Supreme Court Confirms GST Credit Can Be Claimed on Leased Property in Safari Retreats Case

The Supreme Court on Tuesday said no to the Finance Ministry’s request to change its important decision in the Safari Retreats case. This case had allowed companies that build commercial properties to get tax benefits (called input tax credit or ITC) on construction costs when they plan to rent out these properties.

Two judges, Justice Abhay S. Oka and Justice Sanjay Karol, made this decision on May 20. They said there was “no clear mistake” in their earlier judgment from October 3, 2024. The court stated, “In the interest of justice, we ignore the small problems pointed out by the Registry. We forgive the delay. The review petition is rejected.”

In the Union Budget 2025, presented on February 1, the Finance Ministry tried to change the tax law going back to 2017. They wanted to change the words “plant or machinery” to “plant and machinery” in the GST Act. This change was meant to stop companies from claiming tax benefits on construction costs for rental properties, basically trying to cancel out what the Supreme Court had decided.

A well-experienced lawyer who represented many taxpayers in the Supreme Court said this decision strongly supports taxpayer rights. “The court’s rejection of the government’s review petition in the Safari Retreats case clearly confirms that input tax credit cannot be denied just because it’s used for building property, especially when that building is meant for business use like renting out,” he said.

“The original decision of the Supreme Court correctly focused on whether the construction was functional and essential for business under GST rules. Now that the review has been completely rejected, this strongly favors the taxpayers.” he added that strict interpretations of GST credit rules go against the basic principle of smooth tax credit flow under GST.

The case started with Safari Retreats Private Limited, a company that builds and rents out shopping malls. The company had claimed tax benefits on goods and services used to build these commercial properties. Tax officials denied this claim but noted that there was a section of the GST Act that curtailed tax advantages in connection with building constructions. The Supreme Court’s October 2024 ruling in Safari Retreats drew a fine line between using property “for yourself” versus business, like renting, which allowed tax credit in business dealings.