Chief Commissioner of Central Goods and Service Tax and Others v. Safari Retreats Private Ltd. and Others
"The restrictions on input tax credit in Section 17(5)(c) and (d) and Section 16(4) of the CGST Act are valid, but 'plant or machinery' in Section 17(5)(d) is not governed by the definition of 'plant and machinery', so a building may qualify as a plant, and escape the bar, if it passes the functionality test on the facts."
Issues Before the Court
- (i)
Whether clauses (c) and (d) of Section 17(5) and Section 16(4) of the Central Goods and Services Tax Act, 2017, which restrict input tax credit, are constitutionally valid?
- (ii)
Whether 'plant or machinery' in Section 17(5)(d) has the same meaning as 'plant and machinery' defined in the Explanation to Section 17, and whether a building such as a shopping mall built for letting out can be a 'plant'?
Law & Rules Applicable
- (i)
Central Goods and Services Tax Act, 2017, Section 16 (eligibility and conditions for input tax credit, including the time limit in Section 16(4)) and Section 17(5)(c) and (d) (no credit for works contract services, or goods or services, used for construction of immovable property on one's own account, other than 'plant and machinery' or 'plant or machinery' respectively), with the Explanation to Section 17 defining 'plant and machinery'.
- (ii)
Constitution of India, Article 14.
Application to Facts & Circumstances
The respondent built a shopping mall to let out units and claimed input tax credit of about ₹34 crores on goods and services used in its construction, to set off against the GST payable on the rents. The department denied the credit under Section 17(5)(d). The Orissa High Court read down the provision and allowed the credit, and the Revenue appealed.
Writing for the Court, Oka J. upheld the validity of Section 17(5)(c) and (d) and Section 16(4): the restrictions are a valid legislative classification and are not manifestly arbitrary.
Clause (d), however, uses 'plant or machinery', while clause (c) and the Explanation use 'plant and machinery'. The difference was deliberate, so the definition of 'plant and machinery', which excludes buildings, does not govern 'plant or machinery'. Whether a building is a 'plant' under clause (d) is decided by the functionality test: the nature of the registered person's business, the role the building plays in it, and whether constructing it was essential to carrying on the taxable activity.
If a building such as a mall or warehouse is essential to a business of letting it out or supplying services from it, it may be a 'plant', which takes it outside the bar in Section 17(5)(d). That is a question of fact to be decided in each case.
Conclusion & Ruling
- (i)
The challenges to the validity of Section 17(5)(c) and (d) and Section 16(4) were rejected.
- (ii)
'Plant or machinery' in Section 17(5)(d) is not confined by the definition of 'plant and machinery'; whether a building is a plant depends on the functionality test, and the matters were remitted to the High Court for that factual determination.
- (iii)
Parliament later amended Section 17(5)(d) by the Finance Act, 2025, with retrospective effect from 1 July 2017, replacing 'plant or machinery' with 'plant and machinery'.