Explanation 2: How the 2025 Amendment Overruled Safari Retreats

Explanation 2 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

For seven years, one word in s.17(5)(d) carried an enormous amount of tax. The clause blocked credit on goods and services received for construction of an immovable property "other than plant or machinery" — while the neighbouring clause (c) said "plant and machinery".

The Supreme Court noticed. Parliament then unnoticed it, retrospectively.

In Chief Commissioner of Central Goods and Service Tax v. Safari Retreats Private Limited, the Supreme Court held that "plant or machinery" in clause (d) is not the same expression as "plant and machinery" defined in the Explanation to Chapter V, and must be given its ordinary meaning — so a building could qualify as a plant on a functionality test. The Finance Act, 2025, notified by Notification No. 16/2025-CT dated 17.09.2025, brought into force 01.10.2025 and effective retrospectively from 01.07.2017, substituted "plant and machinery" for "plant or machinery" in clause (d) and inserted Explanation 2 to put the matter beyond argument.

What the Supreme Court decided

The taxpayer had constructed a shopping mall and let it out. It sought credit on the construction, arguing that the mall was a plant used to make its outward supply of renting — and that clause (d) said "plant or machinery", not "plant and machinery".

The Court accepted the textual point. Where the legislature uses two different expressions in adjacent clauses of the same sub-section, the difference is presumed deliberate. "Plant and machinery" is a defined term with an Explanation that excludes buildings and civil structures. "Plant or machinery" is undefined, and takes its ordinary meaning.

On the ordinary meaning of "plant", the Court applied the functionality test developed under income-tax jurisprudence: a building is a plant if it is not merely the setting in which the business is carried on, but an apparatus or tool with which it is carried on.

The Court did not hold that every mall is a plant. It remitted the question to be decided on the facts of each case, on that test.

What the amendment did

Two changes, both in the Finance Act, 2025:

One. In s.17(5)(d), the words "plant or machinery" were substituted by "plant and machinery". The Bare Law footnote records that this was "brought into force on 01.10.2025, effective retrospectively w.e.f. 01.07.2017".

Two. Explanation 2 was inserted:

"For the purposes of clause (d), 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'."

The drafting is deliberate on three points:

• "Notwithstanding anything to the contrary contained in any judgment" — an express override of Safari Retreats.
• "Shall always be deemed to have been construed" — retrospective from the beginning.
• It is framed as a clarification, which is the standard technique for retrospective amendments intended to survive challenge.

What follows

The functionality test no longer applies to clause (d). The question is not whether a building is a plant in the ordinary sense. It is whether the asset falls within the defined expression "plant and machinery" in the Explanation to Chapter V — apparatus, equipment and machinery fixed to earth by foundation or structural support, used for making outward supply, including such foundation and structural supports, but excluding land, building or any other civil structures, telecommunication towers, and pipelines laid outside the factory premises. The plant and machinery definition →

A mall, a hotel, a warehouse or an office building is excluded by the words "building or any other civil structures". There is no route back through functionality.

Credit claimed on the strength of Safari Retreats is exposed. Because the amendment is retrospective to 1 July 2017, a taxpayer that took credit after the judgment, for any period, is on the wrong side of the current law.

Pending proceedings. The Explanation applies notwithstanding any judgment, so an appeal or writ relying on Safari Retreats now faces the amended text.

What survives of the judgment

The reasoning on statutory interpretation — that different words in adjacent clauses are presumed to carry different meanings — remains good law generally. It is only the specific outcome for clause (d) that has been legislatively displaced.

Clause (c) is unaffected. It always said "plant and machinery".

The Explanation's own boundaries are still contestable. Whether a particular asset is "apparatus, equipment and machinery fixed to earth by foundation or structural support" or is instead a "civil structure" remains a factual question. Silos, storage tanks, cold-storage systems, effluent treatment plants and process structures sit near that line, and the amendment does not resolve them.

The constitutional challenge to retrospectivity is a separate matter. Retrospective validating amendments have been upheld in many cases and struck down in some; the distinction generally turns on whether the amendment removes the basis of the judgment or merely reverses the result. Explanation 2 is drafted as a clarification of what the provision always meant, which is the stronger form.

Key takeaways

• Safari Retreats held that "plant or machinery" in clause (d) was undefined and could include a building on a functionality test.
• The Finance Act, 2025 substituted "plant and machinery" and inserted Explanation 2, effective retrospectively from 01.07.2017.
• Explanation 2 applies notwithstanding any judgment and deems the reference to always have been to the defined term.
• The functionality test no longer applies to clause (d).
• Buildings and civil structures are excluded by the Explanation to Chapter V.
• Credit taken on the strength of the judgment, for any period, is exposed.

Read next

• Section 17(5)(d): Construction on Own Account
• The Plant and Machinery Definition
• Section 17(5)(c): Works Contract Services
• ITC on Construction and Real Estate: Restricted Credit

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition). The validity of the retrospective operation of Explanation 2 may itself be tested; positions should be taken on advice.