NEW DELHI: The government is considering filing a review petition against the Supreme Court’s verdict with regard to Safari Retreats that allows commercial real estate companies to claim input tax credit (ITC) on construction costs for their rental buildings. Sources familiar with the matter indicate this ruling could impact government revenue, resulting in a shortfall of nearly Rs 5,000 crore.
In the wake of the apex court’s decision, companies across sectors have begun approaching adjudicating authorities to ascertain their eligibility for ITC. “The law committee has been tasked with evaluating whether the government should pursue a review of the Supreme Court’s order,” a top government official revealed.
Even petitioners may opt for review of certain aspects of the judgement. “There are a few aspects which are under consideration and we may file review petition for reconsideration for limited aspect,” said Abhishek A Rastogi, founder of Rastogi Chambers, who represented several petitioners.
“There are situations where the companies had availed credit but have not utilised such credits in light of the pending dispute. The adjudicating authorities will have to finalise the approach based on the principles framed by the court”, added Rastogi.
As per Sudipta Bhattacharjee, Partner, Khaitan & Co, this decision lays down important legal principles vis-a-vis interpretation of input GST credit restrictions under section 17(5)(d).
While these legal principles have been articulated in the context of a commercial real estate business (since that was the lead matter before SC), they can be applied in a wider sphere too - for example, by concessionaires operating port, airport or similar projects under a PPP model or LNG regasification terminals or by manufacturing entities who have incurred/plan to incur major input side capital expenditure (and GST).
Sources say companies seeking clarification include those currently engaged in disputes with tax department over denied credits, as well as who have claimed ITC but have not yet utilised it. Should the government decide against filing a review, adjudicating authorities will assess these companies’ eligibility for ITC on construction costs based on essentiality and functionality tests.
“...The ruling challenges existing GST restrictions, potentially leading to a surge in ITC claims that were previously blocked. This move could significantly reduce the government’s tax collection and may force a rethink on GST policies to safeguard revenue interests,” said Rajat Mohan, Executive Director, MOORE Singhi.