The GST Council has proposed a retrospective amendment to the Goods and Services Tax (GST) Act to address the implications of the Supreme Court’s landmark judgment in the Safari Retreats case. The GST Council’s proposal to amend the GST Act retrospectively from 1st July 2017 seeks to address a drafting error in Section 17(5).

The CBIC chairman has clarified that the term ‘plant and machinery’ has been used at 11 places in the GST Act but only at one place it is mentioned as ‘Plant or Machinery’, now the drafting error under GST Act has been corrected from July 2017. The Chairman has acknowledged there is a drafting error in the clause. The Supreme Court, in its ruling, applied a “functionality test” to determine the eligibility for ITC on construction costs incurred by builders when constructing buildings for renting services. The court held that if the construction of a building is essential for carrying out an activity, such as renting or leasing, it can be considered a “plant” under the GST Act.

This decision is significant as it opens the door for builders to claim ITC on construction costs for buildings used in rental or lease activities. According to the court’s ruling, a building constructed for renting or leasing could be considered a “plant” under the GST Act, provided it is essential for the business’s operations. The court further clarified that the term “plant” could extend beyond traditional machinery and equipment to include structures like buildings, provided they meet the functionality criteria. This judgment has huge implications for the real estate and construction sectors, particularly for builders who previously faced restrictions on claiming ITC for construction-related expenses.