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Chief Commissioner of Central Goods and Service Tax & Ors. vs. M/s Safari Retreats Private Limited & Ors.

Not available · 2024 INSC 756Decided 3 Oct 2024
Not available
Justice Abhay S. Oka · Justice Sanjay Karol

Background

Safari Retreats built a shopping mall and, in doing so, paid GST on large quantities of construction materials and services (cement, steel, lifts, escalators, professional services, etc.), accumulating over Rs 34 crore in input tax credit (ITC). It wanted to use this accumulated credit to offset the GST it had to pay on rent received from tenants after the mall opened. Tax authorities refused, relying on Section 17(5)(d) of the CGST Act, which blocks ITC on goods/services used to construct an "immovable property" for one's own account, with an exception carved out only for "plant or machinery." Safari Retreats challenged the constitutional validity of this provision before the Orissa High Court, which ruled in its favour; the tax department appealed to the Supreme Court.

Decision Breakdown

The Supreme Court upheld the constitutional validity of Section 17(5)(c) and (d) and Section 16(4) of the CGST Act, rejecting the argument that they were arbitrary or discriminatory. However, on interpretation, the Court held that the phrase "plant or machinery" in Section 17(5)(d) is not the same as the narrower defined term "plant and machinery" used elsewhere in the same section, and that whether a building (like a mall) counts as a "plant" is a factual question to be decided using a "functionality test": if the construction of the building was essential to the business of supplying services (such as renting it out), it can be treated as a plant, taking it outside the ITC-blocking exception. Since this is fact-specific, the Court did not decide the outcome for Safari Retreats itself and sent the case back to the Orissa High Court to apply this functionality test to the actual facts.

Lesson Learnt

Whether a business can claim GST input tax credit for constructing a building depends on whether that building functions as a "plant" essential to the business's operations (like a mall built specifically to earn rental income): a case-by-case factual test, not an automatic bar just because the credit relates to constructing "immovable property."

Official source (sci.gov.in)View Judgment (PDF)

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