The GST council proposed to nullify landmark rulling in case of Safari Retreats:
The GST Council in 55th meeting has proposed a significant amendment to the Central Goods and Services Tax (CGST) Act that nullifies a landmark Supreme Court ruling in favour of Safari Retreats to restrict input tax credit on construction services. This ruling had allowed businesses to claim input tax credits (ITC) on construction costs for rental properties, which the Council now seeks to reverse with a retrospective amendment effective from July 1, 2017. The proposed change has raised concerns across the construction and leasing industries and has sparked debates about its legal and economic implications.
The Retrospective Amendment: Key Details
The amendment seeks to replace the phrase “plant or machinery” with “plant and machinery” throughout the CGST Act. The government has characterized this move as a correction of a “drafting error” to align with the language used elsewhere in the tax code. However, this change effectively nullifies the Supreme Court’s interpretation in the Safari Retreats case, which had expanded the definition of “plant or machinery” to include buildings constructed for specific business needs, provided they met a functionality test.
The Supreme Court’s Landmark Ruling (chief commissioner of central goods and service tax & Ors. Versus M/s. Safari Retreats Private Ltd. & Ors.)
In October, the Supreme Court’s judgment in favour of Safari Retreats had been hailed as a game-changer for the commercial real estate and leasing sectors. By allowing ITC claims on buildings that met the functionality test, the court’s decision significantly reduced costs for businesses investing in construction for leasing purposes. The ruling was celebrated for fostering investment like shopping malls and aligning with the GST’s fundamental objective of minimizing the cascading effect of taxation.
https://api.sci.gov.in/supremecourt/2019/37367/37367_2019_6_1501_56233_Judgement_03-Oct-2024.pdf