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

AI Summary

Input tax credit eligibility for builders requires proportionate reversal where supplies become exempt after completion certificate issuance.
ITC is allowable only for inputs used in taxable supplies and must be proportionately reversed for exempt supplies; inputs utilised post-occupancy that pertain to exempt sales should be treated as common ITC and apportioned under the statutory reversal formula. Corporate input services (audit fees, rent, AMC, security, retainer fees) relating to exempt supplies require proportionate reversal, and practitioners are advised to capture ITC at invoice level and apply apportionment where supplies are partly taxable and partly exempt. A contested issue remains whether timing of receipt of consideration alone converts a construction service into an exempt sale.