GST Notification 11/2017 70:30 construction formula only applies when actual bifurcation details unavailable from assessee

The HC held that Notification 11/2017-Central Tax (Rate) establishing a 70:30 formula for bifurcating construction services and land costs applies only when the assessee cannot provide actual bifurcation details. The deeming fiction under the notification does not apply where the assessee can supply actual consideration amounts for construction services versus land costs. The assessing authority erred in applying the notification universally to all property development cases without first seeking actual particulars from the assessee. The officer retains discretion to reject unsupported attributions and apply the deeming fiction if evidence is inadequate. The petition was allowed, with additional benefit from Notification 6/2023 providing relief for timely return filings.

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Issues involved:
The judgment involves issues related to the interpretation and application of the provisions of the Tamil Nadu Goods and Services Tax Act, 2017, specifically concerning the valuation of supply of construction services and works contracts in relation to land, as well as the eligibility of Input Tax Credit (ITC) and the implications of non-payment of consideration for supplies received within a specified period.

Issue 1: Valuation of supply of construction services:
The assessing authority issued show-cause notices to the petitioner for alleged short payment of output tax on the supply of construction services, citing Notification 11/2017-Central Tax (Rate) dated 28.06.2017. The authority contended that the value of land or undivided share of land should be deemed to be the development charges in cases of supply of construction services involving the transfer of property in land. The petitioner argued that the levy of GST based on a 70:30 proportion of the total value of construction is unlawful and double taxation, as stamp duty is already paid on the actual sale consideration of land. The petitioner emphasized the independence of the sale of land and supply of construction services, presenting sample agreements to support their position.

Issue 2: Input Tax Credit (ITC) eligibility:
The petitioner raised concerns regarding the claim of ineligible ITC not reflected in the auto-populated statement of monthly inward receipts in form GSTR2A. They explained that discrepancies in ITC were due to some vendors not filing GSTR1 and others filing quarterly, leading to reconciliation differences on a monthly basis. The petitioner assured that efforts were made to follow up with suppliers to rectify the ITC discrepancies.

Issue 3: ITC ineligibility due to non-payment of consideration within 180 days:
Acknowledging delays in payment to suppliers beyond 180 days from the date of invoice, the petitioner agreed to pay interest as per the annexure. This issue pertains to the non-payment of consideration for supplies received within the stipulated period, impacting the eligibility of ITC.

Judgment Summary:
The judgment scrutinized the application of the Notification dated 28.06.2017 concerning the valuation of construction services and works contracts involving land transfers. The court highlighted that the deeming fiction provided in the Notification applies when the assessee is unable to supply the bifurcation of construction and land costs. It emphasized that the deeming fiction does not automatically apply to all property development cases, especially when the assessee can provide actual evidence of the consideration received for construction services and land. The court emphasized the authority's responsibility to seek further particulars if the assessee's attribution lacks supporting evidence, rather than solely relying on the deeming fiction formula for assessment.

Furthermore, the judgment set aside assessments in specific writ petitions, noting that the petitioner had filed returns post-assessment, leading to the withdrawal of certain orders under a beneficial notification. The court directed the petitioner to appear before the respondent with all relevant records for reassessment within a specified timeframe, ensuring compliance with the law.

This comprehensive summary outlines the issues, arguments, and the court's analysis and decisions regarding the valuation of construction services, ITC eligibility, and non-payment implications within the context of the Tamil Nadu Goods and Services Tax Act, 2017.

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