Section 17(5)(d)-wordings of "plant or machinery" changed-reference of Safari case!

In a significant move to align the provisions of the CGST Act with its intended scope, the 55th GST Council meeting has recommended an amendment to Section 17(5)(d) of the CGST Act, 2017. The amendment proposes to replace the phrase "plant or machinery" with "plant and machinery," effective retrospectively from July 1, 2017. This change is intended to clarify the interpretation of the term "plant and machinery" as per the Explanation provided at the end of Section 17 of the CGST Act, ensuring that the provisions are applied consistently with the original legislative intent. This amendment is poised to provide greater clarity and reduce ambiguity for businesses in their GST compliance efforts.

Proposed amendment

Amendment in section 17(5)(d) of CGST Act, 2017:

To align the provisions of section 17(5)(d) of CGST Act, 2017 with the intent of the said section, the Council has recommended amending section 17(5)(d) of CGST Act, 2017, to replace the phrase "plant or machinery" with "plant and machinery", retrospectively, with effect from 01.07.2017, so that the said phrase may be interpreted as per the Explanation at the end of section 17 of CGST Act, 2017.

Understanding the change

• Section 17(5) of the CGST Act, 2017 deals with Blocked Credit. It contains a list of goods and services of which input tax credit can not be availed by the taxpayer.
• Its clause (d) 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 is not allowed to be availed as ITC.
• It means that if “plant or machinery” is constructed, then ITC is allowed.
• In October 2024, the Hon’ble Supreme Court delivered a ruling in the case of Safari Retreats Private Limited in which input tax credit (ITC) on construction expense for buildings meant to be leased/ Renting was permitted. 
• It was stated in the case law that the expression "plant or machinery" cannot be given the same meaning as "plant and machinery" as defined in the explanation to Section 17. 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 the functionality test, i.e., whether the building is essential for carrying out the business activities of the registered person.
• Now, in the 55^th GST Council Meeting, it is proposed that the wordings “plant or machinery” are to be replaced by the words “plant and machinery” retrospectively from 01^st July 2017.
• The term “plant and machinery” as defined in the explanation to section 17 of the CGST Act, 2017 is as follows:

“For this Chapter and Chapter VI, 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.”

• This retrospective amendment will impact the taxpayers who benefitted due to the decision of the Safari case. Speaking with the media after the Council meeting, the CBIC chairman said that the expression “plant or machinery” used in the said section of the GST Act was a drafting error and that the proposed amendment seeks to correct the error.

Conclusion

In conclusion, the proposed amendment to Section 17(5)(d) of the CGST Act, 2017, marks an important step in rectifying a drafting error and aligning the provisions with the intended legislative framework. By replacing "plant or machinery" with "plant and machinery" retrospectively from July 1, 2017, the amendment addresses the ambiguity highlighted by the Supreme Court's ruling in the Safari case. The clarification ensures that the definition of "plant and machinery" is consistent with the explanation provided in the Act, limiting ITC claims to the specific items described in the definition. This change will provide clarity and certainty for businesses, ensuring they understand the scope of blocked credits under GST and avoid potential disputes in the future.

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