On October 3, 2024, the Supreme Court issued its ultimate ruling in the matter of Safari Retreats Private Limited. In addition to developers building malls, other industry participants building ports, airports, and other infrastructure corporations eagerly anticipated the Supreme Court's ruling.

Introduction
The issue is whether or not immovable property, especially commercial properties like shopping malls intended for leasing or renting, is eligible for the ITC. Developers were prohibited from claiming an input tax credit (ITC) on GST paid for goods and services used in the construction of immovable property intended for their own use under Section 17(5)(d) of the CGST Act, even if such goods and services were utilized in the course or furtherance of business, adding to the financial burden. The Hon'ble Odisha High Court received a writ petition contesting the constitutionality of CGST Act Sections 17(5)(c) and 17(5)(d).

In the 2019 case of Safari Retreats Private Limited vs. Chief Commissioner of CGST, the Orissa High Court ruled in favor of the petitioner, holding that Section 17(5)(d) of the CGST Act could not deny the input tax credit for the goods and services used to build the mall because the petitioner was using them to build a building that would generate rental income, a new source of GST revenue, rather than being used for his own use. Furthermore, the High Court ruled that a restrictive construction of CGST Act Section 17(5)(d) would defeat the goal of the Goods and Services Tax Act, which is to prevent the cascading effect of multi-stage taxes.

The judgement of the Odisha High Court was challenged by the Revenue Authorities before the Supreme Court. The Supreme Court pronounced its verdict on October 3, 2024.

Supreme Court's Ruling
The challenge to the constitutional validity of clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act is not established as the said provisions involved an intelligible classification with a rational nexus to the legislative objective, and there was no discrimination in the treatment of ITC claims related to immovable property.

The expression "plant or machinery" used in Section 17(5)(d) cannot be given the same meaning as the expression "plant and machinery" defined by the explanation to Section 17. The Court observed that the word 'plant' used in a bracketed portion of Section 17(5)(d) cannot be given the restricted meaning provided in the definition of "plant and machinery", which excludes land, buildings or any other civil structures.

Therefore, in a given case, a building can also be treated as a plant, which is excluded from the purview of the exception carved out by Section 17(5)(d) as it will be covered by the expression "plant or machinery". It was held that to give a plain interpretation to clause (d) of Section 17(5), the word "plant" will have to be interpreted by taking recourse to the functionality test.

The question whether a mall, warehouse or any building other than a hotel or a cinema theatre can be classified as a plant within the meaning of the expression "plant or machinery" used in Section 17(5)(d) needs factual analysis on a case to case basis considering the business of the registered person and the role that building plays in the said business. It was held that functionality test will have to be applied to decide whether a building is a plant for the purpose of Section 17(5)(d).

Author's Views:
The much-anticipated judgment from the Hon'ble Supreme Court has brought relief not only to real estate developers but also to other industry players involved in constructing ports, jetties, warehouses, and other infrastructure projects. Though the Hon'ble Supreme Court has rejected the challenge to the constitutional validity of Section 17(5)(c) and 17(5)(d) of the CGST Act, the acceptance of the submissions of the petitioners qua the meaning of the expression "plant or machinery" stipulated in Section 17(5)(d) of the CGST Act is a positive outcome and indicates a more adaptable interpretation of law.

References:

• https://www.jurishour.in/plant-and-machinery-sc-in-safari-retreats/
• https://www.jurishour.in/breaking-safari-retreats-case-supreme-court/