Decided 30 September 2026. The Bengaluru Bench of GSTAT has held that a resort cannot take input tax credit on goods and services used to build its own building. After the Finance Act, 2025 substituted 'plant and machinery' in section 17(5)(d) retrospectively from 01.07.2017, buildings are excluded; and even before that, Safari Retreats framed the functionality test for buildings other than hotels and cinema theatres. The demand of Rs 9,32,177 was confirmed.
Case at a glance
| Case | M/s Flora Kingdom Farm Resort v. Commissioner of Commercial Taxes, Karnataka |
| Forum | GSTAT, Bengaluru Bench, Division Bench Court No. 3 |
| Appeal No. | APL/05/BUR/2026 |
| Date of order | 30 September 2026 |
| Period | FY 2019-20 |
| Demand | Tax Rs 8,45,972, interest Rs 1,607, penalty Rs 84,598 (total Rs 9,32,177) |
| Result | Appeal dismissed |
Facts of the case
The appellant runs a resort at Kaup, Udupi, supplying rooms and restaurant services and hosting weddings, events and photo shoots. It took ITC in 2019-20 on goods and services used to construct the resort.
After a section 73 notice, the officer allowed ITC of Rs 1,47,922.92 on items the appellant showed were not construction (electrical items, air-conditioners and expensed items) and confirmed the balance. The first appellate authority upheld it without discussing Safari Retreats or the 2025 amendment.
Issue before the Tribunal
Is ITC on construction of a resort building blocked by section 17(5)(d), and is the resort built 'on own account'?
What the Tribunal held
- Section 124 of the Finance Act, 2025 substituted 'plant and machinery' for 'plant or machinery' in clause (d) with effect from 01.07.2017, with a clarifying Explanation 2. The definition expressly excludes buildings and civil structures.
- Even under the old wording, the Supreme Court in Safari Retreats framed the functionality question for 'a mall, warehouse or any building other than a hotel or a cinema theatre'. A resort supplying rooms and food is in substance a hotel.
- Construction is 'on own account' when the building is the setting of the taxpayer's own business, as opposed to sale, lease or licence. The appellant's own reply and the absence of any lease or licence showed it built the resort for its own business.
- Under section 155, the burden was on the appellant to identify items outside clause (d). All items it identified were allowed; nothing more was shown. Interest under Rule 88B and penalty under section 73(9) were upheld.
Practical takeaways for taxpayers
- Hotels and resorts should not expect ITC on construction of their buildings, even for pre-2025 periods.
- Segregate invoices for movable items such as furniture, appliances and equipment, and claim ITC on them separately with evidence.
- Buildings constructed for leasing or licensing to others stand on a different footing under the 'own account' test.
Frequently asked questions
Can a hotel or resort claim ITC on building construction?
GSTAT Bengaluru held no, applying the retrospective 2025 amendment and Safari Retreats.
What ITC can still be claimed?
ITC on items not received for construction, such as furniture and movable equipment, if the taxpayer identifies and proves them.
Facing a similar GST dispute?
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This summary is based on the order of the GST Appellate Tribunal, Bengaluru Bench (Division Bench Court No. 3) in Appeal No. APL/05/BUR/2026. It is general information, not legal advice; the outcome of any case depends on its own facts and the full text of the order.