Landowner under JDA area-sharing model liable for GST on apartment sales before completion certificate despite developer doing construction work

AAR-Karnataka held that landowner under JDA area-sharing model is liable to pay GST on apartment sales before completion certificate issuance, as they supply construction services to buyers despite developer executing actual construction work. Landowner cannot opt for concessional tax rates under ongoing project scheme since they weren't registered when option period was available. Input tax credit on developer's charges is only available if landowner's tax liability exceeds developer's charges and landowner is registered at time of supply. No input tax credit allowed on expenses other than developer's construction service charges.

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Issues Involved:
1. Tax liability of the Applicant on sale of apartments before issuance of Completion Certificate.
2. Applicable rate of tax on sale of apartments before issuance of Completion Certificate.
3. Eligibility of the Applicant to claim credit of tax charged by the developer.
4. Eligibility of the Applicant to claim input tax credit on other expenses.

Summary:

Issue 1: Tax Liability of the Applicant
The applicant, being a landowner, entered into a Joint Development Agreement (JDA) with a developer for constructing residential apartments. The applicant sought clarity on whether they are liable to pay GST on the sale of apartments before the issuance of a Completion Certificate. The ruling clarified that the applicant is considered a supplier of works contract service to the prospective purchasers of apartments. Hence, the applicant is liable to pay tax under Section 9(1) of the CGST Act, 2017, as the sale of apartments before the issuance of Completion Certificate constitutes a supply of services under Section 7(1) and is classified as a works contract.

Issue 2: Applicable Rate of Tax
The applicable rate of tax on the sale of apartments before the issuance of the Completion Certificate depends on the nature of the apartment and the project type. The ruling referred to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 3/2019-Central Tax (Rate) dated 29.03.2019. The tax rate varies based on whether the apartment is residential or commercial, affordable or not, and whether the project is a Residential Real Estate Project (RREP) or a Real Estate Project (REP) other than RREP.

Issue 3: Eligibility to Claim Credit of Tax Charged by Developer
The applicant is eligible to claim input tax credit on the tax charged by the developer for the supply of construction services, provided two conditions are met: (a) the applicant is a registered dealer on the date the time of supply of construction services falls, and (b) the amount of tax payable by the applicant for the supply of apartments is more than the amount of tax charged by the developer from the applicant. The ruling emphasized that the applicant cannot claim input tax credit if the tax payable by the applicant is less than the tax charged by the developer.

Issue 4: Eligibility to Claim Input Tax Credit on Other Expenses
The ruling stated that input tax credit on other expenses, apart from the tax charged by the developer for the supply of apartments, is not eligible to be claimed. The provisions of the relevant notifications and the CGST Act specify that the central tax shall be paid in cash, and input tax credit is restricted to the tax charged by the developer for construction services, subject to the conditions mentioned.

Ruling:
1. The applicant is liable to pay tax as a supplier of works contract service under Section 9(1) of the CGST Act, 2017.
2. The applicable tax rate depends on the nature of the apartment and the project type as per the relevant notifications.
3. The applicant can claim input tax credit on the tax charged by the developer, subject to specific conditions.
4. Input tax credit on other expenses is not eligible to be claimed.

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