Delhi High Court Directs Adjudicating Authority to Decide ITC Claims on Immovable Property in Light of Safari Retreats Judgment

Background and Overview

The Delhi High Court recently disposed of two interlinked writ petitions that had challenged the constitutional validity of Clauses (c) and (d) of Section 17(5) of the Central Goods and Services Tax Act, 2017. One of the petitioners had gone a step further, additionally challenging the validity of Circular No. 28 (Flyer No.) dated 01.01.2018 issued by the concerned respondent authority.

The case — Riveria Commercial Developers Limited vs Union of India & Ors. — arose in the backdrop of a long-standing dispute over Input Tax Credit (ITC) restrictions applicable to immovable properties under the GST framework. The Court's disposal of these petitions is significant not merely for the parties involved, but for the broader GST ecosystem, particularly for businesses engaged in real estate development and commercial leasing.

Section 17(5) of the Central Goods and Services Tax Act, 2017 contains a list of goods and services on which ITC is blocked — commonly referred to as "blocked credits." Specifically, Clauses (c) and (d) of Section 17(5) restrict the availability of ITC in relation to:

  • Works contract services used for construction of immovable property (other than plant and machinery)
  • Goods or services received by a taxable person for construction of an immovable property on his own account, even when used in the course or furtherance of business

These provisions have been a persistent source of litigation, as businesses — particularly in the real estate and hospitality sectors — have argued that structures constructed for commercial leasing purposes should qualify as "plant" and thereby remain outside the scope of blocked credit.

Supreme Court's Ruling in Safari Retreats: The Foundation

The constitutional challenge at the heart of both writ petitions had already been conclusively settled by the Supreme Court in Chief Commissioner of Central Goods and Service Tax v. M/s Safari Retreats Private Ltd., 2024 INSC 756.

In that landmark ruling, the Supreme Court:

  1. Upheld the constitutional validity of Clauses (c) and (d) of Section 17(5) of the CGST Act, 2017
  2. Recognized the "functionality test" as the applicable standard for determining whether a structure qualifies as a "plant"
  3. Clarified that the determination of whether a proposed structure constitutes a plant is inherently fact-specific and must be decided on a case-by-case basis

Key Principle from Safari Retreats: The question of whether a structure qualifies as "plant" — and thereby avails ITC — cannot be answered uniformly. It requires a factual inquiry into the purpose and functionality of the structure in question.

This ruling fundamentally altered the litigation landscape. Since the constitutional challenge was no longer viable, the Delhi High Court had to redirect the petitioners toward the appropriate statutory forum — the Adjudicating Authority.