2019 (8) TMI 472 - AAR - GST

Tax treatment for partially completed flats: Service tax/GST rules clarified for different scenarios

The ruling determined that for partially completed flats: a) with identified customers before the GST regime, the applicant must pay service tax up to ... Works Contract - transitional provision under Section 142(11)(b) of the CGST Act, 2017 - time of supply - transaction value - Schedule II/III para on completion certificate and first occupationWorks Contract - transitional provision under Section 142(11)(b) of the CGST Act, 2017 - Liability for tax on partially completed flats where customers were identified before the GST regime. - HELD THAT: - The activity of construction falls within the definition of Works Contract and is treated as a supply of service. Under the transitional provision embodied in Section 142(11)(b), service tax is payable for services rendered up to 30.06.2017 and GST is payable for services rendered from 01.07.2017. Accordingly, where an agreement with a customer was entered into prior to 01.07.2017, the applicant must discharge service tax proportionate to the services provided up to 30.06.2017 and pay GST proportionate to services provided from 01.07.2017. [Paras 5]Service tax is payable for the pre-01.07.2017 portion and GST for the post-01.07.2017 portion, apportioned to the services rendered in each period.Time of supply - transaction value - Works Contract - Liability for tax and value on partially completed flats where customers are identified after implementation of GST. - HELD THAT: - Where agreements are entered on or after 01.07.2017, there was no prior event of supply to any customer and the provisions of the CGST Act, including the time of supply (Section 13) and valuation (Section 15) apply. The value of supply for GST purposes is the transaction value - the price actually paid or payable as agreed between supplier and recipient. The applicant's contention that GST should be limited to the value of work executed after the appointed date is rejected because, in absence of earlier agreements, the taxable event and the transaction value arise under the GST regime when the agreement is entered. [Paras 5]Where customers are identified post-01.07.2017, GST is payable on the transaction value of the supply as determined under the CGST Act.Schedule II/III para on completion certificate and first occupation - Works Contract - Liability for tax on partially completed flats where no customers are identified. - HELD THAT: - If construction is completed and the applicant obtains the completion/occupancy certificate before entering into any transaction, the subsequent sale falls under the provision in Schedule II/III that treats such transaction as sale of immovable property and not a supply attracting GST. However, if a transaction (agreement with a customer) is entered into prior to issue of completion/occupancy certificate, the scenario is identical to agreements entered post-GST and GST is leviable on the transaction value as discussed earlier. [Paras 5]No GST is leviable if the property is sold after completion/occupancy certificate is obtained; if supply is made before issuance of completion certificate, GST is payable on the transaction value.Final Conclusion: The Authority ruled that (a) for flats with customers identified before 01.07.2017 service tax applies for the pre-appoint ment-day portion and GST for the post-appoint ment-day portion; (b) for flats where customers are identified after 01.07.2017 GST is payable on the transaction value determined under the CGST Act; and (c) where no customers are identified, no GST is leviable if sale occurs after completion/occupancy certificate, but if supply is made prior to such certificate GST is leviable on the transaction value. Issues Involved:1. Applicability of GST on partially completed flats with identified customers before GST regime.2. Applicability of GST on partially completed flats with customers identified after implementation of GST regime.3. Applicability of GST on partially completed flats where no customers are identified.Issue-wise Detailed Analysis:1. Applicability of GST on partially completed flats with identified customers before GST regime:The applicant is engaged in the construction and sale of residential apartments under a joint development agreement. The construction commenced during the pre-GST regime and continued into the GST regime. The applicant contends that construction activities relating to immovable property are treated as 'Works Contract' under GST Law, classified as a supply of service, and are liable to GST. However, GST is not applicable where the entire consideration is received after the issuance of the completion certificate or after the first occupation, whichever is earlier.The ruling states that the applicant is liable to pay service tax under the Finance Act 1994 proportionate to the services provided up to 30.06.2017 and GST proportionate to the services provided from 01.07.2017 onwards, in terms of Section 142(11)(b) of the CGST Act 2017.2. Applicability of GST on partially completed flats with customers identified after the implementation of GST regime:For partially completed flats where customers are identified after the implementation of GST (post-01.07.2017), the ruling specifies that agreements for supply entered into after 01.07.2017 imply that the agreement was made before the completion of construction and issuance of the completion certificate. According to Section 13 of the CGST Act, 2017, the liability to pay tax arises at the time of supply. Therefore, the applicant is liable to pay GST on the transaction value of the supply.The applicant's contention that GST should only be on the value of work executed under GST Law was not accepted. The ruling clarifies that since no agreement was entered into with the customer before 01.07.2017, the value for tax computation should be the transaction value agreed upon post-GST implementation.3. Applicability of GST on partially completed flats where no customers are identified:For partially completed flats with no identified customers, the ruling draws attention to Para 5 of Schedule II of the CGST Act, 2017. If the construction is completed and the occupancy/completion certificate is obtained before entering into a transaction with a recipient, the activity is not liable to GST as it falls under Para 5 of Schedule III (not a supply of goods or services). However, if the transaction occurs before the issuance of the completion certificate, GST is liable to be paid on the transaction value of the supply, similar to the scenario in question 2.RULING:a) For partially completed flats with identified customers before the GST regime, the applicant must pay service tax under the Finance Act 1994 proportionate to services provided up to 30.06.2017 and GST proportionate to services provided from 01.07.2017 onwards.b) For partially completed flats with customers identified after the implementation of GST, the applicant must pay GST on the transaction value of the supply.c) For partially completed flats with no identified customers, the applicant is not liable to GST unless the supply is made before the issuance of the completion certificate, in which case GST is payable on the transaction value of the supply.