The Supreme Court of India recently dismissed a review petition in the Safari Retreats case on May 21, 2025. This decision upheld its earlier ruling from October 3, 2024, which stated that buildings constructed for services like renting or leasing could be considered a “plant,” making them eligible for Input Tax Credit (ITC) under GST. This was a win for taxpayers, as it meant they could claim ITC on construction costs that were previously blocked.
The Heart of the Matter: “Plant or Machinery”
The core of the dispute revolved around Section 17(5) of the CGST Act, which generally restricts ITC on works contract services for immovable property. However, it provides an exclusion for “plant and machinery.” The High Court, affirmed by the Supreme Court, applied a “functionality test” to determine if a building qualified as a plant. They concluded that if a shopping mall’s construction was essential for providing services like renting, it could indeed be considered a “plant.”
Government’s Stance and Retrospective Amendment
Despite the Supreme Court’s clear ruling, the government has asserted that a recent amendment to the CGST Act through the Finance Act 2025 will stand. This amendment retrospectively substituted “plant or machinery” with “plant and machinery” in Section 17(5)(d), effective from July 1, 2017. A senior government official clarified that “the legislative amendment stands irrespective of the decision of the Court in the Review Petition.”
What This Means for Taxpayers
This creates a complex situation for taxpayers. While the Safari Retreats judgment was favorable, the government’s retrospective amendment aims to negate its implications. Many taxpayers had already claimed ITC based on the earlier rulings. Now, with the government’s insistence on the retrospective amendment, these taxpayers might have to repay the claimed ITC along with interest. This difference in interpretation between the judiciary and the executive is highly likely to lead to further litigation.
Do you have any questions about how this might affect your specific tax situation?