Goods and Services Tax (GST) is levied upon the supply of goods as well as services by a taxable person as per the Central Goods and Services Tax Act, 2017 (Act). Certain transactions have been kept outside the purview of the GST regime. One such transaction is the sale of land and building. As per Section 7 of the Act, GST is applicable on the supply of goods and services. The term “Goods” is further defined under Section 2(52) which means every kind of moveable property. Further, Schedule III of the Act expressly declares that the sale of land and building is neither supply of Goods nor supply of services.[1] However, at the same time Schedule II of the Act states that construction of complex, building, civil structure or a part thereof, including complex or building intended for sale to a buyer shall be treated as a supply of service.[2] However, an exception is carved out to this clause within the same paragraph. Construction of complex, building, civil structure or a part thereof shall not be treated as a supply of service where the entire consideration has been received after the issuance of completion certificate, where required, by the competent authority or after the first occupation, whichever is earlier.[3] Therefore, only sale of under-construction units are subject to GST.
When the payment is made for under construction units, it is usually made as per a payment schedule which is period based or event based. On each of these transactions, GST is charged and paid to the Developer/Builder who further make payment to the Authorities. These agreements are long term agreements and are spread over a significant amount of time. There may arise a situation where the agreement is cancelled due to any reason, i.e., there may arise a case of return of service. The aim of this article is to explore what are the ways in which a refund of GST already paid to the developer/ builder can be claimed by an unregistered person post such cancellation in the light of the discussion in the 48th GST Council Meeting.
ISSUANCE OF CREDIT NOTE:
The first way to seek a refund of GST paid to the Builder/ Developer is directly from such Builder/ Developer. On cancellation, the Builder/Developer is obligated issue a credit note under Section 34(1) of the Act read with Rule 53(1A) of the Central Goods and Services Rules, 2017 (the “Rules”). As per Section 34(1) of the Act, a credit note can be issued by the supplier on return of goods or services or both whereas Rule 53(1A) clarifies the manner in which such credit note has to be issued.
Similar view was taken by the CBIC which was expressed in the Circular No. 137/07/2020-GST, dated 13.04.2020 wherein it was clarified that where an advance is received by a supplier for a service contract which is subsequently cancelled and the supplier has issued an invoice before the supply of service and paid GST thereon, the supplier is required to issue a credit note within the meaning of Section 34 of the Act. It states:
“2. The issues raised have been examined and in order to ensure uniformity in the implementation of the provisions of the law across the field formations, the Board, in exercise of its powers conferred under section 168(1) of the CGST Act hereby clarifies as under:
| S No. | Issue | Clarification |
| 1. | An advance is received by a supplier for a Service contract which subsequently got cancelled. The supplier has issued the invoice before supply of service and paid the GST thereon. Whether he can claim refund of tax paid or is he required to adjust his tax liability in his returns ? | In case GST is paid by the supplier on advances received for a future event which got cancelled subsequently and for which invoice is issued before supply of service, the supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim.
However, in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any through FORM GST RFD-01. |
Further, a clarification in this regard for units booked prior to 01.04.2019 was issued by the CBIC vide a FAQ- F.No. 354/32/2019-TRU dated 07.05.2019 wherein it was stated that where the unit was booked prior 01.04.2019 on which GST was paid on part consideration received by the developer, the Developer shall be able to issue a Credit Note to the buyer as per provisions of Section 34 in case of cancellation of booking. It stated that: –
“Developer shall be able to issue a Credit Note to the buyer as per provisions of section 34 in case of change in price or cancellation of booking provided that the amount received in excess if any, consequent to issuance of Credit Note, is refunded to the Buyer by the Developer before September following the end of the financial year. Developer shall be able to take adjustment of tax paid in respect of the amount of such Credit Note. For example, a Developer who paid GST of Rs. 1,20,000 at the rate of 12% (effectively) in respect of a gross amount of booking of Rs. 10,00,000before 1st April, 2019 shall be entitled to take adjustment of tax of Rs. 1,20,000 upon cancellation of the said booking on or after 1st April, 2019 against other liability of GST including liability arising at the rate of 5% / 1% provided that the entire amount received from the buyer is refunded by the Developer.
Further, in case apartments booked prior to 1.04.2019 on which GST has been paid till 31.03.2019 at the old rates of 8%/ 12% with ITC, are cancelled and rebooked at the new rates of 1% / 5% without ITC or sold after issuance of completion certificate, the credit taken in respect of such apartments for supply of service till 31.03.2019 on which tax was paid @ 8%/ 12% with ITC shall be required to be reversed.”
However, the time limit for the issuance of such a credit note is:
(a) 30th November following the end of financial year in which such supply was made. OR
(b) date of furnishing of the relevant annual return
Whichever is earlier.[4]
Therefore, if the GST is refunded by the Builder/ Developer, he can issue a credit note to the effect within the time prescribed under Section 34(2) of the Act and the entire GST paid so far on the unit can be refunded to the unregistered person.
REFUND UNDER SECTION 54 OF THE ACT
A typical Agreement to sell for an under-construction unit/flat/building has a clause wherein in case of any default by the purchaser, any tax paid by the Developer to the authorities is forfeited as non-refundable amount. As discussed above, one way to avoid this situation is where a credit note can be issued by the Developer/ Builders. However, where the time for the issuance of such credit note has lapsed, the builder can seek a refund thereon under Section 54 and refund the GST paid to the unregistered person.
Section 54 of the Act, provides that “any person” can seek a refund of the of any tax and interest, if any, paid on such tax or any other amount paid by him, by making an application before the expiry of two years from the relevant date in such form and manner as prescribed. Moreover, as per Section 54(8)(e) of the Act, in cases where the unregistered person has borne the incidence of tax and not passed it on to another person, the said refund can be paid to him. However, the abovementioned clause of the agreement to sell helps such builder/developer to escape from such liability. Further, no such manner was prescribed for filing an application of refund by an unregistered person (buyer) in such a case.
The issue was discussed in the 48th GST Council meeting held on 17th December, 2022 and it was recommended that the Rules should be amended to enable an unregistered person to claim such refund directly from the Department.
In the light of the recommendations of the GST Council, the CBIC vide Circular No. 188/20/2022-GST, dated 27.12.2022 (“the Circular”) has now prescribed the procedure for refund application by an unregistered person where the unregistered buyer has entered into a contract/ agreement with a builder/developer for the supply of services of construction of flats/ building etc and had paid the amount towards the construction of such service, along with the applicable taxes, had to get the said contract/agreement cancelled.
An unregistered person can now take a temporary registration and apply for refund under the category, ‘Refund for Unregistered person’. The unregistered person (now temporarily registered) can file an application for refund of the tax paid by him in FORM RFD-01 within two years of the date of issuance of the letter of cancellation of the contract/agreement for supply.[5]
Procedure for Filing RFD-01 by the Unregistered Person:
1. Registration
Obtain a temporary registration on the common portal using the PAN. While doing so, select the same state/UT where the supplier is registered. The unregistered person would then undergo Aadhaar Authentication[6] and enter the details of the bank account in which he seeks to obtain the refund of the amount claimed. However, keep in mind that the bank account should be in the name of the unregistered person and has been obtained on his PAN.
2. Filing RFD-01
The unregistered person then shall fine the application in FORM GST RFD-01 on the common portal under the category ‘Refund for unregistered person’. The applicant shall upload Statement 8 on pdf format along with the requisite Documents.
Documentation Requirements:[7]
1. Copies of relevant invoices
2. Proof of payment to the supplier
3. Copy of agreement/contract
4. Letter of the supplier for cancellation of the agreement/ contract
5. Details of payment received from the supplier against such cancellation and proof thereof
6. A certificate issued by the supplier to the effect that:
a. Supplier has paid tax in respect of the invoices on which refund has been claimed by the unregistered person;
b. The supplier has not adjusted the tax amount involved in these invoices against its tax liability by issuing credit note;
c. The supplier has not claimed and will not claim any refund of the amount of tax involved in respect of relevant invoices;
d. The contract pursuant to which the invoices were issues has been cancelled[8];
CONCLUSION
Therefore, the CBIC post the 48th meeting of the GST Council has introduced a mechanism for filing of refund by an unregistered person who was entitled to the same on account of cancellation of the agreement to sell.
[1] Paragraph 5, Schedule III, Central Goods and Services Act, 2017.
[2] Paragraph 5(b), Schedule II, Central Goods and Services Act, 2017.
[3] Paragraph 5(b), Schedule II, Central Goods and Services Act, 2017.
[4] Section 34(2), Central Goods and Services Tax Act, 2017.
[5] Paragraph 5, Circular No. 188/20/2022-GST, dated 27.12.2022
[6] Rule 10B, Central Goods and Services Rules, 2017.
[7] Rule 89(2)(ka) and Rule 89(2)(kb), as inserted by the Central Goods and Services Tax (Fifth Amendment) Rules, 2022, Notification No. 26/2022-CT, dated 26.12.2022.
[8] Rule 89(2)(kb), Central Goods and Services Rules, 2017.
Author Bio
I have bought an apartment in Goa ,i am paying GsT ON ALL INSTALMENTS FOR THE SAME ,HOW CAN I CLAIM THE BENEFIT /REFUND OF THE SAME