Whether GST is payable on resale of flat by a buyer before its completion?

[Parag Phanse HUF]

A buyer bought an apartment / flat which was under construction from the developer. An ‘Agreement to Sell’ was registered and stamp duty was paid on the entire consideration by the buyer. Now, before completion certificate was obtained, the buyer sold the apartment / flat to another person. Is the buyer liable to charge and pay GST on resale of the apartment / flat before completion certificate has been obtained for the same?

[KASTURI SETHI]

This transaction i.e. resale of under-construction building is taxable. No exemption is available at all.

Penetrate into Schedule-III (Serial No.5) and  serial no.5 (b) of Schedule-II.

[Shilpi Jain]

Entire stamp duty was paid meaning the sale deed was done and then the subsequent sale happened? 

[Amit Agrawal]

One needs to understand factual scenario, refer to the 'agreement to sell' (i.e. between 'first buyer' & 'builder') as well as so-called re-sale agreement (i.e. between 'first buyer' and 'second buyer') to give a comprehensive answer to the query raised. 

However, followings points - generally specking - can be looked into:

A. Sale of under-construction property is NOT covered in Para No.5 (b) of Schedule-II from point of 'first buyer'.

B.  'Builder' continues to be liable to pay GST on his 'construction services' irrespective of so-called re-sale agreement (i.e. between 'first buyer' and 'second buyer'). 

C. 'Rights of First Buyer' (i.e. under-constructed property till date of re-sale agreement & further construction till completion, generally specking) is transferred to 'Second Buyer'.

C1. Tax Dept. may try to levy GST alleging that this is nothing but provision of service. 

C2. As 'First Buyer' is not providing 'construction services' to second buyer and his rights in 'under-constructed property till date of re-sale agreement' is getting transferred to second buyer, benefit from Para No.5 of  Schedule-III should be claimed by the 'first buyer'.

C3. This may become an area of dispute including on point of valuation as well as 'classification' of 'supply' by first buyer to second buyer. 

D. Alternatively & assuming that this is only one-off & unplanned transaction for the first buyer, subject supply from first buyer to second buyer is NOT in the course or furtherance of 'business' from point of 'first buyer' but something which was not planned initially but forced into due to changed personal circumstances. And hence, no gst can be levied on the 'first buyer' as there is no supply u/s 7(1)(a) of the CGST Act, 2017 by the 'first buyer' . 

These are ex facie views of mine and the same should not be construed as professional advice/suggestion.

[Parag Phanse HUF]

Shilpi ji, there was no conveyance / sale deed executed between developer and buyer as the apartment was still under construction. Similarly, only an Agreement to Sell was signed and registered between 1st buyer and 2nd buyer as the apartment is still under construction. However, stamp duty has been paid on entire consideration in both cases / agreements. Is there any legal restriction that prevents 1st buyer from transferring his rights to another person (by way of Agreement to Sell) before construction is complete.

Amit ji, I agree with you that it is more appropriate to call it a "transfer of rights" from 1st buyer to 2nd buyer than a sale / re-sale. 

Kasturi Sir, serial No. 5(b) of Schedule II refers to construction of complex / building intended for sale to the buyer. Will this apply to the transaction between 1st and 2nd buyer ? Can the 1st buyer be said to provide construction service to 2nd buyer with the intention of sale ? Can one person carry out construction activity (developer) and a different person (1st buyer) carries out the sale of complex / building / apartment and yet the transaction of sale be covered by serial no. 5(b) of Schedule II. If yes, what will be the service that is provided from 1st buyer to 2nd buyer....HSN / SAC ? What rate of GST will apply ?

Kindly give your view.

AI Summary

GST on resale of under construction property may hinge on transfer of rights versus supply classification and builder liability.
Whether GST is payable on transfer of contractual rights in an under construction apartment before completion turns on characterisation: one view treats the resale as a taxable construction related supply; another treats it as a mere transfer of the first buyer's rights while the developer remains liable for construction GST, invoking Schedule III exclusion. The transaction therefore raises potential disputes on supply classification, valuation and the presence of a business nexus sufficient to constitute a taxable supply.