Facts of the Case:

In this case, the petitioner filed three writ petitions before the Madras High Court. In W.P. Nos. 21432 and 21433 of 2026, the petitioner challenged assessment orders dated 23.02.2026, along with consequential DRC-07 orders, whereby its claim for Input Tax Credit (ITC) on construction-cum-leasing services was rejected. The petitioner had specifically relied upon the Supreme Court’s judgment in Chief Commissioner of CGST v. Safari Retreats Pvt. Ltd., particularly the principle concerning construction undertaken for the purpose of leasing or licensing.

However, the adjudicating authority rejected the ITC claim without considering the ratio of the Supreme Court judgment. In the connected W.P. No. 22392 of 2026, the petitioner sought re-credit/refund of amounts of ₹10,09,208/- from the Electronic Cash Ledger and ₹9,52,28,986/- from the Electronic Credit Ledger, which had been debited pursuant to the impugned assessment orders.

Issue:

(i) Whether ITC relating to construction undertaken for the purpose of leasing could be denied under Section 17(5)(d) of the CGST Act without considering the binding ratio of the Supreme Court in Safari Retreats; and

(ii) Whether the department could initiate recovery by debiting the taxpayer’s electronic cash and credit ledgers without first issuing the intimation/notice prescribed under Rule 142B(1) of the applicable GST Rules and allowing the statutory seven-day period for payment.

Held That:

The Court examined the ratio of the Supreme Court in Safari Retreats, wherein it was held that construction cannot be regarded as being undertaken on the taxable person’s “own account” where the construction is intended to be sold or given on lease or licence. The Court observed that the Supreme Court had drawn a distinction between construction for the taxable person’s own use and construction intended for sale, lease or licence. Since the petitioner’s specific case was that the inputs were procured for construction intended for leasing, the assessing authority was required to deal with the Supreme Court’s judgment before recording its findings.

However, instead of considering the binding ratio of Safari Retreats, the adjudicating authority recorded that the expression “on own account” would include construction undertaken for ownership, control and capitalization irrespective of subsequent commercial use. It further held that leasing was an independent outward taxable supply arising only after completion of construction and, therefore, could not alter the nature of inward supplies used during construction. The High Court found that these findings had been recorded without considering the ratio of the Supreme Court judgment in Safari Retreats. Consequently, the Court held that reconsideration was warranted. The impugned orders in W.P. Nos. 21432 and 21433 of 2026 were therefore set aside and the matters were remanded to the adjudicating authority for fresh consideration after providing a reasonable opportunity to the petitioner. Fresh orders were directed to be passed within five months from receipt of the High Court’s order.

Further, the Court considered the legality of the recovery action under Rule 142B. The Court noted that Rule 142B(1) requires the proper officer, where an amount has become recoverable under Section 79 and remains unpaid, to electronically intimate the taxpayer in FORM GST DRC-01D, directing payment of the amount along with applicable interest within seven days. Under Rule 142B(3), recovery proceedings under the specified recovery provisions can be initiated only where the amount remains unpaid after expiry of the stipulated seven-day period.

On the facts, the Court found that the prescribed sequence had not been followed. The petitioner’s electronic cash and credit ledgers had been debited without the preceding Rule 142B(1) i