Relief on GST Input Tax Credit for Real Estate-Linked Services – Supreme Court Upholds Safari Retreats Ruling
In a decisive and taxpayer-friendly move, the Supreme Court of India has dismissed the Revenue’s review petition in the case of Chief Commissioner of Central Goods and Service Tax vs. Safari Retreats (P.) Ltd. – [2025] 174 taxmann.com 894 (SC).
This effectively upholds the earlier ruling that allows Input Tax Credit (ITC) on the construction of immovable property, such as malls, if the property is used to provide taxable services (like renting/leasing space).
Key Highlights:
The Revenue had challenged the grant of ITC on the construction of a mall, citing the restriction under Section 17(5)(d) of the CGST Act.
The Court, however, applied the “functionality test”, a principle that evaluates whether the asset in question is indispensable to the business activity.
It held that if an immovable property is constructed as a functional tool for providing outward taxable supply, such as leasing commercial units, it should qualify for ITC.
The Court reaffirmed that there was no apparent error in its original judgment and hence, the review petition was rightly dismissed.
This decision will have far-reaching implications for developers, infrastructure companies, and commercial real estate entities engaged in providing taxable rental services. It significantly softens the impact of Section 17(5)(d), which is often seen as an anti-business provision when applied rigidly.
The clarity around functional use as a determinant for ITC eligibility marks a progressive step towards aligning GST with business realities. Now, its time to re-evaluate ongoing and past GST assessments involving denial of ITC on capital assets like malls, hotels, or commercial complexes used in taxable supply. Consider filing refund claims or appeals where ITC has been denied based on a narrow reading of Section 17(5)(d). One need to maintain strong documentation and agreements showing the link between the property and the taxable service rendered.
The copy of the Judgment is as under:
