Supreme Court’s Landmark Judgment in Safari Retreats Case
The Honorable Supreme Court has delivered the much-awaited final judgment in the Safari Retreats case (Safari Retreats Private Limited) on October 3, 2024. In a landmark ruling, the Honorable Supreme Court of India permitted input tax credit (ITC) on construction expenses for buildings meant to be leased/rented.
Background of the Safari Retreats Case
The case deals with the eligibility of ITC for immovable property, particularly commercial properties like shopping malls meant for renting/leasing. The aforementioned ITC was blocked u/s 17(5). A writ petition was filed before the Hon’ble Odisha High Court challenging the constitutional validity of Sections 17(5)(c) and 17(5)(d) of the CGST Act.
High Court Ruling and Subsequent Appeal to the Supreme Court
In 2019, the honorable High Court of Orissa passed a ruling in favor of the assessee, further adding to the judgment that the narrow interpretation of Section 17(5) will compromise the very intention of the GST act, which is to avoid the multi-stage cascading effect of tax. Prompting the revenue authorities to file a petition in the Supreme Court, challenging the decision of the Hon’ble High Court of Orissa.
Supreme Court Decision and Key Observations
The Hon’ble Supreme Court of India on October 3rd, 2024, ruled in favour of the assessee, stating that “If the construction of a building was essential for carrying out the activity of supplying services, such as renting or giving on lease or other transactions in respect of the building or a part thereof, which are covered by clauses (2) and (5) of Schedule II of the CGST (Central Goods and Services Tax) Act, the building could be held to be a plant,” said Justice Abhay S. Oka and Justice Sanjay Karol.
Implications of the Safari Retreats Case
This ruling is expected to ease the financial strain of rent on tenants occupying commercial space. Real estate companies stand to gain because buildings can now be categorized as plant and machinery. Additionally, this advantage is not limited to commercial real estate. Various industries will be able to claim ITC on rentals for commercial properties. The ruling suggests ITC will be available retrospectively.
Industries Impacted by the Ruling
This decision could have ramifications for hotels, infrastructure, and logistics, including warehousing. While the Supreme Court has upheld the constitutional validity of restrictions relating to input tax credit on construction-related procurement, it has been held that whether building constitutes ‘plant or machinery’ needs to be examined on a case-to-case basis.