Section 17(5)(d) Reversed: How Finance Act 2025 Undid the Safari Retreats Ruling on ITC

A client building a commercial complex in Raipur asked us in September this year whether he could claim ITC on the steel, cement, and contractor billing for a shopping arcade he plans to lease out floor by floor. Eighteen months ago, the answer would have been a qualified yes, on the strength of a Supreme Court ruling that had opened a genuine door for developers. Today the honest answer is no, and the reason is a retrospective amendment that Parliament pushed through specifically to shut that door again.

This is one of those GST developments that got a lot of coverage when it happened but has since faded from most people's radar, even though it directly affects anyone constructing property in Chhattisgarh or Odisha with the intention of renting it out.

The Safari Retreats Case, In Brief

Safari Retreats Pvt Ltd was building a shopping mall in Odisha that it intended to lease out to tenants. Under Section 17(5)(d) of the CGST Act, ITC on goods and services used for construction of an immovable property is blocked "on his own account," even when that property is used in the course of business — with a specific carve-out for "plant or machinery." Safari Retreats argued that the mall itself was, functionally, a plant: a structure built and equipped specifically to generate rental income, no different in substance from a factory shed built to house manufacturing equipment.

The Odisha High Court agreed, and in October 2024 the Supreme Court largely upheld that view in Safari Retreats Pvt Ltd v. Chief Commissioner of CGST. The Court declined to read "plant or machinery" as a fixed, narrow category and instead directed that whether a building qualifies as a "plant" be decided on a functional test, case by case — does the building itself function as a tool of the taxpayer's business, rather than merely housing it? Where the answer was yes, ITC on construction costs could not be blocked purely because the asset happened to be a building.

For mall developers, warehouse operators, and anyone constructing commercial space to lease, this was a meaningful and hard-won relief. Construction costs on a large commercial project run into ITC amounts that matter — often tens of lakhs on a mid-sized development, more on anything larger — and the ruling meant that money no longer had to sit permanently blocked.

What Finance Act 2025 Did

The relief was short-lived. Finance Act 2025 amended Section 17(5)(d), and the change is deceptively small on paper: it replaces the phrase "plant or machinery" with "plant and machinery." That single conjunction does the entire job. "Plant and machinery" is a defined term elsewhere in the Act — essentially apparatus, equipment, and machinery fixed to earth by foundation or structural support, used for making outward supply, but explicitly excluding land, buildings, and civil structures. A building can no longer qualify under the functional test the Supreme Court had endorsed, because the statutory definition now excludes buildings by name, regardless of how central that building is to the taxpayer's business.

Two things about this amendment matter more than the wording itself:

First, it is retrospective to 1 July 2017 — the date GST came into force. This is not a change that applies going forward from the 2025 Budget; it rewrites the law as it is deemed to have always read, for every year GST has existed.

Second, the amendment was drafted explicitly to override the Safari Retreats interpretation and any similar rulings relying on the "plant or machinery" reading. Parliament has the power to legislatively reverse a judicial interpretation of a statute, and that is exactly what happened here — a rare but not unprecedented instance of a Supreme Court ruling on GST being nullified by amendment within roughly six months of being delivered.

Did the Supreme Court Get the Last Word?

There is a wrinkle worth being precise about, because oversimplifying it does readers a disservice. The revenue department, dissatisfied with the original October 2024 ruling, filed a review petition asking the Supreme Court to reconsider its own judgment. In May 2025, the Court dismissed that review petition, finding no error apparent on the record, and in doing so reaffirmed the functionality test as the correct reading of the pre-amendment law.

So there are now two things simultaneously true, and they don't contradict each other once you see the timeline clearly. The Supreme Court's interpretation of Section 17(5)(d) as it existed before the amendment stands — the Court was interpreting the statute as Parliament had written it at the time, and its reading was correct on those terms, confirmed twice. But Parliament then rewrote the statute itself, retrospectively, which is a separate and constitutionally available route that doesn't require the judiciary's agreement. The Safari Retreats reasoning remains legally sound as a matter of statutory interpretation of the old wording; it simply no longer describes the law, because the wording it interpreted doesn't exist anymore.

Whether the retrospective nature of the amendment itself is open to constitutional challenge — on grounds of unreasonableness or undue hardship to taxpayers who structured deals relying on the ruling — is a live question that hasn't been conclusively settled by the higher courts as of now. Developers who claimed ITC between the Safari Retreats judgment and the Finance Act 2025 amendment, relying on what was, at the time, the law of the land, are in a genuinely uncertain position. That is worth flagging honestly rather than glossing over.

Practical Effect for Developers in Raipur and Kalahandi

For anyone actually building right now, the practical position is straightforward even if the legal history behind it isn't: ITC on construction of immovable property intended for further supply of services — leasing, renting, letting out space — remains blocked under Section 17(5)(d), full stop. The narrower "plant and machinery" carve-out still applies to actual equipment and machinery fixed to a structure — a cold storage plant's refrigeration equipment, for instance — but not to the building or civil structure housing it.

This matters most for:

• Real estate developers and mall or commercial complex builders across Raipur, Bhilai, and the wider industrial belt, who cannot factor Safari Retreats-style ITC recovery into project economics going forward.
• Warehouse and logistics park operators building space to lease to third parties.
• Any business constructing office or retail space with mixed use — partly self-occupied, partly leased — where ITC apportionment calculations now need to assume the blocked position applies to the leased portion.

If a project's financial model was built assuming ITC recovery on construction costs based on the 2024 ruling, that assumption needs revisiting before further capital is committed. Contractors and developers who already claimed and utilized ITC in the intervening window should get their specific exposure reviewed rather than assume the retrospective amendment simply resolves itself with time — it doesn't, and a departmental audit is unlikely to be sympathetic to the timing argument on its own.

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