In re Kolte Patil Developers Ltd (GST AAR Maharashtra)
Applicant asked ‘What is the legal procedure for cancellation of flat which is booked in pre-GST Regime and cancelled in post-GST Regime. Also, GST liability in cases where some small amount is retained, for cancellation (after discussion with customer).’
AAR held that questions posed before us are not the questions in respect of which an Advance Ruling can be sought under the GST Act. In view thereof, the impugned application is not maintainable. No proceedings of Advance Ruling under the GST Act lie in the instant case. For want of any merit, we discuss no further.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, MAHARASHTRA
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by KOLTE PATIL DEVELOPERS LTD, the applicant, seeking an advvance ruling in respect of the following questions:-
What is the legal procedure for cancellation of flat which is booked in pre-GST Regime and cancelled in post-GST Regime. Also, GST liability in cases where some small amount is retained, for cancellation (after discussion with customer)
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the “GST Act”.
02. FACTS AND CONTENTION – AS PER THE APPLICANT
This application is being filed by KOLTE PATIL DEVELOPERS LTD which is engaged in the activity of Construction of Residential and Commercial complex.
When the flats were booked by the customer, the applicable service tax and MVAT was deposited. Given this, indirect tax burden borne by the individual customer on flat booked in pre-GST regime ranged from 4.50%- 5.50%. However, due to certain reasons, the flats are cancelled by the customer on or after 1st July 2017 (i.e. after implementation of GST) which are booked by the customer in the pre-GST regime.
In pre-GST regime, Developer was entitled to avail service tax credit in case of cancellation flat as per Rule 6(3) of Service Tax Rules, 1944. Hence, the customer who cancelled flat was not required to bear indirect tax cost as the cenvat credit for the same was available to the Developer In view of the above, the issue for determination before the Authority for Advance Ruling (‘AAR’) is – whether GST input tax credit of Service Tax and State VAT paid while booking of flat is available to the Developer, if cancelled in GST regime? What will be the methodology to avail Input Tax Credit on the said taxes paid?
STATEMENT CONTAINING THE APPLICANT’S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE, IN RESPECT OF THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED
1. ISSUE FOR DETERMINATION –
The question/ issue before Your determination is – What is the legal procedure for cancellation of flat which is booked in pre-GST Regime and cancelled in post-GST Regime. Also, GST liability in cases where some small amount is retained, for cancellation (after discussion with customer).
OUR SUBMISSIONS
In terms of Section 142 (2) of the CGST Act, credit note can be raised:
Where, pursuance of a contract entered into prior to the appointed day, the price of any goods or service or both is revised downwards on or after the appointed day, the registered person who had removed or provided such goods or services or both may issue to the recipient a credit note, containing such particulars as may be prescribed, within thirty days of such price revision and for the purposes of this Act such credit note shall be deemed to have been issued in respect of an outward supply made under this Act:
Provided that the registered person shall be allowed to reduce his tax liability on account of issue of the credit note only if the recipient of the credit note has reduced his input tax credit corresponding to such reduction of tax liability.
We submit that, the situation like revision of price upward or downward is addressed via sub clause (a) and sub clause (b) of Section 142 (2) of the CGST Act wherein credit note can be raised if the revision of price is downward. However, said section does not appear to exclude cancellation of contract cases.
Hence, can cancellation of flat be equated with revision of contract price is the question of law. Given this, we submit that, there could be two scenarios:
Cancellation of flat can be equated with the downward revision of price
Cancellation of flat cannot be equated with the downward revision of price
Cancellation of flat can be equated with the downward revision of price
In said scenario, as discussed aforesaid as per section 142(2)(b) of the CGST Act, credit note can be raised for cancellation of flat by the builder and same is treated as ‘Outward Supply’. Further, as per proviso to said section tax liability on account of issue of credit note can be reduced only if the recipient of credit note has reduced his input tax credit.
As regards to said legal pronouncement tax liability is to be reduced to the extent of input tax credit reduced/reversed by the recipient. With respect to cancellation of flat this could be construed as the Builder/Developer is required to reduce GST to the extent of Service Tax or VAT paid at the time of booking of flat. Also, it is to be noted that in case of citizen, who were not registered under indirect tax, the question of availment of cenvat credit not arises. Further, cenvat credit with respect to construction service in Service Tax was not available as per Finance Act, 1994 hence, in case of registered business entity also, the same was not available.
In this regard, it is to be noted that, the Developer has paid service tax at the rate of 4.50% and MVAT @1% in pre-GST regime. Given this, indirect tax burden on flat booked in pre-GST regime was ranges from 4.50%- 5.50%.
Additionally, the Proviso to section 142 (2) specifically provides that ‘Provided that the registered person shall be allowed to reduce his tax liability on account of issue of the credit note only if the recipient of the credit note has reduced his input tax credit corresponding to such reduction of tax liability.’. Thus, this proviso specifically appears to link and then restrict the amount of re-credit to the extent of amount paid by recipient (as the credit note is permissible only if the recipient of the credit note has reduced his input tax credit corresponding to such reduction of tax liability). Thus, it can be construed as the credit note can be issued to the extent of earlier taxes paid (which effectively could be 5.50%) than 12% (i.e. the GST rate applicable on under-construction flats in GST regime).
Additionally, we would like to submit that, the disclosing the aforesaid credit note, may be a disclosure challenge in GST return and thus, needs to be addressed by GSTN.
Cancellation of flat cannot equated with the downward revision of price
In this regard, we would like to refer Rule 6(3) of Service Tax Rules, 1944 states-‘Where an assessee has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or partially for any reason or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in the contract, the assessee may take credit of such excess service tax paid by him, if the assessee,-
(a) has refunded the payment or part thereof, so received for the service provided to the person from whom it was received; or
(b) has issued a credit note for the value of the service not so provided to the person to whom such an Invoice had been issued ‘
As per the aforesaid rule of Service Tax Rules, 1944 if an invoice is issued for which service is not provided then the taxpayer allowed to avail credit of such excess service tax paid.
Also, we would like to bring your kind attention towards Sub Section 5 of Section 140 of CGST Act, reproduced below:
“Every claim filed by a person after the appointed day for refund of tax paid under the existing law in respect of services not provided shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 118 of the Central Excise Act, 1944.”
Given the aforesaid, the amount already paid in pre- GST regime towards Service tax or Excise, could be refunded in cash, as it is specifically not carried forward in GST regime.
Further, we would like to bring your kind attention to the fact that, in accordance with Section 11B of Central Excise Act, 1944 ‘ Any person claiming refund of any duty of excise may make an application for refund of such duty to the Assistant Collector of Central Excise before the expiry of one year from the relevant date in such form as may be prescribed and the application shall be accompanied by such documentary or other evidence ‘
As the cancellation of flats would have entitled the developer claim credit of the same in Service Tax Returns, the date of cancellation needs to be considered as the relevant date. This is particularly true as introduction of GST Law may not have the intention of creating a burden of double taxes (i.e. Service Tax/ VAT as well as GST) on the sale of same property.
Further, citizen of India who will cancel flats for any reason may not have to bear the impact. Also, anyways, the developers will pay the GST, if applicable, on the supply of said flats to another customer. Certainly, levying double taxes is not the intention of Government having deliberate shift of focus towards building more affordable homes for citizens.
Also, as per Section 173 of the CGST Act, the taxpayer has to reduce the prices and pass on GST benefit of increased input tax credit and reduced tax rate. However, double taxation of in aforesaid cases may not be intention of the law.
Additionally, even section 142 (6) (a) provides, inter-alia, cash refund in specified scenarios, in respect of admissible credit.
Thus, developers and property buyers are seeking clarity on the aforesaid as to whether the Service Tax/VAT paid earlier can be claimed as credit or allowed as refund to property buyers.
Prayer
In view of the submissions made above, it is most humbly prayed that Hon’ble authorities may kindly pass a ruling to clarify the legal procedure for availment of Service Tax and VAT paid on cancellation of flat which is booked in pre-GST Regime and cancelled in post-GST Regime.
ADDITIONAL SUBMISSION TO BE CONSIDERED AND CLARIFIED WITH RESPECT TO SUBMISSION ON CANCELLATION OF FLAT DATED -24.07.2018
1.1 We refer the application filed by KOLTE PATIL DEVELOPERS LTD (The Company”) dated 19th June 2018 where in the Company intent to sought clarification on behalf of property buyers, whether the Service Tax/ VAT paid earlier can be claimed as credit or allowed as refund to property buyers.
1.2 Additionally, we request to consider following submissions as well.
2. OUR SUBMISSIONS
2.1 Two options available as discussed given below can be considered while cancellation of contract
A. The cancellation of contract could be equated with downward revision of price then it will be covered under Section 142 (2) of the CGST Act, where the credit note can be raised with GST.
B Cancellation of flat cannot equated with the downward revision of price and builder is eligible for refund as per Rule 6(3) of Service Tax Rules,1944
A. The cancellation of contract could be equated with downward revision of price then if will be covered under Section 142 (2) of the CGST Act, where the credit note can be raised with GST.
A.1 Cancellation is covered under downward revision as there is no restriction in the law
I. With respect to cancellation of flat this could be construed as the Builder/Developer is required to reduce GST to the extent of Service Tax or VAT paid at the time of booking of flat. Also, it is to be noted that in case of citizen, who were not registered under indirect tax, the question of availment of cenvat credit not arises. Further, cenvat credit with respect to construction service in Service Tax was not available as per Finance Act, 1994 hence, in case of registered business entity also, the same was not available.
II. Further we would like to bring your kind attention to the fact that Rule 6(3) of Service Tax Rules, 1944 states-Where an assessee has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or partially for any reason or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in the contract, the assessee may take credit of such excess service tax paid by him, if the assessee,
(a) has refunded the payment or part thereof, so received for the service provided to the person from whom it was received; or
(b) has issued a credit note for the value of the service not so provided to the person to whom such an invoice had been issued’
III. As per the aforesaid rule of Service Tax Rules, 1944 if an invoice is issued for which service is not provided then the taxpayer allowed to avail credit of such excess service tax paid.
IV. Given the aforesaid, cancellation of flat can be equated with downward revision of the price as the intention behind Section 142 (2) of the CGST Act is to allow the credit of taxes paid in the pre-GST regime in case of revision of contract.
V. As per the principle of interpretation of statute words must be ascribed that natural, ordinary or popular meaning which they have in relation to subject matter with reference to which and context in which they have been used in the statute.
VI. Further, as per the ‘cardinal Rule of interpretation’, “whenever you have to constitute a statute or a document you do not constitute it according to the mere ordinary general meaning of the words, but according to the mere ordinary meaning of the word as applied to the subject matter which regards to which they are used.”
VII. Therefore, in determining the meaning of any word or phrase in a statute the first question to be asked is- “What is the natural or ordinary meaning of the word or phrase in its context in the statute?
VIII. The meaning should lead to some result which is reasonably be supposed to have been the intention of the legislature’.
IX. In the case of ICICI Bank v. Municipal Corporation of Greater Mumbai (2005 (6) SCC 404, P. 414) it was held that ‘In the construction of Statutes means the Statute as a whole, the previous state of the Law, other Statutes in the pari-materia, the general scope of the Statutes and the mischief that the intend to remedy’.
X. Thus, if we see this from holistic perspective then it can be stated that the context i.e. change of tax regime from erstwhile Service Tax regime to the new GST regime also should be considered interpret the terminology.
XI. Hence, we submit that, considering the intention of the inclusion of the section 142 (2) of the CGST Act is to allow the credit of taxes paid in the pre-GST regime in case of revision of contract the cancellation of flat can be equated with the downward revision of price.
A.2 New law cannot create a situation to deny the benefit available under earlier law as provisions.
I. Erstwhile in the Finance Act, 1994 the Builder/ Developer is allowed to avail service tax credit with respect to cancellation of flat by way of issue of credit note as per Rule 6(3) of Service ax Rules, 1944.
II. Further, the section 142 (2) of the CGST Act is allowed to avail the credit of taxes paid in the pre-GST regime in case of downward revision of contract price. Hence, question under consideration is whether cancellation of contract can be considered as a downward revision of price or not.
III. In this regard, reference can be given to the principle of interpretation of statute wherein beneficent construction involves giving the widest meaning possible to the statutes. When there are two or more possible ways of interpreting a section or a word, the meaning which gives relief and protects the benefits which are purported to be given by the legislation, should be chosen.
IV. A beneficial statute has to be construed in its correct perspective so as to fructify the legislative intent. Given this, in case of legislations which have may two different interpretations, the legislation which favours the class of persons for which it is purported should be preferred.
V. The rule of beneficial construction requires that even ex post facto law of such a type should be applied to mitigate the rigour of the law. The principle is based both on sound reason and common sense (T. Barai Vs Henry Ah Hoe (1983 1-SCC-177)].
VI. In the case of Commissioner of Central Excise, Ludhiana V. Raison IndiaLtd 2006 (202) ELT 759 (P&H) has ruled that “this provision allows to a manufacturer credit of any duty of excise etc. paid on the goods used in the manufacture of the specified goods and being a beneficial legislation, its object of input duty relief to a manufacturer should not be defeated on technical and strict interpretation of the Rules governing Modvat”.
VII. Hon’ble Supreme Court in the case of UOI, Suksha International and Nutron Gems & Others, 1989 (39) E.L.T. 503 (S.C.), has observed that an interpretation unduly restricting the scope of beneficial provision is to be avoided so that it may not take away with one hand what the policy gives with the other.
B. Cancellation of flat cannot equated with the downward revision of price and builder is eligible for refund as per Rule 6(3) of Service Tax Rules, 1944
B.1 when the transaction itself is cancelled the Government has no right over the taxes from the citizen
1. In this regard, we would like to refer Rule 6(3) of Service Tax Rules, 1944 states that, in accordance with Section 11B of Central Excise Act, 1944 Any person claiming refund of any duty of excise may make an application for refund of such duty to the Assistant Collector of Central Excise before the expiry of one year from the relevant date in such form as may be prescribed and the application shall be accompanied by such documentary or other evidence’
II. The expression ‘relevant date’ has been defined in clause (f) of Explanation (B) to Section 11B of the CE Act as “the date of payment of duty”
III. We would like to bring your kind attention that Construction of immovable property is a continuous supply service and required sufficient time to complete the same. The one-year time limit is not justifiable in the said case.
IV. Hon’ble Apex Court in the case of Mafatlal Industries Ltd Vs. UOI 1997 (89) ELT 247 held that, All refund claims to be adjudicated under Sec. 11B except where the levy is held to be unconstitutional.
V. Given the aforesaid, it is important to analyse whether the one-year time limit is applicable in case of excess of payment of service tax due to cancellation of flat.
VI. As per Section 66B of the Finance Act, 1994 specifies the charge of service tax which is essentially that service tax shall be levied on all services provided or agreed to be provided in a taxable territory, other than services specified in the negative list.
VII. Given this, in case of cancellation of flat service is not provided which is agreed to be provided. Hence, service tax is not levied at all.
VIII. We would like to bring your kind attention to the fact that, what is paid erroneously which was not required to be paid at all by the law and doesn’t become of the nature of service tax.
IX. Given this, if assessee has paid service tax which was not payable at all, then time limit does not apply to amount paid which is not service tax (as no service is provided).
X. In this regard, reference can be had to the case of Madhvi Procon Pvt.Limited [2015 (38) S.T.R. 74 (Tri. – Ahmd.) wherein it was held that, ‘The issue involved in the present proceedings is as to whether amount of Rs. 19,11,331/- paid by the Respondent should be considered as payment of duty’ or an amount paid as ‘deposit. From the facts available on records Service Tax was paid on the amount of advances received by the Respondent but ultimately no service could be provided as the said works contract got terminated. In the case of Addition Advertising v. UOI (supra) jurisdictional Gujarat High Court has, inter alia, held that if no service is provided then there is no Service Tax. It means that once service is not rendered then no Service Tax is payable. Similarly Karnataka High Court in the case of CCE, Bangalore v. Motorola Private Limited (supra) held that any duty paid by mistake cannot be termed as ‘duty’. Similar view has been taken in the other case laws relied upon by the Respondent. In view of the above, it has to be held that the amounts paid by the Respondent cannot be termed as payment of duty but has to be considered as a ‘deposit’ to which provisions of Section 11B of the Central Excise Act, 1944 will not be applicable.
XI. Further, In the case of Jyotsana D. Patel (2014 (35) S.T.R. 77 (Tri. – Mumbai) it is held that,
‘It is admitted fact that the appellant was not required to pay any service tax for acquisition of residential unit as held by the Hon’ble High Court in K.V.R. Constructions (supra). As it is not an amount of service tax, therefore, provisions of Section 11B of the Central Excise Act are not applicable to the facts of this case. Therefore, the time limit prescribed under 11B is not applicable. Hence impugned order deserves no merit and same is set aside. Appeal is allowed with consequential relief. Stay petition also disposed of in the above terms.
XII. Karnataka high could in the case of KVR Construction (2012 (26) S.T.R. 195 (Kar.) held that,
‘Where the claim of the respondent/assessee is on the ground that they have paid the amount by mistake and therefore they are entitled for the refund of the said amount. If we consider this payment as service tax and duty payable, automatically, Section 11B would be applicable. When once there was no compulsion or duty cast to pay this service tax, the amount of Rs. 1,23,96,948/-paid by petitioner under mistaken notion, would not be a duty or “service tax” payable in law. Therefore, once it is not payable in law there was no authority for the department to retain such amount. By any stretch of imagination, it will not amount to duty of excise to attract Section 11B. Therefore, it is outside the purview of Section 11B of the Act.’
XIII. In the case of ITC Limited (1993 (67) E.L.T. 3 (S.C.)] honourable Supreme court upheld the view taken by the Division Bench of the Delhi High Court with regard to the question of limitation. On the question of limitation, the Division Bench of the Delhi High Court had observed that “the duty of excise is that which is levied in accordance with law” and that “any money which is realised in excess of what is permissible in law would be a realisation made outside the provisions of the Act”.
XIV. Therefore, in case service tax paid which was not payable then refund of same is allowable and Section 11B of Central Excise Act is not applicable as for period of time limitation.
XV. Also, we would like to bring your kind attention towards Sub Section 5 of Section 140 of CGST Act, reproduced below:
“Every claim filed by a person after the appointed day for refund of tax paid under the existing law in respect of services not provided shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of subsection (2) of section 11B of the Central Excise Act, 1944.”
XVI. Given the aforesaid, the amount already paid in pre-GST regime towards Service tax or Excise, could be refunded in cash, as it is specifically not carried forward in GST regime.
XVII. Further, citizen of India who will cancel flats for any reason may not have to bear the impact. Also, anyways, the developers will pay the GST, if applicable, on the supply of said flats to another customer. Certainly, levying double taxes is not the intention of Government having deliberate shift of focus towards building more affordable homes for citizens.
XVIII. Thus, we submit that, refund of service tax paid on cancellation of flat where service is not provided shall be allowed without limitation of time as prescribed in the section 11B of the Central Excise Act.
B.2 New law cannot create a situation to deny the benefit available under earlier law as visions (i.e. to claim credit of excess paid)
I. Without prejudice to other arguments we submit it is settled position in law that procedural aspect should not take away substantial benefits of the assesse. The substantial benefit of refund should not be denied.
II. The erstwhile law did not provide for any restriction on cancellation (as even the wholly cancelled contracts were eligible for the benefit of Rule 6 (3) of Service Tax Rules, 1994) and thus, the new provision which essentially is to cover the scenarios provided for under earlier law, cannot curtail the rights of the taxpayers.
III. Thus, we submit that, the substantial benefit should not be denied to the applicant that because of new law which assesse was eligible under pre-GST regime
B.3 Time limit should apply from date of cancellation as that is the trigger point (and not payment of tax) – Law cannot enforce impossible condition to claim within one year if the contract is cancelled after 1 year (say in July 2018)
I. Without prejudice to aforesaid submission even we consider that the time limit of one year is applicable in the given case it should be considered from the date of cancellation of flat.
II. As per the Principles of Interpretation it is well settled law that there are two exceptions to non-compliance of mandatory requirement viz:
a. When the performance of the requirement is impossible in such cases the performance is excused
b. If the requirements are provided by Statute in the interest of a particular person, the requirement although mandatory may be waived by him. In such cases the act done will be considered as valid act [Wilson v. McIntosh (1894) AC 129).
III. In the given case it is not possible for the assesse to file a claim of refund by complying conditions of one year due to implementation of GST law from 1st July 2017 and hence based on the aforesaid principle it can be said that the requirement is impossible to be complied with.
IV. Further, there are a plethora of judicial pronouncements wherein it has been held that the time limit of one year is to be considered from the date of revision of price, or cancellation of contract (i.e. from the date of issue of credit note and not from the date of payment of service tax.)
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