Safari Retreats: what the Supreme Court decided on ITC for construction, and what Parliament then undid
The most consequential ITC judgment in the life of GST was overtaken by a retrospective amendment within five months. Both halves of that story matter to your file.
In Chief Commissioner of CGST v. Safari Retreats Private Limited (Supreme Court, 3 October 2024) the Court held that the expression plant or machinery in Section 17(5)(d) is not the same as the defined expression plant and machinery, and that a building can qualify as a plant if a functionality test is satisfied on its own facts. The Finance Act, 2025 then substituted plant and machinery in clause (d) with retrospective effect from 1 July 2017. The judgment continues to matter for the interpretive method it lays down, for periods and fact patterns already litigated, and for the challenge to the retrospective substitution itself.
The dispute in one paragraph
Safari Retreats constructed a shopping mall. It did not sell the mall. It let out units and paid GST on the rent it collected. Cement, steel, lifts, escalators, chillers, works contract services — every input had suffered tax. The output was taxable. The credit was denied under Section 17(5)(d) because the goods and services had been used for construction of an immovable property on the taxpayer's own account.
The taxpayer's complaint was structural rather than sentimental. A tax that claims to be a value added tax had produced a break in the chain: tax paid on inputs, tax paid on outputs, and no set off between them.
The Orissa High Court read down clause (d). The revenue appealed. The Supreme Court heard the matter along with a batch of connected petitions.
What the Court actually held
First, the Court refused to strike down Section 17(5)(c) or (d). Input tax credit is a creation of statute and Parliament may attach conditions to it. Article 14 was not violated merely because a restriction produced hardship in a class of cases.
Second, and decisively, the Court held that the words plant or machinery in clause (d) cannot be read as the defined term plant and machinery which appears in clause (c) and in the explanation at the end of Section 17. The legislature used two different expressions in adjoining clauses. That difference had to be given meaning, and the explanation could not be transplanted into clause (d).
Third, the Court applied the functionality test drawn from the line of income tax authority on the meaning of plant. A building is a plant where it is not merely the setting in which business is carried on but is the apparatus with which the business is carried on. Whether a particular mall, hotel or warehouse crosses that line is a question of fact to be decided by the adjudicating authority on evidence.
Fourth, the matter was remanded. The Court did not declare that malls are plants. It declared that the question was open, and that it had to be answered building by building.
The retrospective substitution, and why it is not the end
The Finance Act, 2025 substituted the expression plant or machinery in Section 17(5)(d) with plant and machinery, with effect from 1 July 2017, and provided that no refund shall be claimed of credit already reversed. The intent was to close the interpretive gap the Court had identified, from inception.
That closes the textual argument. It does not close the file. Three lines of enquiry remain live.
The first is the validity of the retrospective substitution itself, where a taxpayer arranged its affairs, filed its returns and even succeeded in litigation on the law as it stood. Retrospective validation of a fiscal provision is permissible in principle, but it has to survive Article 14 scrutiny and the settled requirement that it cannot render a concluded judicial declaration nugatory by legislative declaration alone.
The second is the plant and machinery route that survives the amendment. Lifts, escalators, chillers, DG sets, transformers, fire fighting systems and other apparatus fixed to earth by a foundation or structural support are within the defined expression and were never excluded. What is excluded is land, building and other civil structures, telecommunication towers and pipelines laid outside factory premises. A great many denials in departmental orders sweep up equipment that the definition itself protects.
The third is the interpretive method. The Court's insistence that two different expressions in adjoining clauses must carry two different meanings is now a general tool, usable well beyond Section 17.
How the department is currently reading the judgment
Adjudicating authorities are treating the amendment as closing clause (d) entirely and are declining to record findings on functionality. That is an error worth preserving on record. Where a remand or a pending adjudication involves a period before the amendment and a plea of functionality was raised, the order must deal with the plea rather than dismiss it as academic.
Second, orders frequently do not separate the civil structure from the apparatus inside it. A single figure is denied for a project. Ask for a line item bifurcation in the reply, and annex it yourself if the department will not.
Third, the bar on refund of already reversed credit is being read as a bar on contesting the reversal at all. It is not. It restricts refund; it does not convert a coerced reversal into a lawful demand.
Exhibit — What survives the 2025 amendment
| Item capitalised in the project | Position after the retrospective substitution | Evidence to hold |
|---|---|---|
| Cement, steel, blockwork, flooring, civil works contract | Credit blocked. Building and civil structure are expressly excluded | No purpose in contesting on merits; check limitation and penalty instead |
| Lifts, escalators, travelators | Apparatus fixed to earth by structural support; within plant and machinery | Erection drawings, foundation details, capitalisation schedule, supplier classification |
| HVAC chillers, AHUs, cooling towers | Ordinarily within plant and machinery where foundation mounted | Layout, foundation certificate, fixed asset register head |
| DG sets, transformers, HT panels, substation equipment | Within plant and machinery | Electrical single line diagram, commissioning certificate |
| Fire detection and suppression systems, sprinklers | Arguable as apparatus; contested by the department | Statutory approval, standalone functionality note |
| Telecom towers, pipelines outside factory premises | Expressly excluded by the explanation | Not worth contesting on this ground |
The classification of an item as plant and machinery turns on how it is installed and used at your site, not on its invoice description.
Authorities relied on
Plant or machinery in Section 17(5)(d) is distinct from the defined plant and machinery; a building may be a plant on a functionality test; clauses (c) and (d) are constitutionally valid; matters remanded for factual determination.
A building used as a hotel or cinema is ordinarily the setting, not the apparatus; relied on by revenue to resist the plant characterisation.
A building can constitute a plant where the functional test is satisfied; the source of the functionality test applied in Safari Retreats.
What to do on Monday
Extract the project capitalisation schedule and bifurcate every line into civil structure, apparatus fixed to earth, and consumables. This single exercise decides most of the exposure.
For every item claimed as plant and machinery, attach the erection or foundation document that proves how it is fixed and what function it performs.
Where credit was reversed between 2022 and 2025, retrieve the DRC-03, the narration and the covering correspondence to establish whether it was voluntary or under protest.
In pending adjudications for pre amendment periods, press the functionality plea on record even if the officer treats it as closed, so the ground survives to the Tribunal.
Review lease and licence agreements for a tax variation clause; where credit is denied at the entity level, the commercial recovery mechanism is the only remaining lever.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Does Safari Retreats mean a mall developer can now claim ITC on construction?
No. It meant the question was open for periods governed by the unamended clause (d), and had to be decided on evidence. After the Finance Act, 2025 substitution the textual route is closed and the live arguments are the validity of the retrospective change and the plant and machinery bifurcation.
We reversed credit in 2023 under audit pressure. Can we recover it?
The amendment bars refund of credit already reversed. Whether that bar applies to a reversal made under protest, and whether the underlying reversal was lawful at all, are separate questions. Examine the covering letter accompanying the reversal, the DRC-03 narration and the audit paper trail.
Is a warehouse or a cold storage in a better position than a mall?
Often yes, on facts. In a cold chain the structure itself performs a thermal function and the functionality argument is far stronger than in a rented commercial building. The plea must be built with engineering evidence, not adjectives.
Does the judgment help on the leasing of an entire building?
It helps the framing. Where the building is the income earning apparatus and the output is fully taxable, the break in the credit chain is at its starkest. That is the fact pattern in which the constitutional challenge to the retrospective substitution has been pressed.
Our adjudication is pending for FY 2019-20. What should the reply say?
Three things. The functionality plea on the unamended text, a line item bifurcation claiming plant and machinery independent of clause (d), and a preserved challenge to the retrospective substitution so the ground is not lost before the Tribunal.
In this cluster
- Input tax credit under GST: the complete 2026 position
- Section 16(2)(c): can your ITC be denied because the supplier did not pay tax?
- Section 16(4) time limit for claiming ITC: what survives after the amnesty
- GSTR-2A and 2B mismatch notices: how to answer without conceding
- Blocked credits under Section 17(5): the clause by clause map
- ITC on canteen, transport, insurance and other employee benefits
- ITC reversal under Rules 42 and 43: working the formula correctly
- Rule 37: ITC reversal when you do not pay your supplier within 180 days
- Rule 37A: reversal where your supplier did not file its GSTR-3B
- Rule 86A blocking of the electronic credit ledger: the remedies that actually work
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.