2025 (4) TMI 549 - HC - GST

Sale of incomplete building without construction services not taxable under GST Entry 5(b) Schedule II

The Karnataka HC held that the sale of an incomplete building without providing subsequent construction services does not fall under Entry 5(b) of ... Levy of GST - transaction involving the sale of an incomplete building - Transaction falls under Entry 5(b) of Schedule II, which treats certain construction activities as a supply of services subject to GST or not? - refund of the GST paid - HELD THAT:- When the constructed immovable property whether fully constructed or partially constructed is sold, as such, without providing any construction service subsequently, the same would not attract Paragraph 5 (b) of Schedule II and Section 7 of the Act, since there is no supply of goods or services or both in the said transaction and consequently, the question of whether the building has received completion certification or not would be irrelevant in such cases. The fact that Paragraph 5 (b) of Schedule II and Section 7, contemplates only construction service provided by a builder/promoter to a service recipient is further evident from the description of service entries provided under “construction services” in the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 prescribed the rate of GST. Sale of land is treated under the Act as neither supply of goods nor a supply of service. As far as sale of building is concerned, if the same is not coming within the ambit of Paragraph 5 (b) of Schedule II, then the same would be treated neither as supply of goods nor a supply of service. In the present case, the subject transaction would not fall within the ambit of Paragraph 5 (b) of Schedule II, as there was no construction service being contemplated between the parties and consequently, in terms of Paragraph 5 of Schedule III, the subject sale transaction between the Petitioner and Respondent No. 4 is neither a supply of goods nor a supply of service as wrongly held in the impugned order which deserves to be quashed. Conclusion - The respondents completely fell in error in coming to the erroneous conclusion that the subject sale transaction is covered by Entry 5 (b) of Schedule II which was clearly inapplicable without appreciating that by virtue of Entry 5 of Schedule III or even otherwise, the subject sale transaction was neither exigible nor amenable to levy of GST and consequently, the impugned order rejecting the refund claim of the petitioner deserves to be quashed. The impugned rejection order at Annexure-A dated 15.02.2023 passed by the 3rd respondent is hereby quashed - The refund application/claim of the petitioner is hereby allowed - Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:- Whether the transaction involving the sale of an incomplete building is subject to GST under the CGST/KGST Act.- Whether the transaction falls under Entry 5(b) of Schedule II, which treats certain construction activities as a supply of services subject to GST.- Whether the transaction is covered by Entry 5 of Schedule III, which treats the sale of land and buildings as neither a supply of goods nor services, thus exempting it from GST.- Whether the petitioner is entitled to a refund of the GST paid under protest.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The legal framework primarily revolves around the CGST Act, 2017, specifically Section 7, which defines the scope of supply, and the relevant entries in Schedule II and Schedule III. The court also considered precedents from the Supreme Court and various High Courts, including the cases of Larsen & Toubro Ltd. v. State of Karnataka and Munjaal Manishbhai Bhat Vs. Union of India, which clarify the applicability of GST to construction activities and the sale of immovable property.Court's interpretation and reasoning:The Court interpreted that for a transaction to fall under Entry 5(b) of Schedule II, there must be a contract for construction services between the parties, and consideration must be received before the completion certificate is issued. In the absence of such a contract, the transaction would fall under Entry 5 of Schedule III, exempting it from GST.Key evidence and findings:The Court found that the sale transaction was conducted on an 'as is where is' basis without any further construction obligations by the liquidator. The sale was of an incomplete building, and no construction services were provided post-agreement, which is crucial to determining the applicability of GST.Application of law to facts:The Court applied the legal principles to the facts and concluded that the transaction was a sale of immovable property without any service component. Therefore, it was not subject to GST under Schedule II and was covered by Schedule III, exempting it from GST.Treatment of competing arguments:The respondents argued that the transaction was taxable under Entry 5(b) of Schedule II due to the absence of a completion certificate. The Court rejected this argument, emphasizing that the absence of a construction contract and the nature of the sale as a transfer of immovable property placed it under Schedule III.Conclusions:The Court concluded that the impugned order rejecting the refund claim was illegal and without jurisdiction. It directed the respondents to refund the GST amount paid by the petitioner with applicable interest.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:'The impugned order petitioner is illegal, arbitrary and without jurisdiction or authority of law apart from being contrary to the provisions of the CGST/KGST Act and the same deserves to be quashed and consequent directions are to be issued to the respondents to sanction/grant and pay refund in favour of the petitioner together with applicable interest.'Core principles established:- A transaction involving the sale of an incomplete building without a construction contract does not attract GST under Schedule II.- Such transactions fall under Schedule III, exempting them from GST, as they are considered sales of immovable property.Final determinations on each issue:- The transaction in question was not subject to GST, and the petitioner was entitled to a refund of the GST paid under protest.- The Court quashed the impugned order and directed the refund of Rs. 14,32,64,614/- with applicable interest to the petitioner.