SC ruling overturned; GST Council corrects Safari Retreats’ “error” retroactively

The Supreme Court’s ruling in the Safari Retreats case, which permitted commercial real estate firms to claim input tax credits (ITC) on the construction expenses of their rental properties, has been “nullified” by the government.

At its 55th meeting in Jaisalmer, the GST Council suggested retroactively amending the GST law to limit the input tax credit for construction services. The Supreme Court’s ruling is unavoidably overturned by the amendment.

With effect from July 1, 2017, the Council has suggested retroactively amending section 17(5)(d) of the CGST Act, 2017 to include the phrase “plant and machinery” in place of “plant or machinery.” The CBIC chairman told the reporters following the Council meeting that the phrase “plant or machinery” in the relevant section of the GST Act was a drafting error and that the proposed revision aims to fix it.

The Safari Retreats case addresses whether immovable property, especially commercial properties like shopping malls intended for leasing or renting, is eligible for the ITC. Real estate firms are not allowed to claim the Input Tax Credit (ITC) on the GST paid for goods and services used in constructing properties for their own use, even if those properties were rented out, according to Section 17(5)(d) of the CGST Act.

The amendment will have a significant impact on those who benefited from the said ruling.

Safari Retreats’ judgement was praised for its advantageous broader interpretation of plant and machinery by adopting the functionality test. The industry’s gratitude of the Supreme Court’s decision on safari retreats is short-lived.