Supreme Court Dismisses Government’s Review Petition in Safari Retreats Case: A Landmark Judgment on GST Input Tax Credit (ITC) Eligibility for Commercial Real Estate
By Aaerm Law Associates | May 22, 2025
🏛️ Background of the Case
In a significant development for the Indian real estate and infrastructure sectors, the Supreme Court of India has upheld its earlier judgment in the Safari Retreats case, dismissing the government’s review petition. This decision reaffirms the eligibility of Input Tax Credit (ITC) on construction costs for commercial properties intended for leasing or renting under the Goods and Services Tax (GST) regime.
The case revolves around Safari Retreats Private Limited, which sought to claim ITC on the GST paid for goods and services used in constructing a shopping mall intended for rental purposes. The central issue was whether such construction costs qualify for ITC under Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 (CGST Act), which restricts ITC claims on construction of immovable property for personal use.
⚖️ Supreme Court’s Ruling
In October 2024, the Supreme Court ruled in favor of Safari Retreats, allowing the company to claim ITC on the construction costs of its rental property. The Court introduced a pivotal “functionality test,” determining that immovable property, like a shopping mall, could qualify as “plant” under GST if it is constructed to serve the taxpayer’s special technical requirements for business operations. This interpretation expanded the scope of ITC eligibility beyond the conventional understanding of “plant and machinery.”
The Court emphasized that the purpose of GST is to avoid the cascading effect of taxes, and denying ITC on construction costs for properties used in taxable activities like leasing would contradict this objective.
🚫 Government’s Review Petition and Its Dismissal
Following the Supreme Court’s judgment, the Finance Ministry filed a review petition, challenging the decision. The government argued that the Court’s interpretation of “plant or machinery” was inconsistent with the legislative intent and could lead to significant revenue losses. The petition sought to overturn the ruling and restrict ITC claims on construction costs for commercial properties.
However, on May 21, 2025, the Supreme Court dismissed the government’s review petition, stating that the earlier judgment was well-reasoned and did not warrant reconsideration. This dismissal solidifies the legal standing of the original ruling and provides clarity to businesses in the real estate and infrastructure sectors regarding their ITC entitlements.
🏗️ Implications for the Real Estate and Infrastructure Sectors
The Supreme Court’s decision has far-reaching implications for the real estate and infrastructure sectors:
- Enhanced ITC Claims: Developers and builders can now claim ITC on GST paid for construction materials and services used in building commercial properties intended for leasing or renting. This reduces the overall tax burden and enhances cash flow for such projects.
- Encouragement of Investment: The clarity provided by the ruling is expected to encourage investment in commercial real estate projects, as developers have greater certainty regarding tax benefits.
- Legal Precedent: The introduction of the functionality test sets a legal precedent, allowing businesses to argue for ITC claims on other immovable properties that serve specific business needs.
⚠️ Retrospective Amendment by GST Council
In response to the Supreme Court’s judgment, the GST Council proposed a retrospective amendment to Section 17(5)(d) of the CGST Act. The amendment seeks to replace the phrase “plant or machinery” with “plant and machinery,” effective from July 1, 2017. The government contends that this change corrects a drafting error and aligns the language with the intended legislative framework.
However, this retrospective amendment has raised concerns among tax experts and industry stakeholders. Critics argue that such a move undermines the judicial authority of the Supreme Court and could lead to legal challenges. The retrospective nature of the amendment may also create uncertainty for businesses that have relied on the Court’s ruling to claim ITC.
📌 Conclusion
The Supreme Court’s dismissal of the government’s review petition in the Safari Retreats case marks a pivotal moment in the interpretation of GST laws concerning ITC eligibility for commercial real estate. While the ruling provides much-needed clarity and relief to the industry, the proposed retrospective amendment by the GST Council introduces new complexities that businesses must navigate carefully.
As the legal landscape continues to evolve, stakeholders in the real estate and infrastructure sectors should stay informed and consult with tax professionals to ensure compliance and optimize their tax positions.
