ITC on Construction for Leasing: High Court allows ITC incase property used not for "Own Account"

Overview

The Madras High Court’s ruling in ESNP Property Builder and Developers Pvt. Ltd. vs State Tax Officer provides important guidance on claiming GST Input Tax Credit (ITC) for construction of immovable property intended for leasing. Relying on the Supreme Court’s Safari Retreats judgment, the Court emphasized that such construction may not fall within the "on own account" restriction under Section 17(5)(d) of the CGST Act. The case highlights the need for tax authorities to properly consider binding judicial precedents while deciding ITC disputes.

The eligibility of Input Tax Credit (ITC) on construction of immovable property intended for leasing has long been a contentious issue under GST. The recent case of ESNP Property Builder and Developers Private Limited vs State Tax Officer (ST), Group V [2026 VIL 1001 MAD] provides important judicial guidance, particularly in light of the Supreme Court’s earlier ruling in Safari Retreats.

Background of the Dispute

The petitioner had claimed ITC on supplies received for construction undertaken with the intention of leasing out the completed properties. The Assessing Authority rejected the claim, invoking Section 17(5)(d) of the CGST Act, which blocks credit on construction of immovable property “on own account.” According to the authority, construction for ownership, control, and capitalization fell within this exclusion, regardless of subsequent commercial usage.

Core Issue

The central question was whether construction of immovable property intended for leasing constitutes construction "on own account." If treated as such, ITC would be blocked; if not, ITC would be available, recognizing leasing as a taxable supply.

Judicial Reasoning

The Supreme Court in Safari Retreats had clarified that construction cannot be said to be on a taxable person’s own account if the property is intended to be sold, leased, or licensed. Construction is considered “on own account” only when it is for personal use or for premises from which the business is directly carried out.

Applying this principle, the Madras High Court observed that the proper officer should have dealt with the Safari Retreats judgment before rejecting ITC. The matter was remanded for reconsideration, directing application of the correct legal principles.

Implications

This case reinforces that ITC on construction for leasing is available, as such activity is not “on own account” but rather part of taxable commercial operations. The ruling strengthens the position of real estate developers and property builders who construct with the intent to lease, ensuring that GST does not become a cost component but remains creditable.

Strategic Takeaway

For practitioners, this judgment highlights the importance of citing authoritative precedents like Safari Retreats when contesting ITC disputes. It also signals that officers must carefully apply judicial principles rather than mechanically invoking statutory exclusions.

By clarifying the scope of Section 17(5)(d), the judiciary has provided greater certainty to businesses engaged in leasing, aligning GST treatment with the broader objective of neutrality in taxation.