The GST on a large commercial mall — on the cement, the steel, the lifts, the air conditioning, the finishing work, the contractors engaged across years of construction — is a substantial sum. The GST collected on the rent that the same mall earns, once completed and let out, is a substantial sum too. Until October 2024, these two tax streams ran in parallel without ever meeting: the credit accumulated on construction could not be set off against the output liability on lease income.

Section 17(5)(d) of the CGST Act said so in terms that appeared, and were intended to appear, conclusive. Goods and services received for construction of an immovable property on the taxpayer's own account — the ITC on those was blocked. The justification, broadly, was that the property was not the taxpayer's product but rather the taxpayer's asset, and the tax system does not extend credit for an asset acquired for the taxpayer's own use.

Why the Block Had Made the Rules Uneven

The problem with this reasoning, as commercial lessors argued for years in courts across the country, is that it mischaracterises what a mall, a warehouse, or a hotel is to the businesses that build and operate them. The property is not an incidental asset. It is the very instrument through which the taxable supply — the rental service — is made. Remove it, and the supply does not exist. By this analysis, the building functions, economically and operationally, not as an end product for the taxpayer's own consumption but as the plant through which the taxpayer's output is generated.

The Revenue's answer — that the statute drew no distinction between construction for personal use and construction for leasing — was formally defensible but produced an outcome that the structure of input tax credit was designed precisely to avoid: tax cascading. The GST absorbed on construction inputs, unable to offset the output liability, flowed through into higher rental costs across the market. It was a quiet working-capital tax on an entire class of real-estate businesses, borne ultimately by the tenants and consumers at the end of the chain.

The Case That Forced the Line

Safari Retreats had built a shopping mall in Bhubaneswar and let it out. It claimed ITC on the construction inputs. The Revenue denied the claim. The Orissa High Court sided with Safari Retreats. The matter reached the Supreme Court.

What the Court held in October 2024 is more carefully constructed than the headline might suggest. It does not overturn Section 17(5)(d). What it does is read the exception — "plant or machinery" — with greater attention to what the word "plant" has historically been understood to mean in tax jurisprudence. The test is not categorical but functional: does this building, in the context of this taxpayer's output supply, operate as the instrument through which taxable output is generated?

A shopping mall let out on rent could plausibly meet that test. So could a hotel. So could a warehouse built for taxable leasing. A residential flat built for sale would not, because the sale is outside the GST net. An office building for the lessor's own occupation would not, because there is no taxable output. The line, in other words, runs through the nature of the output — not the nature of the building.

The Court remitted the matter for fact-finding on Safari Retreats' specific case. A review petition by the Revenue was dismissed in 2025.

Why the Ruling Changes the Terrain

The ruling goes on to unlock material sums for commercial lessors, mall developers, hotel operators, and warehouse builders — though not automatically. The functionality test requires factual analysis specific to each asset and each use. The credit is available, but it must be demonstrated, documented, and argued. Taxpayers in this category who have absorbed GST on construction inputs as a sunk cost, on the assumption that the law left them no choice, should examine their positions. For projects still within the limitation window for refund claims, the assumption was not necessarily correct.

A complication remains that assessees in this category cannot afford to ignore. A 2025 retrospective amendment changed the statutory phrase in Section 17(5)(d) from "plant or machinery" to "plant and machinery" — a change that, if it stands, narrows the exception. The amendment is under challenge. Until that challenge resolves, taxpayers proceeding under Safari Retreats should do so with awareness that the legislative ground on which the ruling rests is itself in dispute.

The Takeaway

If your business built a commercial building to generate taxable rent, and you have absorbed GST on construction inputs as a sunk cost, the assumption on which that decision rested was always open to question. The credit may have been available then. For buildings still within the limitation window for refund claims, it may still be recoverable now.

The building is not the obstacle. The only question is whether it meets the test.