On October 3, 2024, the Supreme Court ruled that buildings essential for supplying services such as renting may qualify for the "plant" exception under Section 17(5)(d) of the Central Goods and Services Tax (CGST) Act. This provision typically prohibits claiming Input Tax Credit (ITC) for construction materials used for immovable property. However, the Court held that the "functionality test" must be applied to assess whether the building serves as a "plant" for supplying services.
The bench, comprising Justice Abhay Oka and Justice Sanjay Karol, rejected a challenge to Section 17(5)(d) and emphasized that each case's facts should determine whether the building qualifies for ITC under the plant exception. The Court remitted the case to the High Court to determine the facts and applicability.
This decision has significant implications for property developers and service providers. If a building is constructed specifically to facilitate the supply of services, such as renting, it may qualify as a "plant," allowing the developer to claim ITC on construction materials. This ruling also clarifies that Section 17(5)(d) does not need to be read down for properties constructed for rental purposes.
The case stemmed from a 2019 Orissa High Court ruling, where M/s. Safari Retreats Pvt. Ltd. sought ITC on Rs. 34.4 crore of GST paid for constructing a shopping mall that was to be rented out. The Orissa HC had previously ruled that denying ITC for such construction leads to double taxation and contradicts the purpose of the GST regime.
This Supreme Court judgment marks a pivotal moment for businesses and property developers seeking clarity on ITC eligibility for construction used in the service sector. The detailed judgment is awaited for further insights.
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