Quick answer: In Chief Commissioner of Central Goods and Service Tax & Ors. v. M/s Safari Retreats Private Ltd. & Ors. (2024 INSC 756), decided on 3 October 2024, a Bench of Abhay S. Oka and Sanjay Karol, JJ. upheld the constitutional validity of Section 17(5)(c) and (d) and Section 16(4) of the Central Goods and Services Tax Act, 2017 (the “CGST Act”). It held that the expression “plant or machinery” in Section 17(5)(d) cannot take the meaning of “plant and machinery” as defined in the Explanation to Section 17, and that whether a mall, warehouse or other building (other than a hotel or cinema theatre) is a “plant” is a question of fact, answered by a functionality test. The judgment is marked reportable. The Orissa High Court’s reading down of Section 17(5)(d) was set aside and the mall developer’s writ petitions were remanded for a factual finding.
Key Takeaways
- The blocked-credit clauses survive constitutional challenge. The Court held that input tax credit (ITC) is a creation of statute and that clauses (c) and (d) of Section 17(5) rest on an intelligible classification of immovable property, so there was no occasion to read them down.
- “Plant or machinery” is not “plant and machinery”. The Court refused to treat the “or” in clause (d) as a drafting error, so the Explanation to Section 17 — which excludes land, buildings and civil structures — does not govern clause (d).
- A building can be a “plant”. Where the building is essential to the taxable activity, such as renting or leasing under Schedule II, the functionality test may take it outside the bar in clause (d).
- Hotels and cinema theatres are carved out of the test. The Court confined Anand Theatres to those two categories, and its summary of conclusions excludes them from the “plant” inquiry.
- Each case is factual. “Each mall is different”, so the Court remanded rather than deciding whether the respondent’s mall was a plant.
- Later amendment. Parliament has since substituted “plant and machinery” for “plant or machinery” in clause (d) through the Finance Act, 2025, which affects how far the interpretive holding can be relied on (see Section 3.6).
1. Introduction
Section 17(5) of the CGST Act lists goods and services on which input tax credit (ITC) is “blocked”: unavailable even to a registered person using them in business. Clauses (c) and (d) block credit on works contract services and on goods or services used to construct immovable property. For a developer who builds a mall to let it out, the rent is a taxable supply of service, but the tax paid on cement, steel, lifts and consultancy during construction cannot be set off against it.
Safari Retreats is the Supreme Court’s principal treatment of these clauses. It decides whether they are constitutional, what “plant or machinery” in clause (d) means, and how a court should decide whether a building is a “plant”. The first answer favours the Revenue; the second and third give assessees a route, but only on the facts of each case. The statutory text discussed is the CGST Act as it stood when the Court decided the case.
2. Case summary and background
The transaction. The first respondent was building a shopping mall to let premises to tenants. The judgment records (para 2) ITC accumulated on the construction of “more than Rs. 34 crores”, which it wished to set against GST on rent. It was advised to pay GST on rent without deducting ITC because of Section 17(5)(d).
The High Court. By judgment dated 17 April 2019, the Orissa High Court held (para 4), relying on Eicher Motors Limited v. Union of India, that Section 17(5)(d) had to be read down because the very purpose of ITC is to benefit the assessee. The Revenue appealed (Civil Appeal Nos. 2948 and 2949 of 2023). Separate writ petitions challenged clauses (c) and (d) of Section 17(5), and in some cases Section 16(4), under Articles 14, 19(1)(g) and 300A (paras 5 and 7).
The questions. The Court framed three (para 24): whether the Explanation to Section 17 defining “plant and machinery” applies to “plant or machinery” in clause (d); if not, what “plant” means; and whether clauses (c) and (d) and Section 16(4) are unconstitutional. The Revenue, through Shri N. Venkataraman, Additional Solicitor General, argued that creating immovable property is itself an intelligible differentia, that the tax chain breaks because the Union cannot tax land and buildings, and that the “or” in clause (d) was a legislative slip (paras 14–15 and 43).
The holding. The Court held (para 65) that the constitutional challenge was not established; that “plant or machinery” cannot take the meaning of the defined “plant and machinery”; and that whether a mall, warehouse or any building other than a hotel or cinema theatre is a plant is a factual question decided on a functionality test. It set aside the High Court judgment and remanded “for limited purposes of deciding whether, in the facts of the case, the shopping mall is a ‘plant’” (para 66). The other writ petitions were rejected subject to this interpretation (para 68).
3. Legal analysis
3.1 Clauses (c) and (d) are different provisions. The Court stressed (paras 31–34) that the clauses share little beyond their subject. Clause (c) concerns works contract services and excepts the defined “plant and machinery”. Clause (d) concerns goods or services received for construction “on his own account” and excepts the undefined “plant or machinery”. Construction is on one’s own account, the Court said (para 32), where it is for personal use or is “to be used by the person constructing as a setting in which business is carried out”, but not where it is intended to be sold or given on lease or licence.
3.2 “Or” is not “and”. The Revenue’s argument that “or” was a drafting mistake failed (paras 43–44). “Plant and machinery” appears ten times in Chapters V and VI of the Act and “plant or machinery” once; the Model GST Law of November 2016 used “plant and machinery” in both clauses, and the enacted text departed from it; and the legislature had not corrected the text although the litigation was years old. The Court concluded: “it must be inferred that the legislature has intentionally used the expression ‘plant or machinery’ in clause (d)”. Giving it the defined meaning would amount to “doing violence to the words used in the statute”. This is the strongest part of the judgment. The textual contrast is hard to answer, and the refusal to repair a taxing statute by construction is consistent with the rules the Court set out at para 25.
3.3 The functionality test. Without the Explanation, the Court had to give “plant” a meaning. It reviewed Solid and Correct Engineering Works (a Central Excise Act, 1944 case that, the Court said, did not decide the meaning of “plant”), the income-tax decisions in Taj Mahal Hotel and Anand Theatres, and Karnataka Power Corporation and Victory Aqua Farm (paras 47–50). It treated Karnataka Power Corporation, a three-judge decision, as limiting Anand Theatres to hotels and cinema theatres (para 51), and took from it the test that a building “has been so planned and constructed as to serve an assessee’s special technical requirements” (para 52). In its conclusions (para 65(c)) the Court tied the inquiry to “the business of the registered person and the role that building plays in the said business”: if construction was “essential for carrying out the activity of supplying services” such as renting or leasing under Schedule II, the building could be a plant. “Functionality test will have to be applied to decide whether a building is a plant.”
3.4 Chain break and constitutionality. Schedule II treats renting of immovable property as a supply of service, so the chain is not broken where the building is the means of making a taxable supply; it is broken where construction is for the recipient’s own use (para 53). On validity, applying VKC Footsteps (paras 104–110 and 142 reproduced at para 57), the Court held that taxing statutes receive wide latitude, that “ITC is a creation of legislature” (para 41), and that immovable property is a class by itself whose separate treatment serves the object of respecting State power under Entry 49 of List II (paras 58–59). Challenges under Articles 19(1)(g) and 300A failed for want of elaboration (para 61); Section 16(4) was not shown to be arbitrary (para 63); and reading down did not arise (para 64). Eicher Motors, Shreya Singhal and Bharti Airtel appear only as the High Court’s basis or counsel’s citations, not as authorities the Court applied.
3.5 Critique. First, the test is imported from income-tax law, where “plant” has its own statutory setting. The Court’s reasoning, that undefined words bear their commercial sense, explains the borrowing but not how far the gloss travels. Second, the exclusion of hotels and cinema theatres is categorical, yet a hotel lets rooms, a supply of service like renting a mall; the only stated reason is the limiting of Anand Theatres. Third, the account of “own account” sits uneasily with the test: if a building that merely shelters a business is not a plant, the boundary between owner-occupied and let buildings depends on how “essential” the building is, which the judgment leaves to fact-finding.
3.6 Effect of the later amendment. The interpretive holding rests on the textual difference between “or” and “and”. A later Orissa High Court order, Life Line Multi-Ventures v. Union of India (W.P.(C) No. 34064 of 2025, 19 December 2025), records that the Finance Act, 2025 substituted “plant and machinery” for “plant or machinery” in Section 17(5)(d), and treats the temporal reach of the change as a live question. Where the amended text applies, the premise of paras 43–52 falls away and the Explanation, which excludes land, buildings and civil structures, governs clause (d). The constitutional holding is unaffected.
4. Practical significance
Credit claims. An assessee that built a mall, warehouse or similar building for letting should test, for periods under the unamended clause (d), whether the building is essential to the taxable letting activity. The record should show why: design features, tenant requirements, and the role of building services in the rental business. A claim that the building is “used in business” will fail, because clause (d) applies expressly where goods or services are used in the course or furtherance of business.
Contract structuring. Clause (c) tests works contract services and clause (d) tests goods and services bought directly. The Court called them “substantially different areas” (para 54), so historic contracts should be reviewed against both.
Remedy. The Court left each case to be decided “in appropriate proceedings in which adjudication can be made on facts” (para 67). Assessees should expect to lead evidence before the adjudicating officer and in statutory appeal rather than rely on a writ; a pure vires challenge to clauses (c) and (d) is closed.
5. Conclusion
Safari Retreats confirms that blocked credit under Section 17(5)(c) and (d) is a permissible legislative choice and declines to read the clauses down for equity’s sake. It equally refuses to widen the exclusion by treating “or” as “and”, and gives assessees a factual route to credit where a building is essential to the taxable supply.
Its strengths are a disciplined reading of the text and a refusal to rewrite the statute either way. Its weaknesses are borrowed income-tax reasoning, a categorical carve-out for hotels and cinemas, and a test whose application is left to later fact-finding. The legislative substitution now overshadows the interpretive holding for the periods it covers; for earlier periods the decision remains the governing authority, and the functionality test is where such disputes will be fought.
Authorities
Applied or relied on by the Court
| Authority | Citation as given in the judgment | Use in the judgment |
|---|---|---|
| VKC Footsteps | (2022) 2 SCC 603 | Paras 104–110 and 142 reproduced for the principles on classification and judicial restraint in tax legislation (para 57) |
| CIT v. Karnataka Power Corporation | (2002) 9 SCC 571 | Functionality test; limits Anand Theatres to hotels and cinema theatres (paras 50–52) |
| Union of India v. Mohit Minerals Pvt. Ltd. | (2022) 10 SCC 700 | Philosophy of GST as consumption and destination based (para 41) |
| Union of India v. Nitdip Textile Processors (P) Ltd. | (2012) 1 SCC 226 | Reasonable classification in taxing statutes (para 57) |
Considered and distinguished or limited
| Authority | Citation as given in the judgment | Treatment |
|---|---|---|
| CIT v. Anand Theatres | (2000) 5 SCC 393 | Limited to hotels and cinema theatres (para 51) |
| Commissioner of Central Excise, Ahmedabad v. Solid and Correct Engineering Works | (2010) 5 SCC 122 | Did not decide the meaning of “plant” (para 47) |
| Taj Mahal Hotel | (1971) 3 SCC 550 | Income-tax decision on sanitary fittings as “plant”; discussed (para 48) |
| Victory Aqua Farm Ltd. | (2016) 16 SCC 553 | Discussed with Karnataka Power Corporation (para 50) |
Cited by counsel or the High Court, not applied by the Court
| Authority | Citation as given in the judgment | Context |
|---|---|---|
| Eicher Motors Limited v. Union of India | (1999) 2 SCC 361 | Relied on by the Orissa High Court to read down Section 17(5)(d) (para 4) |
| Bharat Sanchar Nigam Limited v. Union of India | (2006) 3 SCC 1 | Assessees’ submission on dominant intention (para 7) |
| Shreya Singhal v. Union of India | (2015) 5 SCC 1 | Assessees’ vagueness argument (para 7) |
| Union of India v. Bharti Airtel Limited | (2021) SCC OnLine SC 1006 | Assessees’ submission on ITC as a statutory right (para 7) |
Later decision referred to
M/s Life Line Multi-Ventures v. Union of India, W.P.(C) No. 34064 of 2025, High Court of Orissa, 19 December 2025 — https://indiankanoon.org/doc/116886026/
Legislation considered
| Statute | Provisions | Source |
|---|---|---|
| Central Goods and Services Tax Act, 2017 | Sections 2(119), 7, 9, 16, 17(5)(c), 17(5)(d) and the Explanation to Section 17, Schedules II and III | https://www.indiacode.nic.in/ |
| Constitution of India | Articles 14, 19(1)(g), 246A, 300A; Entry 49, List II, Seventh Schedule | https://www.indiacode.nic.in/ |
Judgment
Chief Commissioner of Central Goods and Service Tax & Ors. v. M/s Safari Retreats Private Ltd. & Ors., Civil Appeal Nos. 2948 and 2949 of 2023 with connected writ petitions, 2024 INSC 756, Supreme Court of India (Abhay S. Oka and Sanjay Karol, JJ.), decided 3 October 2024 — https://indiankanoon.org/doc/170545247/
FAQ
Is input tax credit available on construction of a building that is let out? Not automatically. Section 17(5)(d) blocks credit on goods and services used to construct immovable property on one’s own account, other than “plant or machinery”. The Supreme Court held that a building may qualify as a plant where, on the facts, it is essential to the taxable activity, such as letting premises. That is decided case by case.
Does the judgment apply to hotels and cinema theatres? The Court’s summary of conclusions speaks of a mall, warehouse or “any building other than a hotel or a cinema theatre”. It limited Anand Theatres to hotels and cinemas, so those buildings sit outside the functionality inquiry the Court described.
Is “plant or machinery” the same as “plant and machinery”? Not under the text the Court construed. It held that the Explanation to Section 17 defining “plant and machinery” does not apply to “plant or machinery” in clause (d). Parliament has since substituted “plant and machinery” in clause (d), so the answer depends on which version of the text applies to the period in question.
This article is not legal advice and does not create an attorney–client relationship. Readers should verify the certified copy of the judgment and any subsequent clarificatory orders before relying on it, and consult a qualified advocate on the facts of their matter.