Supreme Court Rejects GST Department's Review Petition in Safari Retreats Case
The Supreme Court has dismissed the GST Department's review petition, upholding the right of developers to claim input-tax credit on the construction cost of commercial properties. This decision unlocks an estimated ₹30,000 crore in blocked credit across real-estate, warehousing, and infrastructure sectors.
GstInputtax CreditRealestateSupreme CourtSafari RetreatsReal EstateMay 22, 2025
The bench, headed by Justice Abhay S. Oka and joined by Justice Sanjay Karol, reviewed the petition in chambers on 20 May. In a succinct order released on Wednesday, the judges stated, “We have gone through the review petition and the judgment sought to be reviewed and found no error apparent on the record.” The order concluded with a decisive “Review Petition dismissed.”
This dismissal marks the end of the Finance Ministry’s final judicial recourse against the Court’s 3 October 2024 decision in Chief Commissioner of CGST v. Safari Retreats Pvt Ltd. The 2024 verdict applied a “functionality test,” determining that a shopping mall or any building generating rental GST can qualify as “plant or machinery” under Section 17(5)(d) of the Central GST Act. This ruling has unlocked an estimated ₹30,000 crore in blocked credit across the real-estate, warehousing, and infrastructure sectors.
Even before the review petition was filed, the North Block had begun working on a legislative end-run. Clause 97 of the Finance Bill, 2025 proposes to replace “plant or machinery” with the narrower term “plant and machinery,” retrospectively from 1 July 2017. This change aims to address the wording the Supreme Court found too restrictive.
Safari Retreats Pvt Ltd, an Odisha developer, initially won the case in the Orissa High Court in 2019, arguing that ITC should be allowed when a building is constructed for leasing rather than for the developer’s own use. The Supreme Court’s 2024 ruling affirmed this approach, emphasizing that if a building performs the same function in a service supply chain as a machine does in manufacturing, denying credit would contradict the GST’s anti-cascading design.
With the Supreme Court’s recent order, this reasoning now stands on solid judicial ground. Developers, real-estate investment trusts, and infrastructure funds say the ruling removes a significant financing hurdle and could breathe new life into stalled mall and logistics-park projects.
“Courts do not look kindly on attempts to neutralise decided cases retroactively,” commented a former Additional Solicitor-General, predicting another round of writ petitions. Shares of listed mall operators such as Phoenix Mills and Nexus Select surged 2–3 per cent in late trade after the news of the dismissal. Infrastructure stocks with substantial leasing portfolios also saw gains. Analysts at ICICI Securities noted that the ruling “restores visibility on post-tax returns for income-generating real-estate assets.”
For now, the Supreme Court’s two short sentences have given developers the last word. Whether lawmakers will have the final say remains to be seen.
Frequently Asked Questions
What is the Safari Retreats ruling?
The Safari Retreats ruling, delivered by the Supreme Court on 3 October 2024, allows developers to claim input-tax credit (ITC) on the construction cost of commercial properties that are leased out. This ruling applies the 'functionality test,' which considers a building as 'plant or machinery' if it generates rental GST.
Why did the GST Department file a review petition?
The GST Department filed a review petition to challenge the Safari Retreats ruling, aiming to reverse the decision that allowed developers to claim ITC on the construction cost of commercial properties. They argued that the ruling was incorrect and sought to have it overturned.
What is the impact of the Supreme Court's dismissal of the review petition?
The dismissal of the review petition by the Supreme Court upholds the Safari Retreats ruling, unlocking an estimated ₹30,000 crore in blocked credit across real-estate, warehousing, and infrastructure sectors. This decision removes a significant financing hurdle for developers and could revive stalled projects.
What is the functionality test mentioned in the ruling?
The functionality test is a principle applied by the Supreme Court in the Safari Retreats ruling. It states that if a building performs the same function in a service supply chain as a machine does in manufacturing, it can qualify as 'plant or machinery' for the purposes of claiming input-tax credit (ITC).
What is Clause 97 of the Finance Bill, 2025?
Clause 97 of the Finance Bill, 2025, proposes to replace the term 'plant or machinery' with the narrower term 'plant and machinery,' retrospectively from 1 July 2017. This change aims to address the wording the Supreme Court found too restrictive in the Safari Retreats ruling.
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