Input Tax Credit under GST: Sections 16 and 17, Safari Retreats

Input tax credit is the heart of GST. A registered person may set off the tax paid on inputs, input services and capital goods against the tax on his outward supplies, so that tax falls only on the value added at each stage. The credit is conditional, some credits are blocked altogether, and the boundaries have produced major litigation. This note covers sections 16 and 17 of the CGST Act and the Safari Retreats case.

1. Eligibility and Conditions: Section 16

Figure 1: Conditions for input tax credit

• Section 16(1). A registered person is entitled to credit of tax charged on supplies of goods or services used or intended to be used in the course or furtherance of business.
• Section 16(2). Credit requires possession of a tax invoice or debit note, the supplier's furnishing of details communicated to the recipient, actual receipt of the goods or services, payment of the tax to the Government by the supplier, and the filing of the recipient's return.
• Payment to supplier. If the recipient does not pay the supplier the value and tax within 180 days of the invoice, the credit is reversed with interest, and may be re-availed on payment.
• Section 16(4). Credit for a financial year cannot be taken after 30 November of the following year or the date of the annual return, whichever is earlier.

2. Apportionment and Blocked Credits: Section 17

Figure 2: Section 17(5): blocked credits

• Apportionment. Where goods or services are used partly for business or for taxable supplies, credit is allowed only for the business and taxable portion (s.17(1), (2))
• Blocked credits, s.17(5). No credit is available for motor vehicles (with exceptions), food and beverages and personal services (with exceptions), club memberships, travel benefits to employees, works contracts and goods or services for construction of immovable property on one's own account (other than plant and machinery), tax paid under the composition scheme, goods lost, stolen, destroyed, written off or given as gifts, and tax paid on demands confirmed for fraud.

3. Safari Retreats and After

Figure 3: The plant or machinery question

• Chief Commissioner of CGST v Safari Retreats (3 October 2024). The Supreme Court held that the expression plant or machinery in s.17(5)(d) differs from plant and machinery defined in the Explanation, and that a building, such as a mall let out on rent, may qualify as plant if it is essential to carrying on the business, applying a functionality test to the facts of each case.
• Review. The Revenue's review petition was dismissed in May 2025.
• Finance Act, 2025. Parliament replaced plant or machinery with plant and machinery in s.17(5)(d), with effect from 1 July 2017, deeming the clause always to have read so; this removes the basis for treating buildings as plant under that clause.

4. Frequently Asked Questions

Can input tax credit be claimed on construction of a commercial building to be let out?

Safari Retreats (2024) left room for it under a functionality test, but the Finance Act, 2025 amended s.17(5)(d) retrospectively from 1 July 2017 to read plant and machinery, which excludes buildings, so credit on such construction is blocked.

What happens if the recipient does not pay the supplier within 180 days?

The input tax credit availed must be reversed with interest; it can be re-availed once payment is made to the supplier.

5. Related Topics

• Topic 27: Supply and Levy. Outward tax against which credit is used.
• Topic 30: Registration, Returns and Payment. Credit ledger.
• Topic 31: Demand, Recovery, Offences and Arrest. Wrongly availed credit.