An order issued by the Madras High Court last month could provide tax relief to builders by mandating that tax authorities have to consider the purpose for which a property was built before they deny Goods and Services Tax (GST) credit on construction costs, experts said.
The court, in an order dated August 28, asked tax officers to reconsider the case of ESNP Property Builder and Developers after they allegedly failed to properly consider a 2024 Supreme Court ruling on construction of properties meant for leasing. That case pertained to real estate developer Safari Retreats.
In the latest case, ESNP Property had built commercial properties for leasing and claimed credit for GST paid on construction. The tax department rejected the claim.
The High Court set aside the orders and sent the case back to the tax officers. It asked them to hear the company again and pass fresh orders within five months of receiving the court’s order.
The company had also sought the return of about ₹9.52 crore taken from its GST credit ledger and ₹10.09 lakh from its cash ledger. The court directed the authorities to re-credit or refund these amounts within two weeks of receiving the order.
The main issue is whether a company that builds a property to rent it out should be denied GST credit on the cost of construction.
The company had relied on the Supreme Court’s October 3, 2024 Safari Retreats ruling. In that case, the real estate developer had built a shopping mall and leased out the shops, and sought GST credit on the construction cost. The Supreme Court said construction for a company’s own use is different from construction intended to be sold or leased.
The government amended the provision through the Finance Act, 2025. While the Act received assent in early 2025, this specific amendment was notified to come into force on October 1, 2025, and was given retrospective effect from July 1, 2017. It replaced the words “plant or machinery” with “plant and machinery” and said the change would apply notwithstanding any earlier court judgment.
The tax department relied on this amendment in the ESNP case and did not consider the Supreme Court’s ruling in detail while rejecting the company’s claim. The Madras High Court, however, said that was not enough. Since ESNP had specifically relied on the Supreme Court judgment and argued that its property was built for leasing, the tax officer should have considered the ruling before deciding the case, the court said.
The ruling could therefore be important for developers and other businesses that have built properties specifically for rental income and have faced denial of GST credit, say experts.
Abhishek Jain, Partner and National Head, Indirect Tax, KPMG in India, said the order shows that the issue has not been settled by the subsequent change in the GST law.
“It leaves untouched the words “on his own account” on construction for one’s own use, which is the very limb on which the Supreme Court in Safari Retreats distinguished construction for one’s own use from construction meant for lease or licence,” Jain said.
He said businesses with large amounts of construction-related credit should now look at their cases carefully instead of assuming that the issue has ended.
Abhishek A. Rastogi, founder of Rastogi Chambers, said tax officers have to look at why a property was built and how it is connected with the company’s taxable business.
“Where a commercial building is put up specifically for leasing, and the building itself is the tool for earning taxable rent, the Safari Retreats principles matter,” he said.
Vivek Jalan, partner at Tax Connect Advisory Services, said the order could affect many similar disputes.
