Landmark Decision Of Hon’ble Supreme Court’s On ITC Eligibility For Construction Activities Under Section 17(5)(D) Of The CGST Act.

A detailed analysis of Hon’ble Supreme Court’s Judgement on Input Tax Credits on Construction of Immovable Property

Summary 

Chief Commissioner of Central Goods and Service Tax & Ors. v. M/s Safari Retreats Private Ltd. & Ors. (Supreme Court of India) in Civil Appeal No. 2948 of 2023

The Supreme Court of India made several key observations regarding the constitutional validity of Section 17(5)(c) and (d) of the CGST Act, 2017, and the issue of Input Tax Credit (ITC).

Issues for consideration before the Apex Court

1. Whether the definition of “plant and machinery” in the explanation appended to Section 17 of the CGST Act applies to the expression “plant or machinery” used in clause (d) of sub-section (5) of Section 17?

2. If it is held that the explanation does not apply to “plant or machinery”, what is the meaning of the word “plant”? and

3. Whether clauses (c) and (d) of Section 17(5) and Section 16(4) of the CGST Act are unconstitutional?

Relevant Provisions of the CGST Act,2017

“17(5) Notwithstanding anything contained in sub-section (1) of Section 16 and sub section (1) of Section 18, input tax credit shall not be available in respect of the following, namely:
.................

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

Explanation.-For the purposes of clauses (c) and (d), the expression “construction” includes re construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;”

Key Observations by the Hon’ble Apex Court

1. The explanation to section 17(5) defines “ plant and machinery”. However, no where in the CGST Act “plant or machinery” is defined Clause ( c) and clause (d) of the CGST Act do not exclude every classes of immovable properties from the applicability of ITC. As per clause (c ) if the construction is of “plant and machinery”, the benefit of ITC will accrue. Similarly, under clause (d) if the construction is of “plant or machinery”, ITC will be available.- Para-33

2. As per the well settled principle of interpretation of taxing statute, there is no scope to give any meaning to clause ( c) of Section 17(5) other than its plain and natural meaning. The “plant and machinery” is defined in the explanation to section 17(5) of the CGST Act,2017. Works contract service is also defined in the CGST Act. Therefore, there is nothing to add or subtract from the clause ( c) of Section 17 of the CGST Act. As ITC is a creation of legislature, it can exclude specific categories of goods or services from ITC and such exclusion, per se will not defeat the object of the CGST Act.-Para 41

3. The phrase “plant and machinery” is used in the CGST Act at several different places.However, the term “plant or machinery” is only used in Section 17(5)(d) of the CGST Act. Therefore, it has been inferred that the legislature has intentionally used the expression “ plant or machinery” in clause (d) of Section 17(5) of the CGST Act,2017. Therefore, the expression “plant and machinery” and “plant or machinery” cannot have the same meaning.-Para 44.

4. The expression “plant or machinery” can either be “plant” or “machinery”. No where in the GST Laws, the word “plant” is defined. In this regard the Apex Court has held that dominant functionality test shall be carried out to determine whether a building can be considered as a “ plant” or not. If it is found on facts that a building has been so planned and constructed so as to serve assessee’s special technical requirements, it will qualify to be treated as ‘ plant’. For the purpose of Section 17(5)(d) ‘plant’ should not be given a restrictive meaning to exclude land, buildings etc.

5. Activity of Renting or leasing buildings is already covered under Schedule-II of the CGST Act,2017 as supply of service. Even the activity of construction of building is a supply of service if the total consideration is collected before getting Completion Certificate. Therefore, building can be considered as “plant” and ITC can be availed for construction of such building if the same is used for further supply of services like renting, leasing etc. However, if the building is used for own use, then ITC will not be available.

6. Further, in regard to the constitutional validity of Section 17(5) clause ( c) and (d), the Apex Court has relied upon the decision in the case of VKC Footsteps and held that the provisions of Section 17(5), clause (c ) and clause (d) do not meet the test of reasonable classification, which is a Part of Article-14 of the Constitution of India. To satisfy the test, there must be an intelligible differentia forming the basis of the classification, and the differentia should have a rational nexus with the object of legislation. It is further held that the right of ITC is conferred only by the Statute; therefore, unless there is a statutory provision, ITC cannot be enforced. It is a creation of a statute, and thus, no one can claim ITC as a matter of right unless it is expressly provided in the statute. It cannot be disputed that the legislature can always carve out exceptions to the entitlement of ITC under Section 16 of the CGST Act.[Para 58].

This judgement is landmark decision in regard to availability of ITC on construction activity, which are blocked under section 17(5)(d) of the CGST Act. The Hon’ble Apex Court has categorically decided that ITC shall be eligible in respect of construction of Malls or other buildings which were constructed with the objective of giving it on rent or lease. However, the Hon’ble Court is silent in respect of construction of Factory Buildings where taxable goods are manufactured or construction of office building from where services are provided. The principle of functionality test, as applied by the Hon’ble Apex Court may be used to determine the eligibility of ITC in respect of Factory Building or Office Buildings.

Detailed Analysis 

The Supreme Court of India recently issued a landmark judgment interpreting Section 17(5) of the Central Goods and Services Tax (CGST) Act, which could significantly alter how businesses claim Input Tax Credit (ITC) on immovable properties like shopping malls, commercial complexes, and office buildings. This decision holds potential to shift the compliance landscape for entities involved in constructing properties for leasing, renting, or commercial purposes.

Let’s delve into the crux of this ruling, its implications, and how businesses can leverage this new interpretation for potential tax benefits.

Understanding the Core Issue

Section 17(5) of the CGST Act restricts the availment of ITC on goods and services used for the construction of immovable properties, with a key exception for “plant and machinery.” The intent behind this provision is to ensure that ITC is not misused for personal construction or for purposes that do not contribute to taxable supplies.

However, in scenarios where a business constructs a property for commercial use-such as renting out a shopping mall or leasing office spaces-the question arises: should the ITC on construction expenses be allowed?

This question took center stage in the Safari Retreats Pvt. Ltd. v. Chief Commissioner of Central Goods and Service Tax & Ors. case, where the first respondent, M/s Safari Retreats Pvt. Ltd., faced restrictions on claiming ITC for constructing a shopping mall that would be leased out for commercial purposes.

The Key Takeaway - The Functionality Test

The Supreme Court’s decision revolves around a critical interpretative element-the functionality test. The Court has effectively broadened the scope of what could be considered a “plant,” thus potentially allowing certain immovable properties to qualify for ITC based on their business usage.

What is the Functionality Test?

The functionality test is a principle that examines how integral a property is to the business’s operations:

Integral to Taxable Supply: If the property plays an essential role in generating taxable supplies (e.g., a shopping mall constructed for renting), then it may be classified as a “plant.”

Determining ITC Eligibility: This test helps determine whether a property is more than just a passive asset and is, in fact, functionally necessary for the business, thus qualifying for ITC under Section 17(5).

Safari Retreats Case: A Turning Point

The case of M/s Safari Retreats Pvt. Ltd. is pivotal to this ruling. The company had constructed a shopping mall and accumulated ITC on the goods and services used during the construction phase. They aimed to offset this credit against GST payable on the rental income received from tenants. However, tax authorities rejected the claim based on Section 17(5)(d) of the CGST Act, which blocks ITC on the construction of immovable properties “on one’s own account.”

The Supreme Court’s ruling has now sent the case back to the Orissa High Court for reconsideration based on the functionality test. This will require the High Court to ascertain whether the shopping mall can be classified as a “plant” under the functionality test.

The Impact of the Ruling on Businesses

The Supreme Court’s ruling opens the door for a more nuanced interpretation of ITC on immovable properties. The key points of impact include:

Potential ITC on Construction Expenses: Businesses constructing immovable properties like malls, hotels, office complexes, and warehouses could claim ITC on construction costs if they can demonstrate that the property is an essential part of their business operations. This could significantly reduce their tax burden.

Aligns with the Objective of Seamless Credit: The ruling supports the larger GST objective of allowing seamless credit flow and avoiding the cascading effect of taxes. By allowing ITC on construction costs for properties used to generate taxable supplies, the judgment aligns with the goal of tax neutrality.

Importance of Business Purpose: The functionality test implies that entities must assess the role of their property within their business model. If the property is directly linked to taxable activities like renting or leasing, it stands a better chance of being classified as a “plant” for ITC purposes.

Encourages Re-evaluation of Tax Positions: Businesses involved in commercial real estate, hospitality, retail, or any sector where properties are constructed for business activities should reevaluate their tax positions. If their immovable property is critical to their supply of services, they might now be able to claim ITC on its construction.

The Court’s Balanced Approach to Tax Policy

While this ruling offers clarity on the interpretation of Section 17(5), the Supreme Court emphasized that it is not the role of the judiciary to modify tax policies or laws. Such changes are under the purview of the GST Council, which is responsible for addressing policy inconsistencies or practical challenges in implementation.

The Court’s ruling encourages the GST Council to take a fresh look at Section 17(5) and consider the practical implications of denying ITC on construction costs for commercial properties used in generating taxable supplies. The expectation is that this judgment will prompt policy adjustments to create a more equitable and business-friendly tax framework.

Steps for Businesses to Maximize ITC Benefits

For businesses, the ruling provides an opportunity to optimize their tax strategy and take proactive steps to leverage ITC on construction costs:

Assess the Role of Property in Your Business: If you own properties like shopping malls, office complexes, or warehouses that are integral to your taxable supplies, evaluate how they function in your business model.

Review Section 17(5) Restrictions: Carefully analyze the provisions under Section 17(5) of the CGST Act and assess if your property can qualify as a “plant” under the functionality test. The goal is to establish that the property is not merely a passive asset but a critical component of your taxable activities.

Track the Safari Retreats Case Developments: Keep a close eye on the Orissa High Court’s reconsideration of the Safari Retreats case. The decision will set an important benchmark for the functionality test and provide further clarity on how properties may be classified for ITC purposes.

Document and Justify ITC Claims: Ensure that all documentation related to the construction and usage of your property is in order. Be prepared to justify the property’s role in your business operations to support your ITC claims.

Conclusion - A Step Towards Tax Equity and Simplification

The Supreme Court’s interpretation of Section 17(5) of the CGST Act brings much-needed clarity and could serve as a catalyst for more equitable ITC provisions for businesses. By introducing the functionality test, the Court has signaled that commercial properties used actively for generating taxable supplies should not be treated as passive assets and deserve fair ITC treatment.

This ruling could lead to substantial tax savings for businesses with construction costs, provided they meet the criteria established by the functionality test. It underscores the importance of aligning tax positions with business models and staying informed about policy changes that could affect tax planning and compliance.

Facts:

M/s Safari Retreats Private Limited (“the Respondent”) was engaged in the construction of a shopping mall for the purpose of letting out premises in the malls to different tenants. Vast quantities of material, inputs and services were required for the construction of the malls in the form of cement, sand, steel, aluminium, wires, plywood, paint, lifts, escalators, air-conditioning plants, electrical equipment, transformers, building automation systems etc., and also consultancy services, architectural services, legal and other professional services, engineering services and other services including the services of a special team of international designers specialised in the construction of Malls. These goods and services were taxable under the CGST Act.

The Respondent had accumulated input credit of GST amounting to more than Rs. 34 crores by the purchase/supply of goods and services consumed and used in the construction of the shopping mall.

The Respondent, at the same time, was letting out of units in the shopping mall attracts CGST based on the rent received by the Respondent since it amounts to the supply of service under the CGST Act. The Respondent wanted to avail ITC accumulated against rental income received from such rental income received by it upon letting out the mall premises.

However, the Authority advised the Respondent to deposit GST on rent without deducting ITC because of the exception carved out by Section 17(5)(d) of the CGST Act.

Consequently, the Respondent filed a writ petition before the Hon’ble High Court of Orissa and accordingly an Order dated April 17, 2019 (“the Impugned Order”) was passed against the Chief Commissioner of CGST & Ors. (“the Appellants”).

Hence, aggrieved by the Impugned Order, the present Special Leave Petition (“SLP”) was filed before the Hon’ble Apex Court by the Appellants.

Issues:

• Whether the definition of “plant and machinery” in the explanation appended to Section 17(5)(c) of the CGST Act applies to the expression “plant or machinery” used in Section 17(5)(d) of the CGST Act?
• If it is held that the explanation does not apply to “plant or machinery”, what is the meaning of the word “plant”?
• Whether Section 17(5)(c) and 17(5)(d) of the CGST Act read with Section 16(4) of the CGST Act are unconstitutional?

Held:

The Hon’ble Supreme Court in the Civil Appeal No. 2948 of 2023 held as under:

• Observed that, Section 17(5)(c) and 17(5)(d) of the CGST Act applies when works contract services are supplied for constructing immovable property. The definition of “works contract” under Section 2(119) is extensive. Thus, in the case of works contract services supplied for the construction of immovable property, the benefit of ITC is not available. However, there are exceptions to Section 17(5)(c):

i. When goods or services, or both, are received by a taxable person for the construction of “plant and machinery”, as defined in the explanation .

ii. Where the works contract service supplied for the construction of immovable property is an input service for further supply of the works contract.

• Section 17(5)(d) of the CGST Act is different from Section 17(5)(c) of the CGST Act in various aspects. Section 17(5)(d) of the CGST Act seeks to exclude from the purview of sub-section (1) of Sections 16 and 18, goods or services or both received by a taxable person to construct an immovable property on his own account. There are two exceptions in clause (d) to the exclusion from ITC provided in the first part of Clause (d):

i. where goods or services or both are received by a taxable person to construct an immovable property consisting of a “plant or machinery”.

ii. where goods and services or both are received by a taxable person for the construction of an immovable property made not on his own account. Construction is said to be on a taxable person’s “own account” when:

(i) it is made for his personal use and not for service or

(ii) it is to be used by the person constructing as a setting in which business is carried out.

However, construction cannot said to be on a taxable person’s “own account” if it is intended to be sold or given on lease or license.

• Section 17(5) incorporates an explanation which provides that the word “construction” used in clauses (c) and (d) includes reconstruction, renovation, additions, alterations or repairs, to the extent of capitalisation, to the immovable property. Thus, a very wide meaning has been assigned to the expression “construction” by the said explanation.
• There is hardly a similarity between clauses (c) and (d) of Section 17(5) except for the fact that both clauses apply as an exception to sub-section (1) of Section 16. Perhaps the only other similarity is that both apply to the construction of an immovable property. Clause (c) uses the expression “plant and machinery”, which is specifically defined in the explanation. Clause (d) uses an expression of “plant or machinery”, which is not specifically defined.
• The explanation defines the meaning of the expression “plant and machinery”. However, as stated earlier, the expression “plant or machinery” has not been defined under the CGST Act. It is pertinent to note that clauses (c) and (d) do not altogether exclude every class of immovable property from the applicability of ITC. In the case of clause (c), if the construction is of “plant and machinery” as defined, the benefit of ITC will accrue. Similarly, under clause (d), if the construction is of a “plant or machinery”, ITC will be available.
• In view of clause (a) of sub-section (1) of Section 7, a supply of services such as sale, transfer, licence, rental or lease made for consideration is a supply. Whether the activities or transactions covered by sub-section (1) of Section 7 constitute a supply has to be considered in light of Schedule II. Schedule II has a title: “Activities or transactions to be treated as supply of goods or supply of services”. The activities/transactions incorporated in Schedule II are treated as a supply of service. As far as lands and buildings are concerned, clauses (2) and (5) of Schedule II are relevant.
• Clause 5(b) of Schedule II has to be read with the provisions of Schedule III, which has a title: “Activities or transactions which shall be treated neither as a supply of goods nor a supply of services”.
• If there is a complex, building or civil structure constructed which is intended for sale to a buyer, wholly or partly, construction becomes a supply of service only if consideration for sale is received before the issuance of a completion certificate or after its first occupation, whichever is earlier. Thus, if the consideration for sale is paid after the competition certificate is issued or its first occupation, whichever is earlier, the sale transaction will not amount to the supply of service. However, no such distinction has been made in the case of lease, tenancy, or licence concerning land or letting of buildings. Even if the entire consideration for lease, tenancy or a licence to occupy land or a lease of a building is paid after the issuance of the completion certificate or its first occupation, whichever is earlier, it continues to be a supply of service.
• The Constitutional validity of Section 17(5)(c) and 17(5)(d) read with section 16(4) of the CGST Act was upheld. The legislature has the power to make reasonable classifications for the purpose of taxation, and the provisions in questions do not violate the principle of equality under Article 14 of the Constitution.
• Relied on, the case of ALD Automotive Pvt. Ltd. v. Commercial Tax Officer [(2019) 13 SCC 225] wherein the Hon’ble Supreme Court held that denial of ITC was justified on the ground that it is not a fundamental or constitutional right, rather, ITC is a statutory right and in absence of the right under the statute, the Court cannot issue a mandamus to grant ITC.
• Opined that, the expression ‘Plant or machinery’ cannot be given the same meaning as ‘plant and machinery’ as defined in the explanation to Section 17 of the CGST Act. The legislature has consciously used a distinct expression, and it must be given a different meaning. The word ‘Plant’ in the expression “plant or machinery” should be interpreted based on functionality test i.e. whether the building is essential for carrying out the business activities of the registered person.
• Observed that, the explanation to Section 17(5)(c) of the CGST Act defines ‘plant and machinery’ used in Chapter V which discussed provisions of ITC and Chapter VI which discusses Registration of GST, wherein, the expression ‘plant and machinery’ appears in several places, but the expression ‘plant or machinery’ is found only in Section 17(5)(d) of the CGST Act. If the legislature intended to give the expression “plant or machinery” the same meaning as “plant and machinery” as defined in the explanation, the legislature would not have used the expression “plant or machinery” in Section 17(5)(d) of the CGST Act. The Legislature has made this distinction consciously. Therefore, the expression ‘plant and machinery’ and ‘plant or machinery’ cannot be given the same meaning.
• Noted that, the expression “plant or machinery” has a different connotation. It can be either a plant or machinery. Section 17(5)(d) of the CGST Act deals with the construction of an immovable property. The very fact that the expression “immovable property” is used shows that there could be a plant that is an immovable property. As the word ‘plant’ has not been defined under the CGST Act or the rules framed thereunder, its ordinary meaning in commercial terms will have to be attached to it.
• Observed that, the question whether a mall, warehouse or any building other than a hotel or a cinema theatre can be classified as a plant within the meaning of the expression “plant or machinery” used in Section 17(5)(d) of the CGST Act is a factual question which has to be determined keeping in mind the business of the registered person and the role that the building plays in the said business. If the construction of a building was essential for carrying out the activity of supplying services, such as renting or giving on lease or other transactions in respect of the building or a part thereof, which are covered by Clause (2) and clause (5) of Schedule II of the CGST Act, the building could be held to be a plant. Then, it is taken out of the exception carved out by Section 17(5)(d) of the CGST Act subject to Section 16(1) of the CGST Act. The Functionality test will have to be applied to decide whether a building is a plant. Therefore, by using the functionality test, in each case, on facts, in the light of what it was held earlier, it will have to be decided whether the construction of an immovable property is a ‘plant’ for the purposes of Section 17)5)(d) of the CGST Act.
• Relied on, the case of CIT, Andhra Pradesh v. Taj Mahal Hotel, Secunderabad [(1971) 3 SCC 550], the Hon’ble Supreme Court held that the word “plant” means land, building, machinery, apparatus and fixtures employed in carrying on trade and other industrial business. Applying the principles of the interpretation of taxing statutes, there is no scope to give any meaning to Section 17(5)(c) of the CGST Act other than its plain and natural meaning. The expression ‘plant and machinery’ has been specifically defined in explanation 17 of the CGST Act. Nothing can be added or subtracted from Section 17(5)(c) of the CGST Act. ITC is a creation of legislature. Therefore, it can exclude specific categories of goods or services from ITC. Exclusion of the category of works contracts by clause 17(5)(c) of the CGST Act will not, per se, defeat the object of the CGST Act,
• Held that, set aside the Impugned Order and remanded the Petition to the Hon’ble High Court to decide whether, the shopping mall is a “plant” in terms of clause (d) of Section 17(5) of the CGST Act. The Court did not take the final decision whether the construction of immovable property carried out by the Petitioners in Writ Petitions amounts to plant, and each case will have to be decided on its merit by applying the functionality test in terms of this judgment.

My Comments:

Section 17 of the CGST Act governs “Apportionment of credit and blocked credits”. Section 17(5) of the CGST Act provides a list of transactions where credit is not allowed. Section 17(5)(c) of the CGST states that works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service and Section 17(5)(c) of the CGST Act states that goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

For the same purpose, explanation is also provided where “construction” is defined for the purpose of Section 17(5)(c) and (d) of the CGST Act. It states that the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

Furthermore, Section 17(5)(c) of the CGST Act provides explanation for Chapter V an VI, where the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

The constitutional validity of Section 17(5)(c) and 17(5)(d) read with Section 16(4) of the CGST Act is in favor of the Revenue Department.

The ITC is not a fundamental or constitutional right, it is a statutory right. It is also a vested right, if it qualifies certain conditions.

Eligibility and conditions are specified under Section 16 of the CGST Act, which is reproduced below:

16.(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,--

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37;

(b) he has received the goods or services or both.

Explanation.-For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services--

(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.

(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be paid by him along with interest payable under section 50, in such manner as may be prescribed:

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him to the supplier of the amount towards the value of supply of goods or services or both along with tax payable thereon.”

Meaning of “Plant and Machinery” is defined in Explanation to Section 17(5)(C) of the CGST Act. However, the meaning of “Plant or Machinery” is not defined under the GST Act.

Construction of immovable property, if it is qualified as a ‘Plant’ then credit is allowed.

Open Issues:

1. Definition of “Plant”: The term “plant” used in Section 17(5)(d) is not defined in the CGST Act, and its ordinary commercial meaning must be interpreted on a case-by-case basis. This leaves open the issue of whether specific types of immovable property, such as shopping malls, warehouses, or other buildings, can qualify as “plant” under the functionality test.

2. Functionality Test: The application of the functionality test is critical in determining whether a building or structure is classified as “plant.” The specific criteria for this test, and how it will be applied in various factual scenarios, remain open. Each case must be judged on its own merits, considering the business activity and the role of the immovable property in the business.

3. Impact on Future Construction Projects: The ruling may impact future construction projects, particularly those that involve immovable property intended for business use, such as malls or office complexes. How businesses can claim ITC in these situations remains subject to case-by-case analysis.

Critical analysis of what can be covered in"plant"- Based on Judgments of Income tax

It’s very important to understand what is “plant”to get that benefit of ITC. Here I have tried to compile some judgments of income tax to help you understand whats plant. When abuilding can be considered as a plant. 

Not every building even if it is let out will be eligible for this benefit. Let us try to see what according to courts can be covered in plant when its in a building.Whether a Hotel Building Can Be a "Plant"

Whether a Hotel Building Can Be a "Plant"

In the case of CIT, Andhra Pradesh v. Taj Mahal Hotel, Secunderabad, the Supreme Court ruled that a hotel building can be classified as a "plant" if it is used to carry on the business operations effectively. The court emphasized that a "plant" includes land, buildings, machinery, apparatus, and fixtures employed in carrying on trade and industrial business. The ruling indicates that the classification of a building as a "plant" depends on its utility and function in business operations rather than its form or structure. 

Whether a Cinema Hall or Theatre Building Can Be a "Plant" 

In the case of CIT, Trivandrum v. Anand Theatres, the court held that a cinema hall or theatre building can be treated as a "plant" if it has been specially designed and constructed to attract customers and serve the business purpose effectively. The judgment limited the applicability to buildings like hotels and theatres, where the building itself plays a crucial role in the business. The decision highlights that buildings with unique designs and functions related to business activities can be categorized as a "plant." 

Whether a Power Station Building Can Be a "Plant" 

In Commissioner of Income Tax, Karnataka v. Karnataka Power Corporation, the court held that a power station building should be considered a "plant" because it satisfies the functional test and is an essential tool for carrying out business operations. The judgment emphasized that if a building serves as a crucial apparatus or tool in the business process, it qualifies as a "plant." 

Whether a Power Station Building Can Be a "Plant" 

In Commissioner of Income Tax, Karnataka v. Karnataka Power Corporation, the court held that a power station building should be considered a "plant" because it satisfies the functional test and is an essential tool for carrying out business operations. The judgment emphasized that if a building serves as a crucial apparatus or tool in the business process, it qualifies as a "plant." 

Whether a Pond Used for Aquaculture Can Be a "Plant" 

In Commissioner of Income Tax v. Victory Aqua Farm Ltd.,(Judgment of SC in year 2015) the court ruled that a pond specifically designed for the business of aquaculture should be treated as a "plant" for taxation purposes. This judgment was based on the principle that structures constructed to fulfill specific business purposes and integral to the business operations are categorized as "plants." 

Whether a Building Specially Designed for Commercial Purposes Can Be a "Plant"

In the case of Commissioner of Income Tax, Trivandrum v. Anand Theatres, the court further elaborated that a building specially designed for a commercial purpose, such as attracting customers in a mall or theatre, can be considered a "plant" if it plays an essential role in the business. The decision established that the design and purpose of the building are critical factors in determining whether it qualifies as a "plant."

Whether Structures Serving Specialized  Business Needs Can Be a "Plant"

In Commissioner of Income Tax v. Victory Aqua Farm Ltd., (Judgment of SC in year 2015) the court acknowledged that structures like specially designed ponds used for specific business needs can be treated as "plants." This ruling reinforced the idea that structures built to support and serve specialized business operations meet the criteria of a "plant."