2020 (3) TMI 240 - AAR - GST

Taxability of Transactions: Completion Certificate Timing Impacts GST Liability

The Authority ruled that the issuance of the completion certificate by the competent authority is crucial for determining the taxability of the ... Sale of building - activities or transactions which shall be treated neither as a supply of goods nor a supply of services (Schedule III) - construction treated as supply of services (Schedule II) - first occupation - issuance of completion certificate by competent authority - scope of supplyIssuance of completion certificate by competent authority - construction treated as supply of services (Schedule II) - activities or transactions which shall be treated neither as a supply of goods nor a supply of services (Schedule III) - Whether receipt of entire consideration after completion/first occupation renders sale outside the ambit of GST and which date determines taxability - HELD THAT: - Schedule II treats construction of a building intended for sale as a supply of services except where the entire consideration is received after issuance of the completion certificate by the competent authority or after its first occupation, whichever is earlier. Schedule III excludes sale of building (subject to clause (b) of para 5 of Schedule II) from supply. The Authority examined the statutory scheme and the role of the competent authority in issuing completion certificates and relied on the municipal provisions and the Municipal Corporation's communication which showed that the completion certificate in the applicant's case had not been issued due to non-compliance with statutory procedures. The Authority held that the decisive date for determining whether the entire consideration was received after completion is the date of issuance of the completion certificate by the competent jurisdictional authority. If entire consideration is received after that date, the transaction would not be treated as a taxable service; if any part is received before that date, the transaction is a supply of service under clause 5(b) of Schedule II and attracts GST. The Authority also observed that the competence to notify the competent authority and the legal requirement of completion certificate make the certificate-date the operative event for non-taxability where completion-certificate-based condition is invoked. [Paras 8, 10]The date of issuance of the completion certificate by the competent jurisdictional authority shall be considered the date of completion; entire consideration received after that date is not a taxable service, whereas any part received before that date renders the transaction a taxable supply of service under Schedule II.First occupation - issuance of completion certificate by competent authority - Whether claimed first occupation (possession given) without mandatory completion certificate suffices to treat subsequent receipts as outside GST - HELD THAT: - The Authority considered the applicant's claim of first occupation and the statutory scheme requiring completion certificate/permission to occupy under the Municipal Acts. The municipal authority's response indicated that the completion certificate had not been issued because of the applicant's non-compliance with statutory requirements. The Authority held that occupancy without observance of mandatory procedures and without issuance of the completion certificate cannot be treated as a valid first occupation for the purpose of Schedule II; such occupancy is devoid of merit for triggering the exception and may indicate an attempt to circumvent tax obligations. Therefore, claimed first occupation in the absence of a valid completion certificate does not operate to make subsequent receipts non-taxable. [Paras 8, 10]Claimed first occupation without the mandatory completion certificate is not a valid basis to treat subsequent receipts as outside GST; the applicant's claim of first occupation is found to be devoid of merit.Final Conclusion: The advance ruling holds that the operative event for excluding a construction-from-service treatment is the issuance of the completion certificate by the competent authority (or valid first occupation where it legitimately precedes certificate); in the applicant's case the completion certificate is not issued due to non-compliance, the claimed first occupation is not accepted, and any consideration received before issuance of the completion certificate is taxable as supply of service under Schedule II. Issues Involved:1. Classification of sale/booking of units after first occupation and receipt of advance under Para 5 of Schedule-III to the CGST Act, 2017.2. GST applicability on booking of units and receipt of advance after first occupation but pending completion certificate.Issue-wise Detailed Analysis:1. Classification of Sale/Booking of Units After First Occupation and Receipt of Advance:The applicant sought clarification on whether the sale/booking of units in a project after its first occupation and receipt of advance is classifiable under Para 5 of Schedule-III to the CGST Act, 2017, as the sale of a building, thus neither regarded as the supply of goods nor supply of services, and therefore outside the purview of GST.Legal Position:- As per Section 9(1) of the CGST Act, 2017, tax is levied on the supply of goods or services.- Section 7(2) states that activities or transactions specified in Schedule III are treated neither as a supply of goods nor a supply of services.- Entry 5 of Schedule III includes the sale of land and, subject to clause (b) of paragraph 5 of Schedule II, the sale of buildings.Analysis and Discussion:- Schedule II, Entry 5(b) stipulates that the construction of a building intended for sale to a buyer, except where the entire consideration has been received after the issuance of a completion certificate or after first occupation, whichever is earlier, is treated as a supply of service.- The applicant argued that even if the completion certificate has not been received, if first occupancy has taken place, then the receipt of consideration after first occupation should not be regarded as a supply of services and hence outside the purview of GST.Judgment:- The date of issuance of the completion certificate by the competent authority is considered the date of completion of the property.- If the entire consideration is received after such date, it is not treated as a taxable service.- If any part of the consideration is received before such date, the transaction is treated as a supply of service and attracts GST.- The first occupation without the mandatory completion certificate is found to be devoid of merit.2. GST Applicability on Booking of Units and Receipt of Advance After First Occupation but Pending Completion Certificate:The applicant sought clarification on whether the booking of units and receipt of advance after first occupation, where the completion certificate is pending, is outside the purview of GST.Legal Position:- The applicant referred to Section 191 of 'The Chhattisgarh Municipalities Act, 1961' and Section 301 of 'The Chhattisgarh Municipal Corporation Act, 1956,' which stipulate that if the Council/Commissioner fails to communicate refusal within a specified period after the receipt of the notice of completion, permission shall be deemed to have been granted.Analysis and Discussion:- The applicant contended that since the completion certificate is pending and first occupancy has taken place, the receipt of consideration after first occupation should be outside the purview of GST.- The Authority referred to a letter from the Municipal Corporation, Bilaspur, confirming that the completion certificate had not been issued due to non-compliance with legal provisions and procedures.Judgment:- The completion certificate is a legal requirement, and its issuance certifies that the building is fit for occupation.- The date of issuance of the completion certificate by the competent authority is considered the date of completion.- If the entire consideration is received after the date of completion, it is not treated as a taxable service.- If any part of the consideration is received before such date, the transaction is treated as a supply of service and attracts GST.- The first occupation without the mandatory completion certificate is found to be devoid of merit.Conclusion:The Authority ruled that the date of issuance of the completion certificate by the competent authority is crucial for determining the taxability of the transaction. If the entire consideration is received after the issuance of the completion certificate, it is not treated as a taxable service. However, if any part of the consideration is received before the issuance of the completion certificate, the transaction is treated as a supply of service and attracts GST. The first occupation without the mandatory completion certificate is not considered valid.