The Madras High Court issued an order on August 28 that could provide significant tax relief to builders facing GST credit denials on rental properties. According to reports from Business Standard, the court directed tax officers to reconsider the case of ESNP Property Builder and Developers after allegedly failing to properly consider a 2024 Supreme Court ruling on construction of properties meant for leasing. The tax department had rejected the company's claim for GST credit on construction costs despite the company building commercial properties specifically for leasing purposes.
The court has set a five-month deadline for tax officers to pass fresh orders in the case, as reported by Business Standard. ESNP Property had sought the return of approximately ₹9.52 crore taken from its GST credit ledger and ₹10.09 lakh from its cash ledger. The court directed authorities to re-credit or refund these amounts within two weeks of receiving the order. The main issue centers on whether companies building properties for rental income should be denied GST credit on construction costs.
The case relies on the Supreme Court's October 3, 2024 Safari Retreats ruling, where a real estate developer built a shopping mall and leased out shops while seeking GST credit on construction costs. According to Business Standard, the Supreme Court distinguished between construction for a company's own use and construction intended for sale or lease. The government amended the provision through the Finance Act 2025, which received assent in early 2025 and was given retrospective effect from July 1, 2017.
Tax experts suggest the ruling could be significant for developers and businesses that have built properties specifically for rental income. Abhishek Jain from KPMG noted that the order shows the issue has not been settled by subsequent GST law changes, leaving untouched the distinction between construction for own use versus construction meant for lease. Abhishek A. Rastogi from Rastogi Chambers emphasized that tax officers must consider why a property was built and how it connects with the company's taxable business, particularly where commercial buildings are built specifically for leasing.
The ruling could affect many similar disputes across the industry, according to Vivek Jalan from Tax Connect Advisory Services, as reported by Business Standard. The case highlights the ongoing tension between GST law provisions and judicial interpretations of construction purposes. Businesses with large amounts of construction-related credit should now carefully review their cases instead of assuming the issue has been resolved, experts advise.
