In re Bindu Ventures (GST AAR Karnataka)
(a) Which date should be considered as the date of completion of the property – the date of receipt of necessary approvals from BBMP / Karnataka Pollution Control Board / Karnataka Electricity Board or the date of receipt of completion certificate from a registered Chartered Engineer?
The date of Occupancy Certificate issued by the competent authority, i.e. Bruhat Bengaluru Mahanagara Palike should be treated as the date of completion of the construction.
(b) Whether the applicant is liable to pay GST on any amount received as consideration towards sale of completed offices, after the date of completion, where part of the consideration was received prior to the date of completion as determined in question (a) above?
If any part of the consideration is received before such date of completion, then the transaction would be considered as the supply of services in terms of entry 5 of Schedule II to the GST Acts, and liable for GST.
(c) Whether the applicant is liable to pay GST on the consideration received as consideration towards the sale of completed offices, where the entire consideration is received after the date of completion of construction as determined in question number (a) above?
If the entire consideration is received after the date of completion, then the transaction would not be liable to GST.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, KARNATAKA
1. M/s Bindu Ventures, (called as the ‘Applicant’ hereinafter). No. 2, Bindu Galaxy, 1st Main, West of Chord Road, Rajajinagar Industrial Estate, Bengaluru – 560044, having GSTIN number 29AAPFB6663D1Z5, has filed an application for Advance Ruling under Section 97 of CGST Act, 2017, KGST Act, 2017 read with Rule 104 of CGST Rules 2017 & KGST Rules 2017, in form GST ARA-01 discharging the fee of Rs.5,000-00 each under the CGST Act and the KGST Act.
2. The Applicant is a Partnership firm and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following question:-
(a) Which date should be considered as the date of completion of the property – the date of receipt of necessary approvals from BBMP / Karnataka Pollution Control Board / Karnataka Electricity Board or the date of receipt of completion certificate from a registered Chartered Engineer?
(b) Whether the applicant is liable to pay GST on any amount received as consideration towards sale of completed offices, after the date of completion, where part of the consideration was received prior to the date of completion as determined in question (a) above?
(c) Whether the applicant is liable to pay GST on the consideration received as consideration towards the sale of completed offices, where the entire consideration is received after the date of completion of construction as determined in question number (a) above?
3. The applicant furnishes some facts relevant to the stated activity:-
a. The applicant states that he is engaged in the business of real estate in the form of a partnership firm. As a part of his business, he undertakes construction of commercial complexes which are subsequently sold or given on rent.
b. The applicant states that they had undertaken one such project by the name “Bindu Galaxy” which is a commercial complex situated at No.2, 1st Main, Industrial Town, West of Chord Road, Rajajinagar, Bengaluru 560044 and they had started the construction on this project in the month of February 2016 on land owned by them. The construction of the commercial complex “Bindu Galaxy” was completed in all aspects by the end of the month of November 2017.
c. The applicant states that he entered into agreement to sell with the prospective buyers and receive advances towards booking of commercial offices. He also states that they have discharged VAT and service tax on advances received on or before 30.06.2017 and GST on advances received on or after 01.07.2017. He states that they are paying GST at the rate of 18% with 1/3rd of the amount being appropriated towards sale of land (which is not liable to GST).
d. The applicant states that subsequently, on receipt of the entire consideration from the prospective buyers, a sale deed is executed between themselves and the buyer to hand over the physical possession of the property.
e. The applicant states that he has received all the necessary approvals from various government departments which are as follows:-
i. Approval to commission the Electrical installations at ‘Bindu Galaxy’ complex from the Government of Karnataka vide letter dated 01.08.2017;
ii. Consent from Karnataka State Pollution Control Board dated 03.11.2017; and
iii. Approval from Bangalore Water Supply and Sewerage Board vide letter dated 01.12.2017.
f. The applicant states that in Karnataka, the state law does not provide for issuance of any completion certificate. However, the law provides for issuance of occupancy certificate on completion of construction of immovable property. He states that he is unable to obtain this occupancy certificate from the BBMP. However, he states that he has obtained a completion certificate from a chartered engineer stating that the construction of the building was complete in all respects by 01.12.2017.
4. The applicant has filed a statement containing his interpretation of facts and law in respect of the aforesaid questions and the same is as under:
4.1 Schedule II of the Central Goods and Services Tax Act, 2017 / Karnataka Goods and Services Tax Act, 2017 in entry 5 states as under:-
” 5. Supply of services
The following shall be treated as supply of service, namely:-
(a) renting of immovable property;
(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.
Explanation.- For the purposes of this clause,-
(1) the expression “competent authority” means the Government or any authority authorised to Issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:-
(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or
(ii) a chartered engineer registered with the Institution of Engineers (India); or
(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority
4.2 The applicant states that from the above reading of the law, the following inferences can be drawn:-
a. Construction of complex, building, civil structure which is intended for sale to a buyer is considered as supply of service
b. However, when the entire consideration, towards sale of immovable property, is received after the issuance of completion certificate, the same shall not be regarded as supply of service and hence would not be liable to GST.
4.3 Therefore, the applicant states that, if part of the amount of consideration, towards the sale of immovable property, is received prior to issuance of completion certificate, then, the entire amount, including the amount of consideration received after the issuance of complete certificate, shall be liable to GST.
4.4 The completion certificate may be obtained from the Government or any other prescribed governmental authority. However, in case where there is no requirement to obtain such certificate from the local government, then the same may be obtained from:-
a. An architect registered with the Council of Architecture constituted under the Architects Act, 1972; or
b. A Chartered Engineer registered with the Institute of Engineers (India); or
c. A licensed surveyor of the respective local body of the city or town or village or development or planning authority.
4.5 Therefore, the applicant contends that in his opinion, the date mentioned on the completion certificate received from the Chartered Engineer shall be taken as the date of completion of construction for all purposes of the GST Law.
5. The applicant has filed an additional submission in which he has provided the extract of the Karnataka State local Law (Bengaluru Mahanagara Palike Building Bye-Laws 2003) for the reference and as per him, the same reads as under,-
“5.6 Occupancy Certificate
5.6.1 (a) Every person shall before the expiry of five years from the date of issue of licence shall complete the construction or reconstruction of a building for which the licence was obtained and within one month after the completion of erection of a building shall send intimation to the Commissioner in writing of such completion accompanied by a certificate in Schedule VIII certified by a Registered Architect / Engineer/ Supervisor and shall apply for permission to occupy the building. . . “
The ‘certificate in Schedule VIII’ as mentioned above is a certificate from registered architect / engineer / supervisor stating that the building is complete in all respects. The applicant encloses a copy of the certificate obtained from a Chartered Engineer certifying that the building is completed in all respects including all essential amenities such as BESCOM Power Connection, BWSSB Water Supply, Sanitation Connection” by 1st of December 2017 and is ready for occupation”.
Thus, the Bangalore Mahanagara Palike Building Byelaws, 2003 provides a clear distinction between a completion certificate and an occupancy certificate and that it cannot be deemed to be a completion certificate as contemplated under the GST Law.
5.1 The applicant states that the GST Law also defines the word “competent authority: as an explanation to clause 5 in Schedule II and the same is as under:-
“Explanation.- For the purposes of this clause-
(1) the expression “competent authority” means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely,-
i. an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or
ii. a chartered engineer registered with the Institution of Engineers (India); or
iii. a licensed surveyor of the respective local body of the city or town or village or development or planning authority;”
As discussed above, the Bangalore Mahanagara Palike Building Bye Laws 2003 authorises a Registered Architect/ Engineer/Supervisor to issue a completion certificate and therefore, it may be construed that under GST law a registered Architect/Engineer/Supervisor is the Authority authorised to issue completion certificate. Therefore, according to the applicant, the completion certificate issued to him by the Chartered Engineer could be considered as the completion certificate as contemplated under the GST Law.
5.2 The applicant also states that the law provides for exception from applicability of GST in case the whole consideration is received after the first occupancy. Hence, it would be of utmost importance to understand the meaning of the phrase “first occupation” used in the provision. While the GST Law at present docs not provide the meaning of this phrase, support may be drawn from its ordinary meaning:
Meaning of the word “first”, as per Cambridge English Dictionary, Merriam-Webster Dictionary & Oxford English Dictionary respectively is as under:-
