Supreme Court Landmark Ruling on Safari Retreats Case – Our Preliminary Analysis

The eagerly anticipated judgment in the Safari Retreats Private Limited case case has finally been handed down by the Supreme Court of India. This landmark ruling has significant implications for the real estate sector and the GST framework.

Background:

The Revenue Department filed a Special Leave Petition (SLP) challenging the Orissa High Court’s judgment. The High Court had read down Section 17(5)(d) of the Central Goods and Services Tax Act (CGST Act) and allowed input tax credit on materials and services used for constructing shopping malls intended for commercial leasing.

Key Highlights from the SC Ruling on GST ITC for Construction of Immovable Property:

• Constitutional Validity Upheld: The Court has upheld the constitutional validity of clauses (c) and (d) of Section 17(5) of the Central Goods and Services Tax Act, 2017, rejecting the challenges posed against them.
• Clarification on Plant and Machinery: The Court has clarified that the term “plant or machinery” used in Section 17(5)(d) cannot be interpreted identically to the definition provided in the explanation to the same section.
• Buildings as Plants: The Court has ruled that whether a mall, warehouse, or building (excluding hotels and cinema theatres) qualifies as a plant for GST input tax credit purposes depends on the specific business of the registered person and the building’s role in that business.
• Leasing and Renting: If a building is constructed for services such as renting or leasing (as per Schedule II of the CGST Act), it could potentially be treated as a plant for GST ITC purposes.
• Functionality Test: The Court has emphasized the need to apply a functionality test in each case to determine whether a building qualifies as a plant.

Next Steps:

• Remand for Reconsideration: Cases where High Courts had read down provisions related to GST ITC for construction will be remanded for reconsideration in light of the Supreme Court’s new interpretation.
• Case-by-Case Assessment: Other cases will be decided based on their specific factual matrices, considering the guidelines laid down by the Court.

Far-Reaching Implications:

This decision is expected to have a profound impact on the real estate industry and the GST landscape. It provides much-needed clarity on the eligibility of input tax credits for construction activities and will likely influence future tax planning and compliance efforts.

*The complete judgment copy is awaited.