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SC rejects review plea in Safari Retreats case, upholds ITC for leasing

The Supreme Court on Tuesday dismissed the Finance Ministry's review petition seeking to overturn its landmark ruling in the Safari Retreats case, which had allowed commercial real estate firms to claim input tax credit (ITC) on construction costs for properties meant to be rented out. A two-judge bench comprising Justices Abhay S Oka and Sanjay Karol passed the order on May 20, noting that there was 'no error apparent on the record' in its earlier judgment delivered on October 3, 2024. 'In the interest of justice, the defects raised by the Registry are waived. Delay condoned,' the court stated. 'Review Petition is dismissed.' In the Union Budget 2025, presented on February 1, the Finance Ministry had introduced a retrospective amendment to the Central Goods and Services Tax (CGST) Act through the Finance Bill. The amendment replaced the phrase 'plant or machinery' with 'plant and machinery' under Section 17(5)(d), effective from July 1, 2017. This legislative change sought to restrict ITC claims on construction costs for leased properties, thereby nullifying the effect of the Safari Retreats ruling through statutory amendment. Abhishek A Rastogi, founder of Rastogi Chambers, who represented multiple taxpayers before the Supreme Court in similar matters, called the court's decision a strong endorsement of taxpayer rights. 'The dismissal of the review petition filed by the revenue in the Safari Retreats case is a significant affirmation of the legal position that input tax credit cannot be denied merely on the ground of its use in the construction of immovable property, particularly when such construction is intended for further business use such as leasing,' he said. 'The Supreme Court's original decision had rightly emphasised the functionality and essentiality tests to determine credit eligibility under the GST regime. With the review now conclusively dismissed, the matter tilts strongly in favour of the taxpayers.' Rastogi added that restrictive interpretations of GST credit provisions undermine the core principle of seamless ITC under the GST framework. Rajat Mohan, senior partner at AMRG & Associates, welcomed the judgment but raised concerns about the legislative path taken by the government. '…The government's attempt to nullify the ruling through a retrospective legislative amendment—changing 'plant or machinery' to 'plant and machinery'—undermines judicial finality and introduces significant uncertainty. It may open the floodgates for litigation and erode taxpayer confidence. The industry now stands at a crossroads: while the judgment offers clarity and relief, the retrospective amendment, if enacted, could dilute its benefit. Businesses must carefully monitor future legislative developments before relying on this ruling for ITC claims on leased properties,' said Mohan. He warned that the retrospective amendment risks undoing the legal clarity established by the court. The case originated with Safari Retreats Private Limited, a company engaged in constructing and leasing shopping malls. The firm had claimed ITC on goods and services used in the construction of these commercial properties. Tax authorities denied the claim, citing Section 17(5)(d) of the CGST Act, which restricts ITC on immovable property construction. The Supreme Court's October 2024 ruling in favour of Safari Retreats distinguished between the use of property 'on own account' and for business purposes such as leasing—allowing credit in the latter scenario.