ITC ON OBTAINING COMPLETION CERTIFICATE

[Sadanand Bulbule]

Dear experts

Enrty No 5 of Second Schedule to the CGST Act reads us under:

Supply of services

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

(a) XXXX

(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.

On conjoint reading of the above with explanation to Section 17[5][d], the crux of the issue that arises here is, if the part/full consideration is received prior to obtaining the Completion Certificate, but the apartments remain practically incomplete to occupy.  However the taxpayers continue the completion of such apartments even after obatining Completion Certificate, then is he entitled to utilise ITC on such balance works as well?

What would be your right advice to such taxpayers who are utilising ITC in such situation and also to the authorities who are allowing such ITC benefit?

Plz flash your validation.

[Sadanand Bulbule]

The principle:

"The provision for exemption cannot become provison for empowerment".

My take:

If Parliament intended to merely grant an exemption, it cannot be stretched by interpretation to imply that the exempted party is now empowered to do something extra, or that the government can impose new conditions beyond the scope of the exemption.

• Likewise, the taxpayer can’t turn an exemption into a license to claim benefits that the law never gave.

Example in the present GST context •

Entry 5(b) of Schedule II exempts sale of completed buildings.

• This does not empower the developer to claim ITC on post-completion (certificate) works just because the activity is exempt from GST.

• The exemption only removes GST liability — it does not grant any positive right to ITC or other benefits.

This reminds me the time tested proverb :

"A wolf in sheeps wool".

[Sadanand Bulbule]

To simplify the issue, whether ITC benefit can still be extended to a building which is in the process of construction even after obtaining Completion Certificate, where consideration is received prior to the issue of such certificate?

If the answer is "yes", then what is the significance of introducing such Completion Certificate for the purpose of Entry No. 5[b] of Second Schedule which deems the complete construction of the building, culminating in the character of sale of completed buildings being outside the domain of the CGST Act? 

Experts to clear the dark clouds orbiting this issue.

[Shilpi Jain]

ITC is eligible based on the area of the units that have been booked before completion certificate. This should be eligible for expenses incurred for the project even if such expenses are incurred after completion certificate also.

 

[Sadanand Bulbule]

In my understanding the purpose of introducing "Completion Certificate" is to certify that building "has been completely constructed". Obviously, it cannot include within its sweep a building which is not fully constructed or in the process of construction for tax exemption under Sl No. 5[b] of Second Schedule.

[Sadanand Bulbule]

I wish to add here that in terms of Sl No. 5 [b] of Second Schedule, if GST is paid on the full consideration {including after obtaining Completion Certificate), ITC can be claimed. Otherwise, no ITC is allowed after the Completion Certificate. The burden lies on the taxpayer under Section 155 of the Act to do so. And the authorities need to double check the facts on this count.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, I fully agree with your views expressed at serial no.5 above.

MY VIEW:

If ENTIRE consideration is received AFTER Completion certificate or First Occupation, whichever is earlier, it is self-service. Self service is no service. Hence out of the gamut of SERVICE If some amount is received prior to the C.C. or First Occupation, the status of self service will be “forfeited".

After C.C. or First Occupation, if construction activity is carried out, it will be afresh. Then GST will have to be paid and ITC can be taken, if eligible otherwise.

Sir, Looking forward for your opinion pl.

[Sadanand Bulbule]

Dear Sirji

While welcoming your stupendous reply, I adumbrate the legal position as under:

“Upon issuance of the completion or occupancy certificate, the supply of such immovable property ceases to constitute a “supply” within the meaning of Section 7 of the CGST Act, and consequently falls outside the levy of GST, rendering ineligible the availment of input tax credit on inputs or input services utilised thereafter, save where the entire consideration remains exigible to GST by reason of receipt, in whole or in part, prior to such issuance”.

In Chief Commissioner of CGST & Ors. v. Safari Retreats Pvt. Ltd. 2024 (10) TMI 286 - SUPREME COURT, the Hon’ble Supreme Court has enunciated the entitlement of ITC where the construction of immovable property is demonstrably intended for supply/use in the course or furtherance of business.

[KASTURI SETHI]

 Sh.Sadanand Bulbule Ji,

Sir,  Pl. quench my thirst on the following issue:- . 

(1) Does the issuance of  Completion Certificate or First Occupation Certificate by the competent authority   debar  construction activities like  addition, alteration,repair etc. of the completed building ? 

[Sadanand Bulbule]

Dear Sirji

Keeping in mind the definition of works contract defined under Section 2[119] of the CGST Act, my views are as under:

The issuance of a Completion or Occupation Certificate by the competent authority does not, per se, operate as a bar to undertaking subsequent additions, alterations, or repairs to the building. However, substantial/major works require sanction of a revised plan in accordance with applicable Municipal Laws.

For purposes of the GST law, such post-certificate works pertain to immovable property and ordinarily fall outside the ambit of “supply”, thereby disentitling the recipient to input tax credit, save where such works constitute an independently taxable works contract in terms of Section 2[199] of the CGST Act.

Further, a completion certificate means that all the construction and related works (like roads, drainage, electricity, etc.) have been finished as per the approved plan and rules. This certificate is important because:

• Builders need it to officially hand over the property to buyers.

• Local authorities need it to give a Khata (property registration document) for the site.

[KASTURI SETHI]

Dear Sir Ji,

In such a scenario, in the fitness of things, there is  a popular expression, "Agree to disagree".

So  I humbly agree to disagree.

More home work is required on my part.  I request  other experts opine  in order to clear the air

[Sadanand Bulbule]

Dear Srji

I appreciate your frank opinion. I too invite the experts to discuss and contribute to make it more beneficial to the stakeholders. 

AI Summary

Input tax credit eligibility depends on timing of consideration and whether post-completion works form a taxable works contract. Whether ITC is claimable for inputs and services used in works carried out after issuance of a Completion Certificate depends on timing of receipt of consideration and the character of the post-certificate works: if entire consideration is received after the certificate the sale is outside GST and ITC is disallowed for subsequent works, whereas expenses attributable to units booked or taxable supplies prior to the certificate or post-certificate works that constitute an independent taxable works contract may remain eligible for ITC, subject to evidentiary proof and authority scrutiny.