Summary: The Supreme Court of India recently addressed input tax credit (ITC) eligibility under the GST regime in the case of Chief Commissioner of CGST & Ors. v. Safari Retreats Pvt. Ltd. & Ors. The dispute arose over ITC claims by Safari Retreats for constructing a shopping mall intended for leasing, which resulted in ITC accumulation exceeding ₹34 crores. The Orissa High Court had ruled in favor of Safari Retreats, reasoning that denying ITC in such cases causes double taxation, contravening GST’s anti-cascading intent and constitutional principles under Articles 14 and 19(1)(g). The Revenue authorities appealed to the Supreme Court.Key issues included whether the definition of “plant and machinery” in Section 17(5) applies to immovable property, the scope of the term “plant,” and the constitutionality of clauses (c) and (d) of Section 17(5). The Supreme Court clarified that the definition of “plant and machinery” in the explanation to Section 17 does not directly apply to “plant or machinery” under clause (d). A building can qualify as a “plant” if constructed for specific technical requirements, as determined by a functionality test. The Court upheld the constitutionality of clauses (c) and (d), noting that ITC availability is contingent on statutory provisions. It held that immovable properties like malls used for leasing could qualify for ITC if categorized as “plant” but emphasized that ITC is not a guaranteed right and depends on statutory allowances. This ruling refines the interpretation of GST provisions and highlights the principle of reasonable classification under Article 14.
Facts :
M/s Safari Retreats Private Ltd. & Ors. is engaged in the construction of a shopping mall for the purpose of letting out premises in the malls to different tenants. In the construction of malls, they have used multiple taxable goods and services of which they have availed ITC which has led to accumulation of input credit of GST amounting to more than Rs. 34 crores. However, as per Section 17(5)(d) of the CGST Act, 2017, ITC is not allowed on construction of an immovable property (other than plant or machinery) even if used in the course or furtherance of business.
The issue raised before Odissa HC that whether the ITC was available to assessee on inputs which are consumed in the construction of immovable property. The HC held in favour of M/s Safari Retreats Private Limited that ITC for businesses constructing properties intended for leasing/renting should be allowed. The court emphasized that denying ITC in such scenarios would lead to double taxation, as GST is levied both on the construction inputs and the rental income, which contradicts the GST framework’s objective of preventing tax cascading. Further, the HC held that a narrow interpretation would frustrate the very objective of GST and violate the constitutional principles of equality (Article 14) and the right to carry on business (Article19(1)(g)).
The Revenue authorities challenged the HC’s ruling, leading to appeal in SC. After the submissions of the parties the following issues raised for consideration.
Issues:
1. Whether the definition of “plant and machinery” in the explanation appended to Section 17 of the CGST Act applies to the expression “plant or machinery” used in clause (d) of sub-section (5) of Section 17?
2. If it is held that the explanation does not apply to “plant or machinery”, what is the meaning of the word “plant”?
3. Whether clauses (c) and (d) of Section 17(5) of the CGST Act are unconstitutional?
Judgement:
1. The definition of “plant and machinery” in the explanation appended to Section 17 of the CGST Act does not apply to the expression “plant or machinery” used in clause (d) of sub-section (5) of Section 17.
Clause (C) of Section 17(5) uses the expression “plant and machinery”, which is specifically defined in the explanation whereas expression of “plant or machinery” is not specifically defined. It is pertinent to note that clauses (c) and (d) do not altogether exclude every class of immovable property from the applicability of ITC.
The very fact that the expression “immovable property other than “plants or machinery” is used shows that there could be a plant that is an immovable property. As the word ‘plant’ has not been defined under the CGST Act or the rules framed thereunder, its ordinary meaning in commercial terms will have to be attached to it.
2. Whether any building is a “Plant” is a question of fact which can be answered by Functionality test – SC judgement states that “if it is found on facts that a building has been so planned and constructed as to serve an assessee’s special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance”.
Functionality test says that if any building has been constructed to fulfil any technical requirement it may be Plant as in Clause (d) of Section 17(5) Plant does not exclude civil structures. In present case if the building has been constructed for services such as renting or leasing which are covered by clauses (2) and (5) of Schedule II of the CGST Act, the building can be categorized as “Plant”.
3. Clauses (c) and (d) of Section 17(5) is not unconstitutional and does not violate principle of Reasonable Classification under Article 14. Reasonable Classification allows for grouping individuals or entities based on clear, reasonable distinctions; here the group is of immovable property. ITC will not be available if there is construction of an immovable property (other than plant and machinery). However, construction cannot said to be on a taxable person’s own account” if it is intended to be sold or given on lease or license. No one can claim ITC as a matter of right unless it is expressly provided in the statute.
Author Bio
Sir,
These facts are very well known. In fact section 17(5)(d) has been amended by Finance Act 2025 by replacing the word Plant or machinery by Plant and machinery thus nullifying the judgment of Safari Retreats by Hon. Supreme Court of india. Kindly post further developments in this regard with reference to any further appeals by aggrieved parties or what could be the impact for persons who have availed ITC on materials used in the construction of commercial buildings which are inturn rented out ,GST collected on such rental receipts and paid to the government so that the tax chain is not broken