ITC on Immovable Property Allowed Supreme Court Upholds Safari Retreats Ruling
Input Tax Credit (ITC) on immovable property has long been a contentious issue in GST law. With the recent Supreme Court dismissal of the review petition in the Safari Retreats Private Limited vs Chief Commissioner of CGST case, a major clarification has emerged: builders and developers can claim ITC if the immovable property is used for taxable outward supplies like leasing.
This blog unpacks the case, its legal background, and what the verdict means for businesses, especially in real estate and commercial property leasing.
What Was the Safari Retreats Case About?
Safari Retreats Pvt. Ltd., a developer, constructed a shopping mall in Bhubaneswar and intended to lease units to commercial tenants. They paid GST on input goods and services during construction and claimed ITC for the same.
However, the GST department rejected the ITC claim, relying on:
- Section 17(5)(d) of the CGST Act, 2017, which blocks ITC on: “works contract services when supplied for construction of an immovable property (other than plant and machinery)… except where it is an input service for further supply of works contract service.”
The department’s argument:
Leasing is not a “further supply of works contract service,” so ITC is blocked.
Safari Retreats countered this by arguing that:
- The mall was not for self-use, but for business use, generating taxable output through leasing.
- Denying ITC on inputs while collecting GST on rental income results in cascading of taxes, violating the principle of seamless credit under GST.
Orissa High Court’s Verdict (2019): A Landmark
The Orissa High Court ruled in favor of Safari Retreats, stating:
“If the building is constructed for letting out and rent is collected with GST, then denying ITC defeats the purpose of GST and results in double taxation.”
Key Takeaways:
| Aspect | High Court Observation |
|---|---|
| Property usage | Constructed for taxable leasing, not self-use |
| Tax treatment | GST collected on rent, outward taxable supply exists |
| Legal interpretation | Section 17(5)(d) must be read harmoniously with GST law |
| Impact | Denial of ITC leads to cascading effect |
The HC clarified that mere use of the property for leasing doesn’t disqualify it from ITC eligibility — what matters is whether the outward supply is taxable.
Supreme Court Review Dismissed in 2024
The Union government filed a Special Leave Petition (SLP) against this ruling in the Supreme Court. However, in May 2024, the Supreme Court:
- Dismissed the review petition, upholding the High Court judgment.
- Effectively reinforced the position that ITC can be claimed for commercial leasing of immovable property.
No change or reversal in interpretation. The SC’s dismissal gives legal finality to the High Court’s pro-taxpayer stance.
Legal Reference: Section 17(5)(d) CGST Act
Let’s break down what the law says:
Section 17(5)(d) – Notwithstanding anything, input tax credit shall not be available in respect of:
“… goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account… even when used in the course or furtherance of business.”
Interpretation Before Safari Retreats:
- “Own account” meant any business construction, even for rental.
- Result: ITC was routinely denied on all constructions.
Post Safari Retreats:
- “Own account” interpreted more narrowly — if property is for leasing and GST is charged, it is not “own use”.
- ITC should be allowed in such cases.
What It Means for Taxpayers
✅ Who Can Now Claim ITC:
- Builders, mall developers, and real estate players constructing properties to lease commercially
- Businesses leasing out constructed commercial properties with GST on rent
- Entities paying GST on input materials/services during construction
❌ Who Still Cannot Claim ITC:
- Businesses constructing properties for self-use (e.g., company headquarters)
- Properties used for non-GST activities (e.g., residential rental, exempt supplies)
- Construction services not linked to outward taxable supply
Practical Implications
| Area of Impact | What Changes |
|---|---|
| Mall Developers | Can claim ITC on construction input if leasing out |
| Commercial Leasing | Stronger case for ITC claims if charging GST on rent |
| Litigation Exposure | Reduced if structured per Safari Retreats precedent |
| GST Compliance | Proper invoicing and rental agreements critical |
Expert View: How to Safeguard Your ITC Claim
“The key is documentation. If you’re leasing commercial property, ensure rental contracts mention GST, and your books reflect the taxable output supply clearly. Keep all construction-related invoices ready in case of scrutiny.”
— CA Rajesh Menon, Indirect Tax Advisor
Summary
Supreme Court upholds Safari Retreats case, confirming that ITC on immovable property used for commercial leasing is allowed. Businesses collecting GST on rent can now claim ITC on construction inputs, reducing tax burden and avoiding double taxation under Section 17(5)(d) of CGST Act.
Frequently Asked Questions (FAQs)
Q1: Is ITC available on residential property construction for sale?
No. Residential property for sale is covered under blocked credits unless it qualifies under a project where ITC reversal rules apply.
Q2: What if part of the building is self-used and part leased out?
ITC must be apportioned proportionately based on use — only leasing part qualifies for ITC.
Q3: Will this SC dismissal set a nationwide precedent?
While SC dismissal doesn’t create binding law like a full judgment, it does endorse the Orissa HC view and can be relied upon in similar disputes.
Q4: Should GST registration be separate for leasing business?
Not mandatory but advisable for clarity and compliance, especially if the business has mixed supplies.