Can Unsecured Loan consider as advance received for a service?

[Suresh Yadav]

A builder received unsecured loan from many individuals before Commencement Certificate(CC). After obtaining CC Certificate, Builder returned the unsecured loan to individuals bank account & subsequently after 2-3 days took same amount as flat consideration through same bank account of individual and booked flat for same individuals & paid applicable GST. Can initial unsecured loan be considered as advance received for construction service (flat) from individual? Can GST department demand interest on the same?

In some cases builder returned unsecured loan after Completion Certificate & booked flat after 2-3 days of returning unsecured loan. No GST paid because after Completion Certificate it became exempt. Can GST be demanded by department considering unsecured loan as advance?

There is no written agreement available for unsecured loan between builder and individual. It is generally orally or mutual unserdtaing.

AI Summary

Consideration characterization: unsecured loans may be recharacterised as advances and attract GST if linked to supply.
Whether purported unsecured loan receipts can be treated as consideration for construction services depends on economic substance: genuine loans recorded as liabilities with supporting documentation and interest retained loan character, whereas undocumented, sequenced receipts that operate as pre payments may be recharacterised under the substance over form principle and treated as taxable advances for GST.