CONSTITUTIONAL CHALLENGE TO DENIAL OF INPUT TAX CREDIT FOR CONSTRUCTION OF IMMOVABLE PROPERTIES

by Nancy Sharma | Oct 12, 2024

ASPECTS	DETAILS
Case Title	Chief Commissioner of Central Goods and Service Tax & Ors. vs. M/s Safari Retreats Private Ltd. & Ors.
Introduction	This case describes the challenge to the constitutional validity of Section 17(5) of the Central Goods and Services Tax Act, 2017. The core issue is the denial of Input Tax Credit (ITC) for constructing immovable property intended for renting or leasing.
Factual Background	M/s Safari Retreats Private Ltd. constructed shopping malls to lease premises to various tenants. The company sought to claim ITC on goods and services used for construction, which was denied by the authorities citing Section 17(5)(d) of the CGST Act. The High Court ruled in favor of Safari Retreats.
Legal Issues	Whether the denial of ITC under Section 17(5)(d) is constitutionally valid. Whether Section 17(5)(d) should be read down to allow ITC for immovable property used for commercial purposes.
Applicable Law	Central Goods and Services Tax (CGST) Act, 2017 – Section 17(5)(d) concerning the denial of ITC for immovable properties.
Analysis	The High Court ruled that denying ITC for the construction of immovable property used for leasing goes against the objective of the GST regime, which is to eliminate the cascading effect of taxes. It reasoned that ITC should be available when the property is used for taxable services.
Conclusion	The High Court read down Section 17(5)(d) of the CGST Act, allowing ITC on the construction of the mall, as rent from such immovable property attracts GST, and denying ITC would frustrate the GST framework.
Current Scenario	The Supreme Court of India is adjudicating the appeals filed by the tax authorities challenging the High Court’s ruling.

CASE SUMMARY – In this case, M/s Safari Retreats Pvt. Ltd. has sought Input Tax Credit (ITC) on goods and services used for the construction of a shopping mall intended for leasing. Authorities denied the ITC based on Section 17(5)(d) of the CGST Act, which blocks ITC on immovable property. Safari Retreats argued that the mall was used for taxable services, and denying ITC would defeat the purpose of the GST law, which aims to prevent the cascading effect of taxes. The Orissa High Court ruled in favor of Safari Retreats, but the Supreme Court is currently hearing the appeals by the tax authorities.

“The denial of Input Tax Credit on immovable property intended for leasing contradicts the fundamental principle of GST law, which aims to eliminate the cascading effect of taxation.”- Supreme Court of India

SOURCE – SUPREME COURT OF INDIA

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Written By Nancy Sharma

I am Nancy Mahavir Sharma, a passionate legal writer and , a judicial service aspirant who is interested in legal researching and writing. I have completed Latin Legum Magister degree. I have been writing from past few years and I am excited to share my legal thoughts and opinions here. I believe that everyone has the potential to make a difference.