Mandatory GST credit reversal on unsold completed units becomes deductible project cost when final attribution crystallises.
Mandatory reversal of common GST input tax credit attributable to unsold units at Building Use Permission is treated as an irrecoverable project cost when post-completion sales fall outside output GST. Project-wise credit apportionment requires final adjustment by reference to the unsold portion, and the absence of fresh cash payment does not prevent deduction where a previously valid credit becomes unusable by law. The deduction arises in the assessment year when final statutory attribution crystallises, rather than earlier years when the credit remained available. A related reversal claim requires verification and must be allowed in only one appropriate assessment year to prevent double deduction.
Issues: (i) Whether GST input tax credit mandatorily reversed upon Building Use Permission, attributable to unsold units, is deductible as business expenditure in the relevant assessment year; (ii) Whether the GST reversal provision of Rs. 85,59,538 is allowable where its claim requires verification across assessment years to prevent double deduction.
Issue (i): Whether GST input tax credit mandatorily reversed upon Building Use Permission, attributable to unsold units, is deductible as business expenditure in the relevant assessment year.
Analysis: Section 17(2) of the Central Goods and Services Tax Act, 2017 restricts common input tax credit to the portion attributable to taxable supplies, while Section 17(3) includes post-completion sale of building in the exempt-supply computation. Paragraph 5(b) of Schedule II treats construction for sale as a supply of service only where consideration is received before completion; post-completion sales of unsold units do not attract output GST. Rules 42 and 43 of the Central Goods and Services Tax Rules, 2017 prescribe project-wise input tax credit apportionment and final adjustment at completion, including by reference to the unsold carpet-area ratio.
Analysis: Upon Building Use Permission, the statutory restriction crystallised in respect of the unsold portion of the project. The reversal was neither voluntary nor a mere accounting adjustment: GST paid on project inputs had earlier been represented by a valid credit asset, which became irrecoverable by operation of law when it could no longer be set off against output tax. The absence of a fresh cash payment on reversal did not negate the resulting irrecoverable business expenditure. Since final statutory attribution arose only on completion, the deduction could not have been claimed in the earlier years when the credit remained validly available; the Matching Principle did not require otherwise.
Conclusion: The GST input tax credit reversal of Rs. 2,64,11,386, attributable to unsold units on Building Use Permission, is allowable as business expenditure in the assessment year under consideration.
Issue (ii): Whether the GST reversal provision of Rs. 85,59,538 is allowable where its claim requires verification across assessment years to prevent double deduction.
Analysis: The amount represented the proportionate GST reversal relating to purchases of materials and services, and the same statutory principle governing the main input tax credit reversal applied. Verification was required to identify the appropriate assessment year for allowance and to ensure that the expenditure was not claimed twice.
Conclusion: The claim is to be examined for assessment year 2023-24 and allowed in only one assessment year, with no double deduction.
Final Conclusion: Mandatory reversal of common input tax credit at project completion becomes an irrecoverable project cost when the credit attributable to unsold units ceases to be utilizable; the related GST claim must be granted once in the appropriate assessment year after verification.
Ratio Decidendi: A statutorily mandated reversal of previously eligible common input tax credit upon project completion, to the extent allocated to unsold units resulting in exempt post-completion sales, becomes an irrecoverable project cost deductible when final statutory attribution crystallises.