GST Council May Reverse Supreme Court Verdict in Safari Retreats Case
Date: December 19, 2024
Category: GST Case Update
Read Time: 4 Minutes
The GST Council plans to discuss a proposal to retrospectively amend the Central Goods and Services Tax (CGST) Act during its Saturday meeting. If approved, this amendment could overturn the Supreme Court’s landmark judgment in the Safari Retreats case, which allowed input tax credit (ITC) claims on construction expenses for rental properties.
The Supreme Court’s Verdict in Safari Retreats Case
Background
Safari Retreats constructs shopping malls and rents them out. The company claimed ITC for goods and services used in mall construction. However, tax authorities denied this claim, citing restrictions under Section 17(5)(d) of the CGST Act, 2017.
Supreme Court’s Ruling
The Supreme Court ruled that ITC eligibility should depend on the functionality and business use of the property. It emphasized that the terms “plant and machinery” and “plant or machinery” must be interpreted differently under the CGST Act.
Impact of the Ruling
The verdict allowed ITC for commercial properties meant for renting or leasing. Consequently, the government faced a retrospective liability exceeding ₹10,000 crore for claims dating back to July 1, 2017.
Proposal to Reverse the Judgment
The GST Council’s Law Committee has recommended amending Section 17(5)(d) of the CGST Act to clarify restrictions on ITC for construction expenses.
Key Reasons Behind the Proposal
- Legislative Intent
The SC’s interpretation of “plant or machinery” contradicts the original legislative intent. - Litigation Risks
Allowing ITC based on case-specific tests could increase confusion and disputes. - Revenue Concerns
Implementing the SC judgment retroactively may cause significant revenue losses. - Ease of Doing Business
Simplified ITC provisions would streamline tax administration and reduce disputes.
Expert Opinions
Support for ITC Liberalization
Tax experts argue that ITC should apply to construction expenses when the resulting assets are used for GST-taxable activities like leasing or renting. They believe clearer ITC rules will reduce disputes and benefit businesses.
Binding Nature of SC Verdict
Experts highlight that Article 141 of the Constitution makes Supreme Court rulings binding. Until the CGST Act is amended, the SC judgment remains enforceable, potentially complicating tax compliance.
Potential Implications
For Businesses
If passed, the amendment could disqualify ITC claims for construction expenses, impacting cash flow and profitability.
For GST Administration
The amendment may prevent future disputes but could face challenges from businesses affected by the SC judgment.
Policy Outlook
Experts suggest revisiting the broader ITC framework to enhance clarity, fairness, and compliance.
The GST Council’s decision on Saturday will reveal whether the Safari Retreats ruling shapes future GST policy or is overturned by legislative amendments. Businesses and stakeholders are closely watching these developments.
