FIRST OCCUPATION OF PROJECT

[PANKAJ CHUGH]

Hello,

Kindly guide on the following:

As per clause 5(b) of Schedule II of GST which read as under:

The following shall be treated as supply of services, namely :-

(b) 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 after its first occupation, whichever is earlier.”

Brief Facts:

During the construction of the commercial project, in the state of haryana, for which Completion Certificate is not yet obtained, the builder let out two units for office purposes to his subsidiary companies.

Query:

In the context of rule 42 of the CGST Rules, Whether the activity of letting out of units in under construction project may be treated as first occupation of the project ? and the ITC should be reversed.

[Rajagopalan Ranganathan]

Sir,

In my opinion first occupation on sale and letting out the units are not same. In the case of first occupation the unit is sold to the customer and the customer becomes the owner of the unit. In the case of letting out the lessee is permitted to use the unit as per his wish but ownership of the unit is still with lessor. Therefore the provisions of rule 42 of CGST Rules, 2017 is not applicable to the situation.

[KASTURI SETHI]

In my view, the word,'let out' is not covered under 'first occupation'.

The word, "occupation" has not been defined in GST Act. What is the meaning of the phrase, "first occupation" is relevant here. The following decision of AAR, Karnataka will be useful for arriving at correct decision:

2019 (20) G.S.T.L. 616 (A.A.R. - GST) = 2018 (12) TMI 536 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA IN RE : BINDU VENTURES

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Shri Rajagopalan

[KASTURI SETHI]

My reply is also in consonance with the reply of Sh.Ranganathan, Sir.

[Ganeshan Kalyani]

If first occupation via let out method fulfills the condition laid down in law then some builder may do so to save payment of tax which would be against the revenue. Wild thought.

AI Summary

Letting Out Units in Under-Construction Projects Without Completion Certificate Not 'First Occupation' Under GST Rules, ITC Reversal Unnecessary. A query was raised regarding whether the letting out of units in an under-construction commercial project in Haryana, without a completion certificate, constitutes the 'first occupation' under GST rules, necessitating the reversal of Input Tax Credit (ITC). The consensus among respondents was that letting out does not equate to first occupation, as ownership remains with the lessor. References were made to a decision by the Authority for Advance Rulings in Karnataka, supporting the view that 'first occupation' involves ownership transfer, not mere usage. One respondent cautioned against using letting out to evade tax obligations.