Safari Retreats Pvt. Ltd. Case Journey

If you run a business in real estate, infrastructure, or even lease out commercial spaces, you’ve probably heard of the Safari Retreats Pvt. Ltd. case. It’s one of the most debated GST disputes because it touches a pain point: whether Input Tax Credit (ITC) can be claimed on construction of malls, hotels, and commercial buildings intended for leasing.

The case began in 2019 and has travelled through the Odisha High Court, the Supreme Court of India, a review petition, and finally — a retrospective legislative amendment that changed the game altogether.

This blog walks you through the full journey of the case, simplifying the legal language into practical insights so you understand exactly what it means for your business.

Background: ITC and Blocked Credits Under GST

Before diving into the case, let’s quickly revisit the basics.

What is ITC?

• Under Section 16 of the CGST Act, 2017, taxpayers can claim credit of GST paid on inputs, input services, and capital goods used in business.
• ITC reduces the cascading effect of tax and ensures tax is paid only on the value addition.

What is Blocked Credit?

• Section 17(5) of the CGST Act lays down specific restrictions where ITC cannot be claimed.
• Two critical clauses relevant here are:
  • 17(5)(c): ITC not allowed on works contract services for construction of immovable property (other than plant and machinery).
  • 17(5)(d): ITC not allowed on goods/services used for construction of immovable property on own account, even if used for business.

Key Issue: What if a company builds a shopping mall not for resale, but to lease out shops (a taxable supply under GST)? Shouldn’t ITC be allowed since the output supply (rent) is taxable?

That’s the very question Safari Retreats Pvt. Ltd. raised.

The Safari Retreats Pvt. Ltd. Case: Timeline

1. The Odisha High Court Ruling (2019)

• Safari Retreats Pvt. Ltd. constructed a shopping mall and planned to lease units to tenants.
• They argued: since leasing of immovable property is a taxable service under GST, ITC on construction costs should be allowed.
• The Odisha High Court in 2019 (Safari Retreats Pvt. Ltd. vs. Chief Commissioner of CGST, 2019 (25) GSTL 341 (Ori.)) agreed.
  • It held that denying ITC in such cases defeats the very object of GST as a value-added tax.
  • The Court directed that ITC be allowed on construction of the mall since the output supply (renting) was taxable.

👉 This was hailed as a pro-business judgment, giving hope to real estate and infrastructure developers.

2. The Supreme Court Appeal (2024)

The tax department challenged the Odisha HC ruling before the Supreme Court of India.

Key Points of SC Judgment (Oct 3, 2024)

• Constitutionality upheld: Section 17(5)(c) and (d) were found valid — Parliament has the power to restrict ITC.
• But… Interpretation matters:
  • The SC differentiated between “plant or machinery” and “plant and machinery”.
  • It applied a functionality test: if the building (like a mall) is essentially a tool for business (leasing), it may qualify as “plant or machinery.”
• Outcome: SC opened the door for case-by-case consideration — meaning businesses could still argue for ITC eligibility if they could prove functionality.

This was seen as a balanced verdict — not striking down the law, but giving relief through interpretation.

3. Review Petition Dismissed (May 2025)

• The tax department filed a review petition seeking to overturn or limit the SC ruling.
• On 20 May 2025, the Supreme Court dismissed the review petition, confirming that the original October 2024 judgment stood.

For a brief moment, businesses felt secure that ITC could still be argued through the functionality test.

4. Finance Bill 2025: Retrospective Amendment

And then came the twist.

• The Finance Bill 2025 amended Section 17(5)(d).
• It substituted the words “plant or machinery” with “plant and machinery.”
• Why does this matter? Because the defined term “plant and machinery” explicitly excludes land, buildings, and civil structures.
• The amendment was made retrospective from July 1, 2017, i.e., the very start of GST.

Effect: The functionality test given by SC was neutralized, and ITC on construction of immovable property meant for leasing became ineligible by statute.

Practical Implications for Businesses

Who is Affected?

• Real estate developers (shopping malls, office complexes, IT parks).
• Hospitality sector (hotels, resorts).
• Infrastructure projects involving immovable property for commercial leasing.

What Does It Mean?

• Businesses cannot claim ITC on GST paid for construction costs of such properties.
• Even if leasing is taxable, ITC on construction inputs is blocked.
• Increased cost of projects — ITC denial inflates expenses by 12–18%.

FAQs on Safari Retreats Case

Q1: Can ITC still be claimed on repairs or renovation of buildings used for leasing?

• Minor repairs and maintenance may qualify, but major reconstruction could fall under “construction” and get blocked.

Q2: Does this affect residential leasing too?

• Residential leasing is exempt from GST, so ITC is anyway not available. The issue primarily concerns commercial leasing.

Q3: Is there any sector-specific relief?

• Certain notified infrastructure (like SEZs, government projects) may have special provisions, but for private developers, ITC is blocked.

Step-by-Step Guide: How to Handle ITC for Construction Projects

1. Identify Input Services and Goods
   • Separate construction-related inputs (blocked) from operational inputs (eligible).
2. Check Output Supply
   • If output is exempt (e.g., residential rent), ITC is blocked anyway.
   • If output is taxable (e.g., mall rent), ITC is now blocked retrospectively.
3. Document Classification
   • Maintain contracts, invoices, and accounting entries clearly distinguishing construction from operations.
4. Seek Advance Rulings Carefully
   • Businesses may still approach Advance Ruling Authorities for clarity on borderline cases.

The Safari Retreats Pvt. Ltd. case is a fascinating example of how tax law evolves through the tug of war between judiciary and legislature.

• 2019 (Odisha HC): Businesses cheered ITC eligibility.
• 2024 (SC): A nuanced interpretation offered hope.
• 2025 (Review Dismissed): Relief confirmed.
• 2025 (Finance Act Amendment): Lawmakers shut the door with retrospective effect.

For businesses, this means higher costs on construction projects and the need to carefully plan tax positions. For policymakers, it reflects the balance between revenue protection and ease of doing business.

Businesses in real estate and leasing must now assume no ITC on construction and factor this into project costing. Tax planning should focus on operational ITC optimization instead.