Supreme Court Upholds ITC Eligibility for Real Estate in Safari Retreats Case
The Supreme Court has dismissed the government’s review petition in the Safari Retreats case, affirming that input tax credit (ITC) can be claimed on construction costs for commercial properties used for leasing.
Input Tax CreditGstReal EstateSupreme CourtSafari RetreatsReal EstateMay 22, 2025
In a landmark judgment, the Court upheld that ITC cannot be denied on construction costs if immovable property—like shopping malls—is used for taxable supplies such as leasing. The ruling introduced a functionality test, allowing credit where assets facilitate business operations.
According to tax experts, the Supreme Court’s refusal to entertain the review brings much-needed clarity and relief to the industry, particularly sectors such as real estate, infrastructure, and leasing, where blocked credit provisions have had a far-reaching impact.
Taxpayers must now assert their rightful claims, backed by judicial precedent and a comprehensive reading of the statute,” says Abhishek A Rastogi, Founder, Rastogi Chambers, who had argued on the constitutional validity before the Supreme Court.
However, the government’s attempt to nullify the ruling through a retrospective legislative amendment 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,” says Rajat Mohan, Senior Partner, AMRG & Associates.
It must be noted that the GST Council’s 55th meeting proposed amending Section 17(5)(d) of the CGST Act, replacing “plant or machinery” with “plant and machinery” retrospectively from July 2017. The Centre claims this corrects a “drafting error,” but experts warn it undermines judicial authority.
The Safari Retreats case deals with the eligibility of ITC for immovable property, particularly commercial properties like shopping malls meant for leasing/renting. Section 17(5)(d) of the CGST Act prohibits real estate companies from claiming ITC on the GST paid for goods and services used in constructing properties meant for their own purpose even if the same was rented out.
Frequently Asked Questions
What is the Safari Retreats case about?
The Safari Retreats case deals with the eligibility of input tax credit (ITC) for immovable property, particularly commercial properties like shopping malls meant for leasing/renting. The case challenged the prohibition on claiming ITC on GST paid for goods and services used in constructing properties meant for their own purpose, even if the same was rented out.
What did the Supreme Court rule in the Safari Retreats case?
The Supreme Court ruled that input tax credit (ITC) cannot be denied on construction costs if the immovable property, such as shopping malls, is used for taxable supplies like leasing. The Court introduced a functionality test, allowing credit where assets facilitate business operations.
How does this ruling impact the real estate industry?
The ruling brings much-needed clarity and relief to the real estate industry, particularly sectors such as real estate, infrastructure, and leasing. It allows companies to claim ITC on construction costs for commercial properties used for leasing, reducing their tax burden and improving cash flow.
What is the government's stance on this ruling?
The government has attempted to nullify the ruling through a retrospective legislative amendment, which proposes to amend Section 17(5)(d) of the CGST Act. The Centre claims this corrects a 'drafting error,' but experts warn that it undermines judicial authority and introduces significant uncertainty.
What should businesses do in light of this ruling and the proposed amendment?
Businesses should carefully monitor future legislative developments before relying on this ruling for ITC claims on leased properties. While the judgment offers clarity and relief, the retrospective amendment, if enacted, could dilute its benefit and lead to further litigation.
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