In a landmark decision on October 3, 2024, the Supreme Court of India upheld a ruling by the Odisha High Court, allowing real estate developers to claim GST Input Tax Credit (ITC) on construction costs for properties intended for rental purposes. This ruling in the Safari Retreats Pvt. Ltd. case provides significant relief for businesses involved in leasing and rental services.
Case Overview:
- Company: Safari Retreats Pvt. Ltd.
- Location: Bhubaneswar
- Property: Shopping mall intended for leasing
The tax authorities initially denied the company’s ITC claims on the GST paid during construction, citing Section 17(5)(d) of the CGST Act, which disallows ITC on immovable property. Safari Retreats challenged this ruling, arguing that the mall was built specifically to generate rental income, and should therefore qualify for ITC.
Decision & Facts of the Case:
Facts:
- Safari Retreats Pvt. Ltd. constructed a shopping mall in Bhubaneswar with the intention of leasing it out for commercial purposes.
- The company incurred significant GST costs on construction materials such as cement, steel, and architectural services.
- However, the tax authorities denied their ITC claim under Section 17(5)(d), which blocks ITC for immovable property.
Odisha High Court’s Ruling:
- The Odisha High Court ruled in favor of Safari Retreats, stating that properties built for providing commercial rental services could qualify for ITC. The court reasoned that such properties are integral to the business of providing rental services, similar to how credits are allowed for plant and machinery.
Supreme Court’s Decision:
- The Supreme Court upheld the Odisha High Court’s ruling, affirming that buildings constructed for rental purposes can be classified as essential for providing services, similar to plant and machinery under the CGST Act.
- The court clarified that businesses constructing properties for rental services can claim ITC, reducing the financial burden and aligning the tax treatment with business realities.
Key Takeaways:
- Financial Relief for Developers: Developers of rental properties can now recover GST paid on construction, offering significant tax relief.
- Prevents Double Taxation: This ruling ensures that developers and leasing businesses are not taxed twice—on construction and again on rental income.
- Broad Industry Impact: The decision benefits not only real estate but also hospitality, co-working spaces, and other industries involved in property leasing.
This decision brings much-needed clarity on ITC rules for rental properties and offers considerable relief to developers, creating a more favorable environment for businesses engaged in rental services.