Common Input tax Credit - for Builders on ITC post completion certificate

[hubert fernandes]

' We undertake construction of residential complex and shall avail ITC on inputs. We however have doubt on inputs used on a project after its completion / occupancy certificate from local authorities.

The above can be elaborated with the following case example

Assumption : Project 1 is one among the other on going projects

Project 1 consisting of 100 flats, wherein occupancy certificate from local authorities is obtained say on 1/9/2017. On the day of occupancy out of the 100 flats say 70 flats have been sold and the receivables as per payment schedule of these 70 flats are 95 % of consideration value as indicated in agreement. However on the day of occupancy certificate an estimated of 90% of the cost of construction is complete and balance 10% works gets executed and completed before the physical possession of these flats . (say 3-4 months wef 01/09/17)

The issue is whether ITC on these balance works of 10% to be executed post completion certificate are to treated as

a) Eligible and full ITC claimed - reason being no one to one co-relation required claiming of ITC

(b) in- eligible (being sale of ready flats neither a sale nor a service) and no ITC - our view that although this ITC may pertain on account of flats sold prior to occupation and likewise on flats sold post completion which is neither a sale or service, we may not to be able to establish this fact and whether revenue will take a contrary view and disallow the entire ITC on inputs post completion.occupancy sertificate

(c) whether such ITC shall be treated as common ITC (i.e for taxable and exempt supply) and reversed on the basis prescribed formula

Also please advise us that in case of option (c) what shall constitute an 'exempt turnover'

Furthermore please advise us as to what shall be the position on ITC on generic input services such as 'audit fees, Administrative office rent, AMC,Security sevices,retainairship fees'

Please advise us on the above so that ITC can be rightly captured at invoice level

[RAMESH PRAJAPATI]

ITC is allowed on taxable turnover only. ITC should be reversed proportionately in respect of exempt supply.

[Ganeshan Kalyani]

Dear builders , reduce the price of the project post GST as seemless flow of credit is there.

Yes proportionate credit is allowed.

[KASTURI SETHI]

I agree with the views of Sh.Prajapati, Sir. His brief reply covers all your points. I further add para-wise as under:-

(a) Not admissible.

(b) Does not agree sale factor is there.

(c) Yes.

Audit fee and retainer-ship fee would be considered ineligible.

This is the legal position explained above. Now I deviate somewhat and discuss your issue logically.

As per Section 66 (E)(b) of the Finance Act, 1994 and Schedule-II of Section 7 of CGST Act, 2017

the conditional nature of exemption from Service Tax/GST remains the same whether it is pre-GST period or post GST period. The whole scenario revolves around the factum of receipt of consideration. Two situations emerge as under:-

1. No Service Tax/GST leviable if whole consideration is received after completion certificate or first occupation of house..
2. Service Tax/GST is leviable if part or whole payment is received before completion of construction.

What is crucial sequence of event is that in case entire consideration is received after the issuance of completion certificate or after its first occupation, Service Tax was not required to be paid in pre-GST era and GST is not required now.. In other words, if entire payment is received after completion or first occupation (whichever is earlier), it is to be treated as sale and not service and if part or entire consideration is received before completion of building, complex, flat etc. it is to be treated as service. In the former situation, Service Tax law or GST law treats it sale thereby arises a question where the ingredient of ‘service’ has disappeared. How practically is it feasible that ‘service’ has been converted into ‘sale’ by mere factum of timing of receipt of consideration ? The legal status of service cannot be changed into sale or vice versa by any stretch of imagination. There is no co-relation between incidence of service (now supply) and time-factor of receipt of entire consideration. How can the factum of time factor determine the fate of consumer, builders or contractor or the whole nation in the interest of revenue ? The essence of definition of service whether in pre-GST era or post GST era remains almost the same. Time factor of receipt of consideration cannot prevail over the definition of service, if it prevails, it is contradictory and can be termed as flaw in the law or unconstitutional. In view of time factor involved, time factor cannot override definition of ‘Service’ and ‘supply’.

Can any house/ flat/ building be constructed without service i.e. site preparation service, architect's services, Engineering Service, plumbing service, electrical fitting, painting service, floor setting, water-proofing, wood-work etc. ? No. It is not possible. In view of so many services involved in the construction of a building/flat, how a ready-built house can treated as 'sale' (without the element of service/supply) and allowed exemption from Service Tax/GST on the ground of entire consideration received after completion certificate or first occupation ? Incidence of tax event is service and not "TIME FACTOR OF CONSIDERATION".

In my view such exemption is by virtue of flaw in the law since the year 2010. . It requires amendment in the interest of consumers and in the interest of revenue..

 

 

[hubert fernandes]

Thank You sir for your valuable inputs and really appreciate views and the insight given by you all on the subject. once again thank u

[abu bakar]

sir,

what to do for inputs already availed in gst and completion certificate is received after availing inputs.

can itc availed will be reversed.

AI Summary

Eligibility of Input Tax Credit for Builders Post-Completion: Can ITC Be Claimed on Finished Flats After Occupancy? A discussion on the eligibility of Input Tax Credit (ITC) for builders post-completion certificate under GST. The query addresses whether ITC can be claimed for 10% of construction work completed after the occupancy certificate. Responses suggest that ITC is only allowed on taxable turnover and should be reversed for exempt supplies. Some argue that the sale of completed flats post-occupancy is not a service, thus ITC may not be applicable. The discussion also touches on the classification of generic input services and critiques the legal framework, suggesting amendments to address perceived inconsistencies in the law.