ITC Benefit Allowed on Commercial Property Construction

The Hon’ble Supreme Court in the case of Chief Commissioner of Central Goods and Services & Ors. v. M/s. Safari Retreats Private Limited & Ors. [Civil Appeal No. 2948 of 2023 dated October 03, 2024] upheld the constitutional validity of Section 17(5)(c) and 17(5)(d) of the Central Goods and Services Tax Act, 2017 (CGST Act). The Court rejected challenges against the provisions and provided clarity on the interpretation of the term “plant or machinery” under Section 17(5)(d).

The key takeaway from the judgment is that the construction of properties like malls, warehouses, or commercial buildings may be eligible for Input Tax Credit (ITC) if these structures are used for renting or leasing purposes, subject to a functionality test. The Court emphasized that determining whether a building qualifies as a “plant” should be based on the business of the registered person and the building’s role in that business.

Key Highlights:

Constitutional Validity: The Court upheld Sections 17(5)(c) and 17(5)(d) of the CGST Act.

“Plant or Machinery” Interpretation: The term must be contextually interpreted based on the registered person’s business.

ITC Eligibility: Buildings used for leasing or renting may qualify as plants, subject to their functionality in the business.

Remand for Factual Analysis: The Court remanded cases where High Courts had read down the provisions, calling for a factual analysis in similar cases.

This ruling provides clarity on the availability of ITC for businesses involved in the construction of commercial properties used for services like leasing or renting.

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