Construction Industry Faces Challenges After GST Council Decision to Overturn SC Ruling in Safari Retreats Case
The construction and real estate sectors are navigating uncertainty after the GST Council’s recent decision. The council has retrospectively amended the GST law, restricting Input Tax Credit (ITC) on construction services. This decision nullifies the Supreme Court’s earlier ruling in the Safari Retreats case, which had allowed broader ITC eligibility for real estate developers and infrastructure projects.
Retrospective Amendment to the GST Law
The GST Council’s move directly addresses the Supreme Court’s October ruling. The court applied the “functionality test” to determine ITC eligibility, stating that commercial properties like shopping malls, intended for leasing or renting, could qualify for ITC. This ruling provided potential relief for developers and infrastructure companies.
However, the amendment to Section 17(5)(d) of the CGST Act, 2017, replaces the term “plant or machinery” with “plant and machinery,” effective from July 1, 2017. This change narrows ITC claims for construction services involving immovable properties, including commercial projects.
Impact on Real Estate and Infrastructure Players
Real estate developers, particularly those who previously claimed ITC for properties used for rental or leasing, will feel the impact. Tax experts warn that this decision contradicts the Supreme Court’s broader interpretation of ITC eligibility. Developers who relied on the earlier ruling now face challenges in adjusting to the revised scope.
Challenges to the Retrospective Amendment
Industry stakeholders may resist the amendment, which forces them to reverse ITC claims based on the Safari Retreats judgment. Experts predict potential legal challenges, given that the amendment overturns a Supreme Court ruling.
This development creates uncertainty for the construction industry. Companies may face increased tax liabilities and additional legal battles as they navigate the reversal of claimed ITC. The long-term implications of this decision remain unclear, leaving industry players to assess their next steps.
