SC judgment nullified; GST Council fixes Safari Retreats 'error' retrospectively

NEW DELHI: The government has ‘nullified’ the Supreme Court order in the Safari Retreats case that allowed commercial real estate companies to claim input tax credit (ITC) on construction costs for their rental buildings. 

The GST Council in its 55th meeting in Jaisalmer has proposed to retrospectively amend the GST law to restrict input tax credit on construction services. The amendment necessarily overturns the judgment of the Supreme Court. 

The Council has recommended amending section 17(5)(d) of CGST Act, 2017, to replace the phrase “plant or machinery” with “plant and machinery”, retrospectively, with effect from 1 July 2017. Speaking with the media after the Council meeting, CBIC chairman said that the expression “plant or machinery” used in the said section of the GST Act was a drafting error, and that the proposed amendment seeks to correct the error.

Safari Retreats case deals with the eligibility of ITC for immovable property, particularly commercial properties like shopping malls meant for leasing/renting. Section 17(5)(d) of the CGST Act prohibits real estate companies from claiming ITC on the GST paid for goods and services used in constructing properties meant for their own purpose even if the same was rented out. 

“The amendment will have a huge impact on the assesses who were benefitted from the said decision,” says Shivam Mehta, Executive Partner, Lakshmikumaran & Sridharan Attorneys. 

“Safari Retreats’ decision was hailed due to the beneficial broader interpretation of plant and machinery by introducing the functionality test. Industry cheer basis the Supreme Court decision in safari retreats is short lived,” says Saloni Roy, Partner, Deloitte India.