Resort Building Is Not “Plant”: GSTAT Denies Construction ITC Despite Safari Retreats
GSTAT Upholds Retrospective “Plant and Machinery” Amendment and the “Own Account” Test for Hotels & Resorts
1. BACKGROUND
The eligibility of input tax credit (ITC) on goods and services used for constructing immovable property has been a contentious issue under the GST regime. Section 17(5)(d) of the Central Goods and Services Tax Act, 2017 (CGST Act) blocks ITC on such inputs where the construction is for an immovable property (other than plant and machinery) built “on his own account”. The Finance Act, 2025, retrospectively amended this provision to substitute “plant or machinery” with “plant and machinery”, clarifying that buildings and civil structures are excluded from the definition of “plant and machinery” for ITC purposes.
This judgment, M/s Flora Kingdom Farm Resort v. Commissioner of Commercial Taxes (2026 Taxo.online 3179), examines the interplay between this amendment and the interpretation of “on his own account” in the context of a resort’s construction.
2. FACTS OF THE CASE
M/s Flora Kingdom Farm Resort, a partnership firm registered under GST, operates a resort in Udupi, Karnataka, providing accommodation, restaurant services, and event hosting (weddings, photo shoots, etc.). For the financial year 2019-20, the resort availed ITC on goods and services procured for constructing its own building. The Adjudicating Authority disallowed the credit under Section 17(5)(d), holding that the resort was an immovable property built “on its own account”. The demand, along with interest and penalty, was confirmed by the First Appellate Authority.
The resort appealed to the GSTAT, Bengaluru, arguing that:
- The resort building qualified as a “plant” under the functionality test;
- The construction was not “on his own account” as parts of the resort were let out for events; and
- The retrospective amendment excluding buildings from “plant and machinery” should not apply to movable assets like furniture and electrical equipment.
3. ISSUES FOR DETERMINATION
- Definition of “Plant and Machinery”: For 2019-20, could the resort (or any part of it) qualify as “plant and machinery” under the amended Section 17(5)(d), or as a “plant” under the functionality test?
- “On His Own Account”: Was the resort constructed “on his own account”, and did the hosting of events/photo shoots take any part of it outside the scope of Section 17(5)(d)?
- Segregation of Credit: Did any part of the disputed ITC fall outside Section 17(5)(d)?
- Sustainability of Interest and Penalty: Were the interest (under Section 50) and penalty (under Section 73(9)) validly imposed?
4. STATUTORY PROVISIONS INVOLVED
Section 17(5)(d) of the CGST Act – Original Text (Effective 01.07.2017)
“Input tax credit shall not be available in respect of… (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.”
Section 17(5)(d) – Amended Text (Finance Act, 2025, Retrospective from 01.07.2017)
“Input tax credit shall not be available in respect of… (d) goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.”
Explanation 2 (Inserted by Finance Act, 2025)
“For the purposes of clause (d) of sub-section (5), it is hereby clarified that notwithstanding anything to the contrary contained in any judgment, decree or order of any court, tribunal, or other authority, any reference to ‘plant or machinery’ shall be construed and shall always be deemed to have been construed as a reference to ‘plant and machinery’.”
Section 155 of the CGST Act
“Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person.”
5. CONTENTIONS OF THE PARTIES
| CONTENTIONS OF THE PETITIONER | CONTENTIONS OF THE REVENUE |
|---|---|
| Resort as a “Plant”
The resort building was a “plant” under the functionality test, as it was the essential apparatus for supplying accommodation, events, and catering services. |
Retrospective Amendment Prevails
The Finance Act, 2025 retrospectively substituted “plant or machinery” with “plant and machinery”, excluding buildings and civil structures from ITC eligibility. Explanation 2 clarified that this amendment overrode all judicial precedents. |
| Not “On His Own Account”
The resort was not built “on his own account” because parts of it were let out for weddings, events, and photo shoots; construction undertaken to make taxable supplies should not be treated as construction “on one’s own account”. |
Construction “On His Own Account”
The resort was built on the petitioner’s own account as it was used to supply its own services (accommodation, food, events). Hosting events did not convert the building into a leased or licensed property. |
| Segregation of Movable Assets
Credit was wrongly blocked even on movable assets (furniture, electrical equipment, air-conditioners, generators), which should not be covered by Section 17(5)(d). It offered to produce books of account to prove capitalization of these items. |
Burden of Proof on Petitioner
Under Section 155, the petitioner bore the burden of proving that part of the building was constructed for sale, lease, or license to others, and failed to provide evidence (e.g., agreements, invoices) segregating credit attributable to such parts. |
6. HELD: GSTAT’S REASONING AND FINDINGS
1. “Plant and Machinery” Under Amended Section 17(5)(d)
The functionality test (whether the building is essential to the business) was irrelevant post-amendment. Even if the resort was integral to the business, it remained immovable property and thus excluded from ITC.
2. Construction “On His Own Account”
The GSTAT held that the resort was built “on the petitioner’s own account” because it was used to supply the petitioner’s own services (accommodation, food, events). Hosting events did not convert the building into a leased or licensed property; it remained the setting for the petitioner’s business.
The burden of proof under Section 155 lay on the petitioner to show that part of the building was constructed for sale, lease, or license to others. The petitioner failed to provide evidence (e.g., agreements, invoices) segregating credit attributable to such parts.
3. Segregation of Movable Assets
Section 17(5)(d) blocks ITC on goods/services “received for construction of an immovable property”. The nature and purpose of the item determine eligibility, not its accounting treatment. The petitioner’s claim that movable assets (furniture, electrical equipment) should be excluded was rejected because these items were received for construction and integrated into the immovable property.
4. Interest and Penalty
Interest under Section 50(3) was upheld as the credit was wrongly availed and utilized. Penalty under Section 73(9) was upheld as the petitioner did not pay the demand within 30 days of the notice.
7. PRECEDENT CASE LAW
Safari Retreats (P.) Ltd. v. Chief Commissioner, CGST (2019 Taxo.online 245)
Held: The expression “plant or machinery” in Section 17(5)(d) was distinct from the defined term “plant and machinery”, and a building could qualify as a “plant” under the functionality test.
Distinguished in this case: The retrospective amendment (Finance Act, 2025) overrode this judgment by substituting “plant and machinery” for “plant or machinery”.
8. KEY TAKEAWAYS
Practical Implications:
- Retrospective Amendment Trumps Judicial Precedents: The Finance Act, 2025 amendment (“plant and machinery”) and Explanation 2 override all judicial interpretations of “plant or machinery”. Taxpayers can no longer rely on the functionality test to claim ITC on buildings.
- “On His Own Account” Means for Own Business: Construction is “on his own account” if the building is used to supply the taxpayer’s own services. Hosting events or leasing parts of the building does not change this unless the taxpayer proves that the construction was for sale, lease, or license to others.
- Burden of Proof on Taxpayer: Under Section 155, the taxpayer must prove that part of the building was constructed for sale, lease, or license to others. General claims without evidence (e.g., agreements, invoices) will not suffice.
- Movable Assets Integrated into Immovable Property: ITC on movable assets (furniture, electrical equipment) is blocked if they are received for construction and integrated into the immovable property. The nature and purpose of the item, not its accounting treatment, determine eligibility.
- Interest and Penalty Sustainable: Interest under Section 50(3) and penalty under Section 73(9) are sustainable if the credit is wrongly availed/utilized and the demand is not paid within 30 days of the notice.
9. CONCLUSION
The judgment in M/s Flora Kingdom Farm Resort (2026 Taxo.online 3179) marks a significant shift in the interpretation of Section 17(5)(d), closing the door on ITC claims for buildings and civil structures used in business. The retrospective amendment ensures that hotels, resorts, and similar properties cannot qualify as “plant and machinery”, regardless of their business utility.
Taxpayers must now carefully segregate construction-related expenses and document any claims for ITC on movable assets or parts of the building leased/licensed to others. The ruling also underscores the importance of evidence in discharging the burden of proof under Section 155.
