The Madras High Court addressed the case involving Esnp Property Builder And Developers Private Limited against the State Tax Officer concerning the denial of Input Tax Credit (ITC) on construction services intended for leasing. The petitioner argued that their construction activities were for leasing purposes and cited the Supreme Court's decision in Chief Commissioner of CGST v. Safari Retreats Pvt. Ltd., which interprets construction for lease as not being on the taxpayer's "own account." The tax authorities had denied ITC, asserting that leasing did not alter the ITC's blocked status under Section 17(5)(d).
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The Court examined whether ITC could be denied without considering the Safari Retreats ruling. It found that the tax authorities had dismissed the ITC claim without addressing the Supreme Court's interpretation. Consequently, the Court set aside the assessment orders in W.P. Nos. 21432 and 21433 of 2026, instructing a reconsideration with an opportunity for the petitioner to be heard, and directed the issuance of fresh orders within five months.
Additionally, regarding recovery, the Court noted non-compliance with Rule 142B, which mandates intimation in Form GST DRC-01D and a seven-day payment period before recovery actions. As this procedure was not followed, the Court ordered the re-crediting or refunding of debited amounts within two weeks.
Order Date - 28 August 2026
Parties: Esnp Property Builder And Developers Private Limited v. State Tax Officer (ST), Group-V & Others
Facts -
- Esnp Property Builder And Developers Private Limited challenged assessment orders denying its claim for Input Tax Credit (ITC) on construction-cum-leasing services, along with consequential GST DRC-07 orders.
- The petitioner contended that the construction was undertaken for leasing purposes and relied on the Supreme Court's decision in Chief Commissioner of CGST v. Safari Retreats Pvt. Ltd., particularly its interpretation of construction undertaken for lease or licence.
- The tax authorities had rejected the contention, taking the view that subsequent leasing could not change the character of ITC blocked on construction under Section 17(5)(d).
- In the third writ petition, the petitioner also sought re-credit/refund of amounts debited from its electronic cash and credit ledgers, contending that recovery was made without following the procedure under Rule 142B.
Issue -
- Whether ITC on construction intended for leasing could be denied without considering the Supreme Court's ruling in Safari Retreats?
Order -
- The Court noted that the Supreme Court in Safari Retreats had held that construction is not regarded as being on the taxable person's “own account” where it is intended to be sold, leased or licensed. Therefore, the petitioner's specific contention regarding construction for leasing required proper consideration.
- The Court found that the proper officer had entered findings rejecting the ITC claim without dealing with the ratio of the Supreme Court's judgment. Since the petitioner's construction-for-leasing argument was directly relevant, reconsideration of the assessment orders was warranted.
- Accordingly, the assessment orders challenged in W.P. Nos. 21432 and 21433 of 2026 were set aside and remanded for fresh consideration, with a direction to provide the petitioner a reasonable opportunity of being heard and issue fresh orders within five months.
- On recovery, the Court held that Rule 142B requires an intimation in Form GST DRC-01D, followed by a seven-day period for payment before recovery proceedings can be initiated. As this sequence was not followed, the respondents were directed to re-credit/refund the debited amounts within two weeks.
