GSTAT Ruling on ITC Eligibility for Resort Construction Post-Finance Act 2025 Amendment

This article examines the denial of Input Tax Credit on goods and services utilized for resort construction under the retrospectively amended Section 17(5)(d) of the CGST Act, as analyzed in a recent GSTAT Bengaluru ruling.

The retrospective substitution of statutory language by the Finance Act, 2025 directly impacts assessees in the hospitality sector by restricting the application of the functionality test, making it imperative for practitioners to reassess credit claims and maintain strict invoice-level segregation for movable assets.

The Matter in Dispute

A recurring dispute in GST assessment involves the eligibility of an assessee to claim Input Tax Credit (ITC) on the procurement of goods and services used for the construction of civil structures, specifically in the hospitality sector. Assessees frequently argue that a hotel or resort building is essential to the provision of hospitality services, thereby qualifying as a "plant" under the functionality test. Furthermore, assessees contend that constructing a building to provide services to guests does not constitute construction on the assessee's "own account".

Revenue authorities consistently reject these claims, relying on the statutory block provided under Section 17(5)(d) of the CGST Act. The dispute requires a precise determination of whether civil structures for self-operated resorts fall within the definition of "plant and machinery" and whether the statutory exceptions apply to the hospitality industry.

The Governing Law

The adjudication of this dispute relies on a specific set of statutory provisions governing the blockage of ITC, the burden of proof, and the subsequent assessment of interest and penalties.

Statutory Block under Section 17(5)(d)

Section 17(5)(d) of the CGST Act blocks ITC on goods or services received by a taxable person for the construction of immovable property on their own account, including when such goods or services are used in the course or furtherance of business.

Section 124 of the Finance Act, 2025, read with Notification No. 16/2025-Central Tax dated September 17, 2025, retrospectively substituted the phrase "plant or machinery" with "plant and machinery" in Section 17(5)(d). This amendment is effective retrospectively from July 1, 2017.

Definition of Plant and Machinery

Explanation 1 to Section 17 of the CGST Act provides the statutory definition of "plant and machinery". It expressly excludes land, building, or any other civil structures from the definition, limiting the scope of eligible capital goods to apparatus, equipment, and machinery fixed to earth by foundation or structural support.