[Opinion] Supreme Court Judgment on Safari Retreats – An Analysis

CS Abhishek Goyal – [2024] 167 taxmann.com 374 (Article)

Introduction

The honorable Supreme Court (SC) has delivered much awaited and most sought after judgment in revenue’s appeal against Orissa High Court (HC) decision in Safari Retreats on 3.10.2024.

At the core of the issue before the honorable SC was the interpretation of Section 17(5)(d) of the CGST Act, which restricts the availability of the Input Tax Credit (ITC) on goods or services utilized in construction of an immovable property. It specifies that unless immovable property is planned for sale and the sale is completed with the payment of GST, ITC cannot be used for the building of such property.

Let us now discuss and ponder upon the key considerations and highlights of this judgment.

Background

Safari Retreats Pvt. Ltd., a real estate developer involved in the development of malls and commercial complexes, claimed ITC on inputs and input services used to construct buildings that were subsequently rented. They maintained that they should be able to claim ITC under Section 16 of the Central Goods and Services Tax (CGST) Act, 2017, which enables ITC on inputs used in the course or furtherance of business.

However, the department disallowed the ITC, citing Section 17(5) (d) of the CGST Act, which prohibits ITC on goods or services utilized in the building of immovable property.

The High Court’s Decision

The matter was first heard by the Orissa High Court, which was ruled in favor of Safari Retreats. The court held that the restrictionimposed by Section 17(5)(d) should not apply in circumstances where the property is utilized for rental services, because renting is a genuine commercial operation that requires an ongoing supply of services. The court concluded that rejecting ITC in such situations would result in a cascading impact of taxes, which is opposed to the entire concept of GST.

The High Court permitted ITC on construction expenditures for shopping mall, finding that leasing also involves “furtherance of business,” as defined in Section 16 of the CGST Act.

Aggrieved by the said decision, the revenue filed an appeal before the honorable Supreme Court.

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