Industry Body Slams Retrospective GST Rule Change on Commercial Construction

The Centre’s recent retrospective amendment to the GST Act, denying input tax credit (ITC) on building materials consumed in commercial constructions like malls and auditoriums, has been strongly opposed by the Agri and All Industries Trade Association.

This backlash follows close on the heels of a historic Supreme Court ruling that provided relief to the real estate industry. The Court had confirmed that GST levied on construction materials—such as cement, steel, and wiring—for commercial buildings to be leased or rented could be availed of as ITC. It seemed such buildings as ‘capital goods’, enabling companies to offset GST paid during construction against future GST liabilities on rental income.

However, the Centre swiftly moved to override the verdict by amending Section 17(5)(d) of the GST Act with retrospective effect from July 1, 2017. The revised clause changes the phrase “equipment or machinery” to “equipment and machinery”, which effectively excludes civil structures from ITC eligibility.

“The Centre’s move completely negates the Supreme Court’s judgment and deals a severe blow to the commercial construction sector,” said Rathnavelu, President of the Agri and All Industries Trade Association. “This not only undermines investor confidence but also defeats the core purpose of GST—to prevent cascading taxes and manage inflation.”

Industry leaders warn that the retrospective change will significantly raise project costs, reduce the profitability of rental developments, and deter fresh investment in commercial real estate. Many in the sector view the change as legally and economically disruptive, particularly given its retroactive nature spanning back nearly eight years.

The Association has appealed to the Union Government to reverse the amendment and permit ITC on commercial civil construction, in view of long-term consequences to infrastructure development, business planning, and economic growth.

The Centre’s amendment has caused concern throughout India’s real estate and trade communities, triggering renewed fears over the stability and equity of India’s tax environment.