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Supreme Court Upholds ITC Rights for Leased Properties, Dismisses Review Petition

The court's decision reaffirms taxpayer eligibility for GST credits on construction costs while leaving the government's retrospective amendment open to legal scrutiny.

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Overview

  • The Supreme Court dismissed the Finance Ministry's review petition on May 20, 2025, affirming its October 2024 ruling in favor of input tax credit (ITC) claims for leased commercial properties.
  • The court upheld its application of functionality and essentiality tests, emphasizing that ITC cannot be denied for construction costs when properties are used for leasing purposes.
  • A retrospective amendment to the CGST Act, effective from July 1, 2017, seeks to restrict ITC claims by redefining 'plant or machinery' as 'plant and machinery.'
  • Legal experts warn that the retrospective amendment undermines judicial finality and may lead to further litigation as courts determine its validity.
  • The decision provides significant relief for industries like real estate and hospitality, but the amendment's implications continue to create uncertainty for taxpayers.