Retrospective Amendment of Section 17(5)(d) Does Not Overturn Apex Court Judgment: Key Insights

 The lifeline of the GST framework lies in the context of Input Tax Credit (ITC), moreover, on the principle of eligibility — a principle that becomes even more nuanced when businesses undertake expansion projects. The landmark case of Safari Retreats has served as a turning point, bringing clarity to the treatment of ITC in scenarios involving blocked credits. It has illuminated the judicial interpretation around the eligibility of ITC, especially with respect to immovable property.

A significant development is that the Apex Court has broadened the definition of “plant” to include land, buildings, machinery, apparatus, and fixtures — all seen as instrumental to the operation of a trade or business undertaking. The Court further explained that a plant encompasses the totality of facilities available for production or service, including the physical infrastructure of an institution. This interpretation underlines that where such components are essential to a business’s functioning, full ITC on the corresponding inputs remains admissible — even if capitalized ( not tax portion though in line with Sec 16(3)) in the books of accounts.

To distinguish which buildings or structures qualify as “plant,” the Court has laid down a functionality test. According to this test, if a building is designed and constructed to serve specific technical requirements of the business, it should be recognised as a plant. This approach shifts the analysis from mere form to function, reinforcing that eligibility of ITC must be assessed on the basis of the actual use and role of the further taxable supply arises out of that in the course or furtherance of the business operations.

The judgment thus dissects Section 17(5)(c) and (d) of the Central GST Act, 2017 with methodical precision. What emerges is a layered understanding of the legislature’s intent: the blocking of ITC is not a blanket rule, but a carefully carved exception meant to apply at the last stage of the supply chain — and not to industrial or commercial construction serving core business needs.

Crucially, the Apex Court also drew attention to two exceptions embedded within Section 17(5)(d), which permit ITC claims under specific conditions. The first allows ITC where the immovable property constructed constitutes “plant or machinery.” The second applies when such property is not constructed on the taxpayer’s “own account.” The latter implies that the construction is not for personal use or for the taxpayer’s own business premises, but rather for furtherance of a taxable supply — thus allowing credit.

The term “own account” has been clarified to mean two scenarios: construction for personal use unrelated to any business activity, and construction used merely as the setting in which business is conducted, rather than as a productive asset itself.

In sum, the evolving jurisprudence around ITC — as seen through Safari Retreats and the interpretive guidance of the Apex Court — underscores a maturing tax regime. One that respects the fine balance between legislative restriction and operational pragmatism. The GST framework, through this clarity, reaffirms that substance must prevail over form, ensuring that legitimate business inputs are not unjustly blocked, and that credit flow remains aligned with economic reality. The relevance of this blog is particularly to reiterate that retrospective amendment of Sec 17(5)(d) by replacing “Plant or Machinery” with “ Plant and Machinery” in line with clause (c) doesn’t impact the rationale brought out on this blog and the same was touched upon by the Apex court while rejecting Revenue’s petition to challenge its earlier judgment on this case. Any constructed assets that are rented or leased or licensed represents further taxable supply doesn’t deny eligibility of ITC under both clauses c & d of sec 17(5). Further functionality test is not required in this context rather its treated as “ Plant” whereas for other assets such test is necessary to evidence the same to revenue.

- K N Akshaya- MA LLB

Opinion shared over this blog is that of author, needs your discretion to apply suitably in your own scenario. The author can be reached at gst@ldraj.in for any clarification strictly in academic interest.