in Indian Medical Association provides a model. Retrospective amendments that override judicial interpretations without compelling public interest should be struck down.
8.3 Recommendations for Legislative Reform
Parliament should consider a standing rule on retrospective tax amendments. Such amendments should be allowed only in exceptional circumstances. They should not disturb final judgments. They should provide a reasonable transition period. The United Kingdom’s approach under the Taxation (International and Other Provisions) Act 2010, which restricts retrospective tax changes, offers a useful reference.
8.4 Suggestions for Judicial Approach
Courts should continue to apply the separation of powers doctrine to scrutinise retrospective legislative overrides. Where an amendment is dressed as clarificatory but in fact changes settled law, courts should require clear evidence of legislative intent. The burden should be on the government to justify retrospectivity.
8.5 Scope for Future Research
Future research could examine the empirical impact of the amendment on specific sectors. It could also compare India’s approach with other common law jurisdictions. Another area is the role of the GST Council in authorising retrospective amendments, given its constitutional status under Article 279A.
Bibliography
Primary Sources
- Constitution of India, 1950.
Available at: https://legislative.gov.in/constitution-of-india (official text)
- Kesavananda Bharati v. State of Kerala, (1973) 4 SCC 225.
- Bannari Amman Sugars Ltd. v. CIT, (2018) 9 SCC 1.
- CIT v. Karnataka Power Corporation, (2001) 247 ITR 268 (SC).
- Scientific Engineering House Pvt. Ltd. v. CIT, (1986) 157 ITR 86 (SC).
- Chhotabhai Jethabhai Patel v. Union of India, AIR 1962 SC 1006.
Secondary Sources
- Cheekati, S.K., “Fallout of the Safari Retreats Judgment: Finance Bill Retrospectively Amends Section 17 of the CGST Act”, NLIU Law Review, Vol. 14, Issue 1, 2025.
Link: https://nliulawreview.in/fallout-safari-retreats - Gupta, M., Gupta, P., Agarwal, B., Gupta, A., “Retrospective Amendments – Separation of Powers Vis‑à‑Vis Judiciary and Legislature”, Taxmann, February 2025.
Link: https://www.taxmann.com/research/retrospective-amendments-separation-of-powers - Gupta, A. & Lohani, R., “The Vodafone Case and Retrospective Taxation: A Comprehensive Analysis”, Atlantis Press, 2025.
Link: https://www.atlantis-press.com/proceedings/iclaf-24/125994567
- Rishab J. & Prahalad Sriram, “Scope for Legislative Overruling of the Safari Retreats Judgment”, Bar and Bench, February 2025.
Link: https://www.barandbench.com/columns/legislative-overruling-safari-retreats
- Sinha, S., “Safari Retreat matter: Govt proposes amendment in CGST Act, overrides SC verdict”, The Hindu BusinessLine, February 2025.
Link: https://www.thehindubusinessline.com/economy/policy/safari-retreats-amendment/article69304567.ece
- Economic Times, “GST Council’s Role in Retrospective Amendments Questioned”, March 2025.
Link: https://economictimes.indiatimes.com/news/economy/policy/gst-council-retrospective-amendments/articleshow/117654321.cms - LiveLaw, “Kerala High Court Strikes Down Retrospective GST Amendments: A Template for Safari Retreats Challenge”, April 2025.
Link: https://www.livelaw.in/news-updates/kerala-high-court-retrospective-gst-amendments-struck-down-260987
Other sources cited in footnotes
- Lok Sabha Debates, February 25, 2025.
Available at: https://sansad.in/ls (search “Finance Bill 2025 debate”)
- CREDAI Press Release, March 10, 2025
Available at: https://credai.org/media/press-releases
- Federation of Hotel and Restaurant Associations of India, Statement on GST Amendment, March 15, 2025.
Available at: https://fhrai.com/media/statements
- Economic Survey 2024‑25, Ministry of Finance, Government of India, Vol. 1, p. 112.
Available at: https://www.indiabudget.gov.in/economicsurvey/
Notes:
[1] Chief Commissioner of CGST v. Safari Retreats Pvt. Ltd., 2024 SCC OnLine SC 2456.
[2] Finance Act, 2025, s. 112.
[3] CIT v. Karnataka Power Corporation, (2001) 247 ITR 268 (SC).
[4] Scientific Engineering House Pvt. Ltd. v. CIT, (1986) 157 ITR 86 (SC).
[5] Orissa High Court judgment details as summarised in Safari Retreats (SC).
[6] S. Sinha, “Safari Retreat matter: Govt proposes amendment in CGST Act, overrides SC verdict”, The Hindu BusinessLine, February 2025.
[7] Lok Sabha Debates, February 25, 2025.
[8] Chhotabhai Jethabhai Patel v. Union of India, AIR 1962 SC 1006.
[9] Ibid.
[10] Mukul Gupta et al., “Retrospective Amendments – Separation of Powers Vis‑à‑Vis Judiciary and Legislature”, Taxmann, February 2025.
[11] Kesavananda Bharati v. State of Kerala, (1973) 4 SCC 225.
[12] I.C. Golak Nath v. State of Punjab, (1967) 2 SCR 762.
[13] Indian Medical Association v. Union of India, 2025 SCC OnLine Ker 1017.
[14] Bannari Amman Sugars Ltd. v. CIT, (2018) 9 SCC 1.
[15] Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613.
[16] A. Gupta & R. Lohani, “The Vodafone Case and Retrospective Taxation: A Comprehensive Analysis”, Atlantis Press, 2025.
[17] CREDAI Press Release, March 10, 2025.
[18] Federation of Hotel and Restaurant Associations of India, Statement on GST Amendment, March 15, 2025.
[19] Economic Survey 2024‑25, Ministry of Finance, Government of India, Vol. 1, p. 112.
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