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The Supreme Court of India dismissed the Finance Ministry's review petition against its October 2024 judgment, which had permitted real estate developers to claim input tax credit (ITC) on construction costs for commercial properties intended for rental purposes. The ruling emphasized that such properties could be classified as 'plant and machinery' under the Goods and Services Tax (GST) Act, thereby qualifying for ITC. This decision is expected to reduce operational costs for developers and tenants alike. However, the Finance Ministry had introduced a retrospective amendment in the Union Budget 2025 to reverse this judgment, leading to ongoing legal debates.
Earlier this week, the Supreme Court of India upheld its October 2024 judgment, affirming that commercial real estate developers are entitled to claim input tax credit (ITC) on the construction costs of buildings meant for leasing purposes. A bench comprising Justices Abhay S. Oka and Sanjay Karol dismissed the Finance Ministry's review petition, stating that there was "no error apparent on the record" in the earlier judgment. The court's decision underscores the classification of such properties as 'plant and machinery' under the Goods and Services Tax (GST) Act, thereby allowing ITC claims. Advertisement
The original ruling had significant implications for the real estate sector, as it permitted developers to offset the tax paid on construction inputs against their GST liabilities. This move was anticipated to reduce the overall cost of rental properties, benefiting both developers and tenants. The judgment also addressed concerns about the competitiveness of newly constructed rental properties compared to older ones, emphasizing that denying ITC could adversely affect developers' businesses.
In response to the Supreme Court's ruling, the Finance Ministry introduced a retrospective amendment in the Union Budget 2025. The amendment, effective from July 1, 2017, revised Section 17(5)(d) of the Central Goods and Services Tax (CGST) Act by changing the terminology from "plant or machinery" to "plant and machinery." This change aimed to restrict ITC claims on construction costs for leased properties, effectively nullifying the Supreme Court's judgment. The retrospective nature of the amendment has sparked debates about its legality and fairness, with industry stakeholders expressing concerns over the sudden policy shift.
However, the Finance Ministry's retrospective amendment in the Union Budget 2025 has introduced a layer of complexity, leading to potential legal challenges. As the situation evolves, stakeholders in the real estate sector are closely monitoring developments to understand the long-term implications of these legal and legislative actions.
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