Centre’s Retrospective GST Amendment: Legal and Industry Concerns
The Centre’s move to introduce a retrospective amendment to Section 17(5) of the Goods and Services Tax (GST) Act in Budget 2025 has triggered widespread legal and industry debate. The amendment seeks to nullify a Supreme Court ruling that previously allowed real estate firms to claim Input Tax Credit (ITC) on building materials for properties leased or rented. Legal experts argue that this amendment could face constitutional scrutiny, citing past court rulings that protected taxpayers from retrospective taxation.
Background: The Supreme Court’s Landmark Ruling
The October 2024 Supreme Court verdict in the Safari Retreats case held that infrastructure companies could offset GST paid on construction materials against GST payable on renting or leasing commercial properties. The ruling was seen as a significant relief for real estate companies, allowing them to reduce their tax burden.
However, the Union Budget 2025 introduced a retrospective amendment to Section 17(5) of the GST Act, effectively overruling the Supreme Court decision. This amendment denies ITC claims for construction-related expenses, increasing costs for developers and businesses dependent on commercial leasing.
Key Legal and Industry Concerns
| Issue | Impact |
|---|---|
| Retrospective Amendment | May be challenged under Article 14 (Equality before law) and legitimate expectation doctrine |
| Higher Tax Costs for Developers | Real estate firms may face increased construction costs without ITC claims |
| Impact on Leasing Businesses | Businesses will have higher tax liabilities on rent, potentially increasing property costs |
| Potential Litigation | Experts predict prolonged legal battles if taxpayers challenge the amendment |
| Government’s Stance | Aims to curb ITC claims on construction, arguing it was never intended under the law |
Legal Precedents on Retrospective Taxation
Legal experts point out that retrospective amendments have often been struck down if they impose undue hardship on taxpayers. Key cases include:
- Vodafone & Cairn India Dispute: The government had to amend tax laws prospectively after global backlash against retrospective taxation.
- Nestlé India Case: Supreme Court ruled that tax laws affecting substantive rights cannot be applied retrospectively without strong justification.
- Automobile Industry Rulings: Courts previously held that ITC is a vested right and cannot be arbitrarily withdrawn.
What’s Next? The Path Forward for Businesses
- Monitor Supreme Court Proceedings: The government’s review petition is expected to be heard in February 2025, which may determine the future course of this amendment.
- Industry Representation to GST Council: Experts recommend that the GST Council consult businesses to avoid tax uncertainties.
- Potential Workarounds: Legal interpretations still allow ITC for leased-out plant & machinery, keeping some scope for businesses to claim credits.
Conclusion: A Looming Tax Controversy
The retrospective GST amendment in Budget 2025 has raised alarms in the real estate and infrastructure sector. With the Supreme Court set to review the matter, the decision could have far-reaching implications for tax policies in India. Businesses must stay informed and prepare for possible legal battles or policy shifts.