Supreme Court Ruling in Safari Retreats What It Means for GST Input Credit on Lease Construction
The Supreme Court has dismissed the government’s review petition in the landmark Safari Retreats Private Limited vs Chief Commissioner of CGST case. This effectively upholds the decision that GST input tax credit (ITC) cannot be claimed on construction expenses incurred for properties intended to be leased, not sold.
This judgment is a game-changer for real estate developers, mall owners, and commercial property investors across India.
Background of the Safari Retreats Case
- Case: Safari Retreats Pvt. Ltd. vs Chief Commissioner, CGST
- Issue: Can input tax credit be claimed on GST paid for construction of immovable property if it is leased out (not sold)?
- Petitioner’s View: The lease generates taxable output (i.e., rental income), so ITC on input construction services should be allowed.
- Government’s View: Section 17(5)(d) of the CGST Act prohibits ITC if the constructed property is not sold but used for renting.
What the Supreme Court Said
- The Supreme Court dismissed the government’s review petition, which challenged an earlier High Court decision.
- This means Section 17(5)(d) stays valid — input tax credit on construction expenses is not available if the property is used for leasing.
- The lease model does not qualify as “further supply” of the constructed property.
Key Takeaways for Taxpayers
| Area Affected | Impact |
|---|---|
| Real Estate Developers | No ITC on commercial buildings built for leasing |
| Shopping Mall Owners | GST on construction costs becomes non-creditable |
| Investors/REITs | Leasing strategies may become costlier |
| Input Services Providers | Construction + architecture may see reduced demand |
Legal Reference: Section 17(5)(d), CGST Act
“Input tax credit shall not be available in respect of goods or services received for construction of an immovable property on his own account, even when used in the course or furtherance of business.”
Interpretation: The term “on his own account” includes leasing, which does not amount to a supply of constructed property, thereby blocking ITC.
Expert View: Caution for Commercial Leasing Strategy
“Developers must re-evaluate project ROI if long-term leasing is the goal. GST outflows become a sunk cost without ITC benefits,” says CA Anil Mehta, Indirect Tax Advisor.
GST Leasing vs Selling – Quick Comparison
| Aspect | Selling Property | Leasing Property |
|---|---|---|
| GST Applicable | Yes (on sale, if booked pre-OC) | Yes (18% GST on commercial rent) |
| ITC on Construction | Allowed (if sold pre-completion) | Not Allowed |
| Revenue Model | One-time | Recurring |
| Section 17(5)(d) Impact | May not apply | Applies |
How This Affects You
- Planning to build and lease commercial space? Budget for non-creditable GST on construction.
- Already claimed ITC for leased properties? May face departmental audits or reversals.
- Consider business restructuring (e.g. separate leasing entities) with tax advisory support.
FAQ: Safari Retreats GST Ruling
Q1. Can I claim ITC if I sell commercial units post-construction?
Yes, if sold before obtaining completion certificate (OC).
Q2. Does this affect residential properties?
No, residential leasing has different GST rules (mostly exempt).
Q3. What if I sub-lease a commercial property?
Sub-leasing is taxable but still doesn’t allow ITC on original construction.
Final Word
The Supreme Court’s final dismissal of the review petition in Safari Retreats puts a clear stamp on Section 17(5)(d) of the CGST Act: GST ITC is blocked on lease-model constructions. Taxpayers and developers must plan proactively, revisit their financial models, and stay compliant.
👉 Need expert help? Talk to our GST advisory team at Efiletax
Summary
Supreme Court dismisses govt’s review in Safari Retreats case, reaffirming no GST input credit on construction of leased properties. Section 17(5)(d) of CGST Act applies, impacting real estate and commercial leasing strategies. Developers must reassess project ROI due to blocked ITC on construction inputs used for leasing.