Under the GST provisions, every registered person is eligible to take ITC of goods and services, intended to be used in the course or furtherance of business, subject to other prescribed conditions. The law, under Section 17(5)(d) of the CGST Act, 2017 restricts ITC on goods or services received for construction of an immovable property, including when such goods or services or both are used in the course or furtherance of business. The term “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.

In the recent landmark judgment of the Orissa High Court rendered in the case of Safari Retreats Private Limited & Anr. vs. Chief Commissioner of Central Goods and Service Tax & Ors. [Order dated 17.04.2019 passed in the matter of W.P. (C) No. 20463 OF 2018], availment of input tax credit (ITC) has been allowed on goods and services used for construction of immovable property and used in the course or furtherance of business. This judgment clarifies the interpretation of Section 17(5)(d) of the CGST Act and the extent of the restriction it imposes on availment of ITC. A brief synopsis of the judgment has been provided below:

Facts of the matter:

The petitioner was engaged in construction of shopping malls for the purpose of renting the same out for commercial purposes. During construction, the petitioner used inputs such as cement, sand, steel, electrical equipment, etc., and several input services such as architectural services, consultancy services, legal and professional services, etc. Accordingly, the petitioner paid taxes under GST to its vendors and service providers on the above-mentioned procurements. Upon completion of the shopping mall, the petitioner arranged for letting out different units of the mall on a rental basis. Considering that renting of an immovable property is taxable under GST, the petitioner wished to avail credit of tax paid on procurements of inputs and input services used in construction of the shopping mall.

View adopted by tax authorities:

Availment of ITC on procurements made towards construction of the shopping mall was denied by the revenue authorities, basis the restriction imposed by Section 17(5)(d).

Judgement rendered by the High Court:

-    The very purpose of the GST legislations is to ensure a uniform levy and collection of tax, whether central or State and to mitigate scenarios of multi-taxation.

-    While considering the provisions of Section 17(5)(d), the narrow interpretation adopted by the revenue authorities contravenes the very objective of the legislation, in as much as the petitioner is being made to discharge substantial amounts of taxes without any justifiable basis. In this case, the petitioner was retaining the property and not using it for his own purpose but renting it out on which GST is chargeable and he still had to pay substantial amounts of GST.

-    The Court observed that Section 17(5)(d) is to be read down and the narrow interpretation adopted by the revenue authorities is not required to be accepted. The Court stated that the very purpose of credit is to allow benefit to the assessee and therefore, if the assessee is required to pay GST on rental income arising out of the investment on which the assessee has paid GST, it is required to have ITC on GST required to be paid under Section 17(5)(d).

-    Although the Court has ruled that Section 17(5)(d) has to be read down, the Court has not held it to be ultra vires.


The current judgement rendered by the Orissa High Court may be applicable on a PAN-India basis and not just in the State of Orissa. The judgement allows for availment of input tax credit by builders in respect of procurements made for construction of buildings which are intended for being rented out. A similar principle may be adopted while treating eligibility of claiming ITC benefit in respect of construction of buildings intended for provision of other taxable supplies. Section 16 allows for availment of ITC on supply of goods or services which are used or intended to be used in the course or furtherance of business. Thus, a view may be taken that where the constructed property continues to be retained by the builder and generates another revenue stream under GST, credit should be available on procurements used for constructed of the same. However, the revenue authorities could contest the eligibility to claim ITC if the assessee is unable to establish nexus between the inputs and input services procured and the final taxable output supplies made using the constructed building.