NEW DELHI: In a landmark ruling, the Supreme Court on Thursday provided major relief to property owners by affirming that input tax credit (ITC) on construction costs for rental buildings can be claimed, likening such properties to “plants” in a factory that generate economic output.
This decision not only clarifies the interpretation of the goods and services tax (GST) Act but also promises to benefit thousands of taxpayers nationwide who have faced litigation from GST departments, ensuring that those who invest in rental properties can reclaim ITC on related expenses without restriction.
Safari Retreats, engaged in constructing shopping malls for leasing purposes, initiated a writ petition in the Odisha High Court, seeking eligibility for ITC on goods and services utilised in construction of immovable property, excluding plant and machinery.
The HC interpreted Section 17(5)(d) to allow for the availability of ITC. In response, the central revenue department filed a special leave petition (SLP), arguing that GST rules don’t permit claiming ITC on immovable property.
Subsequently, several petitioners approached the apex court to contest the constitutional validity of these provisions, as the HC had not addressed this issue. In 2023, the apex court concluded the matter but reserved its orders, with Justice Abhay S Oka and Justice Sanjay Karol delivering the decision on Thursday.
As per experts, further clarification is needed whether similar relief measures can be extended to additional sectors, such as ports, airports and data centres. As per Abhishek A Rastogi, founder of Rastogi Chambers and representative for several petitioners in the apex court case, the ruling will determine ITC eligibility via essentiality and functionality tests, ensuring credits are denied only when inputs aren’t vital for business operations. This decision will clarify ITC claims, especially in construction, and serve as guidance for future cases and interpretations of the law.
“ITC on goods or services used for repairs, construction, works contract, etc to such buildings, which have not been capitalised in the books, is as it is available and not blocked under Section 17(5) of The CGST Act 2017. This judgement is going to benefit thousands of taxpayers whose cases have been litigated by the GST Departments across the country,” said Vivek Jalan - Partner Tax Connect Advisory Services LLP.
Decision to benefit thousands of taxpayers
This decision not only clarifies interpretation of the GST Act but also promises to benefit thousands of taxpayers nationwide who have faced litigation from GST departments, ensuring that those who invest in rental properties can reclaim ITC on related expenses without restriction