GST: Safari Retreats

Judgment of the Supreme Court in Civil Appeal No.2948 of 2023

Below is a glance at what the Supreme Court has allowed and what remains disallowed with regard to immovable property.

The Supreme Court has observed that clauses (c) and (d) of section 17(5) of the CGST Act are very different.

• Under section 17(5)(c), works contracts received for construction of immovable property, other than "plant and machinery" Section 17(5)(C) as defined in the Explanation are disallowed for input tax credit. In paras 31 and 41 of the judgment the Court confirms and endorses this.

• Under section 17(5)(d), inputs and services received by a taxable person for construction of immovable property are disallowed, but with two exceptions (i) plant (not defined in the Act) OR machinery, and (ii) the construction is not for the person's own use or sale but is for renting, leasing etc.

• The definition of "plant and machinery," does not apply to "plant or machinery". "Plant" can be immovable property in the context of 17(5)(d). What is "plant" for the purposes of section 17(5)(d) is to be determined by a 'functionality test': was the structure specially built for the use to which it is being put in providing taxable service? This is a question of fact, to be determined in each case.

Examples of scenarios for determining input tax.

Credit for construction:

• Pre-fabricated structures

• Build -own-transfer model

• Building a factory for own use

• Data Centers

• Clean rooms