Sale of immovable property treated as 'Supply'

[NANDAKUMAR KONKAR]

Under MGST Law, Clause 5 (b) of Schedule II [transactions to be treated as 'Supply'] states that :

'construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier.'

broadly construed to mean that transfer of property under construction (where entire consideration has been received after issuance of completion certificate) shall be treated as supply of services & by implication, transfer of completed structures are outside purview of Supply & consequently, of GST levy.

The above clause is borrowed from sec 66 (E)(b) of 'Declared Services' of Finance Act, 1994, except for the 2nd exception: 'or before its first occupation, whichever is earlier'.

My query is:is first occupation exception linked with receipt of entire consideration or not?

If yes, it means sale of building is not a supply if: entire consideration is received either

(a) after issuance of Completion Certificate [CC] or

(b) before 1st occupation, whichever is earlier.

This seems confusing. Does it mean that when entire consideration is received before 1st occupation, it would not be a supply. So regardless of whether entire consideration is paid by buyer after CC or before 1st occupation, it would not be a supply.

Alternately, if first occupation exception is not linked with receipt of entire consideration, it could mean in cases of occupation before issuance of CC, transaction would not be supply.

Kindly clarify

CA Nandakumar Konkar

AI Summary

Clarification on Clause 5(b) of MGST: Service tax applies to under-construction property sales unless completed before full payment. A query was raised regarding the treatment of the sale of immovable property under the MGST Law, specifically Clause 5(b) of Schedule II, which considers the construction of a building as a supply unless the entire consideration is received after the issuance of a completion certificate or before its first occupation. The confusion lies in whether the first occupation exception is linked to the receipt of the entire consideration. The discussion clarifies that service tax is applicable if the property is under construction and the entire consideration is received before completion. Conversely, it is not applicable if the property is sold after receiving the completion certificate and the entire consideration is received afterward.