Tax/GST treatment to be given in case of cancelled flats
GST compliance for real estate has always been a nightmare considering the day to day changes in the rates, tax structure, GST returns to be filed so an and so forth. Assessee to be tax compliant has to look for ways and means to make the tax compliances easier. An attempt was made to simplify the GST compliance for real estate and to reduce the GST cost to the ultimate customer by way of introducing a new scheme for the real estate. However, the new scheme has its own pros and cons in all.
GST applicability on the customer advances received for the sale of constructed apartment was always puzzling with the GST rates, land deduction, availability of input tax credit etc.,. To this confusion something is added by way of GST treatment for cancelled flats.
In this article, an attempt is made to simplify the understanding of the tax/GST treatment to be given at the time of flat cancellations by the customers in various scenarios –
Page Contents
- A. Flat booked by the customer in service tax regime and cancelled in GST regime.
- B. Flat booked by the customer in GST regime (July’17 to Mar’18) and is cancelled in FY 18-19 (before Sep’18)
- C. Flat booked by the customer in GST regime (July’17 to Mar’18) and is cancelled in FY 18-19 (after Sep’18)
- D. Flat booked by the customer in FY 18-19 and is cancelled in FY 19-20 (assuming new scheme (GST @5%) is opted by the builder
A. Flat booked by the customer in service tax regime and cancelled in GST regime.
Facts
- A flat is booked by the customer in service tax regime and service tax is paid on part of the amount received in service tax regime. Later on, the same flat is cancelled by the customer in GST regime and the amount received from the customer is refunded along with service tax.
Analysis
- The service tax paid on such cancelled flats neither can be adjusted against the consequent liability under GST nor the taxes paid can be availed as credit in GST regime. As the taxes paid are refunded to the customer and the ultimate tax burden is on the builder, the only option available to the builder is to opt for refund of the taxes paid on such cancelled flats.
- As per Sec. 142(5) of CGST Act, 2017, any refund claim of taxes/duty paid under the earlier law, is made by the assessee on account of services not provided, then the same shall be disposed of in accordance with the provisions of earlier law itself and the refund shall be made in cash only.
- Under earlier law, provisions of Sec.11B of Central Excise Act, 1944 was made applicable for refund of any service tax vide Sec. 83 of the Finance Act, 1994. Sec. 11B specifies the time limit of 1 year from the relevant date for claiming refund and the relevant date to be considered is the date of payment of taxes.
- However, in this case, the date of cancellation of the flat by the customer shall be considered as the relevant date for calculating the time limit of 1 year for refund, as the event that led to refund of taxes is the cancellation by the customer. If cancellation would not have happened, the refund claim would not have arisen at all. Similar view was taken up in the following judicial pronouncements –
CCE, Pune Vs. Ispat Profiles India Ltd. 2007(220) E.L.T. 218 (Tri. Mumbai
SS Agro Industries Vs. Commr. of Cus., Air Cargo (Export), New Delhi – 2014 (309) E.L.T. 334 (Tri. – Del.)
Conclusion
Hence, if any flat booked in service tax regime and service tax paid on certain part of the consideration, is cancelled in GST regime and the entire amount along with taxes is refunded to the customer then the builder can go for refund of the service tax paid within 1 year from the date of cancellation by the customer. However, if the taxes paid is not refunded to the customer, then builder cannot go for refund of the same as the customer has bear the ultimate tax burden.
B. Flat booked by the customer in GST regime (July’17 to Mar’18) and is cancelled in FY 18-19 (before Sep’18)
Facts
- A flat is booked by the customer in the period starting from July’17 to March’18 and is cancelled by the customer in FY 18-19 (before Sep’18) and the amount received from the customer is refunded along with GST.
Analysis
- In accordance with sec.34 of the CGST Act, 2017, where there is any deficiency in the services supplied, then the supplier can issue a credit note and adjust the amount of GST mentioned in the credit note against the subsequent GST liability by disclosing the credit note in the GST returns accordingly. However, such credit note for any financial year cannot be issued later than September month of the following financial year or the date of furnishing of the annual returns for that particular financial year, whichever is earlier.
- For example, the credit note pertaining to the invoice issued in FY 17-18, cannot be issued after September’18 and the taxes paid cannot be adjusted. (Assuming the annual returns for FY 17-18 is not filed till September’18).
- Disclosure in GST returns
In GSTR-3B – The subsequent month’s liability has to be reduced to the extent of credit note (both taxable value and the taxes) and the net amount shall be disclosed as current month’s supplies in table-3 of GSTR 3B return.
In GSTR-1 – If the customer is unregistered, then the value of the credit note shall be reduced from the subsequent month’s liability and the net amount shall be disclosed as B2C supplies in table -7 of GSTR-1 return. The credit note issued need not be disclosed separately. However, if the customer is registered, then the credit note issued need not be reduced from the subsequent month’s liability in return and shall be disclosed separately in table 9B of GSTR-1.
Conclusion
Hence, if flat is booked in FY 17-18 (from Jul’17 to Mar’18), GST is paid on the consideration received. The same is cancelled in FY 18-19 (before September’18) and the entire amount along with GST is refunded to the customer, then the GST paid can be adjusted against the subsequent liability by issuing a credit note.
C. Flat booked by the customer in GST regime (July’17 to Mar’18) and is cancelled in FY 18-19 (after Sep’18)
As discussed above, the credit note for the FY 17-18 cannot be issued beyond Sep’18 and hence the taxes paid cannot be adjusted.
Note: Though there is no provision in the law, the GSTIN portal allowed credit notes for the FY 17-18 to be uploaded in the GSTR-1 upto 31st March 2019. One more example, wherein the GST provisions and the GSTIN portal are not in line with each other.
Conclusion
Hence, flat is booked in FY 17-18 (from Jul’17 to Mar’18), GST is paid on the consideration received. The same is cancelled in FY 18-19 (after Sep’18) and the entire amount along with GST is refunded to the customer, then the GST paid cannot be adjusted against the subsequent liability by issuing a credit note. The only option left with the builder is to go for refund of the taxes paid under GST within 2 years from the date of cancellation of flat by the customer as per Sec. 54 of the CGST Act, 2017, on the ground that the incidence of tax has been borne by the builder itself and the same is not passed on to the customer.
D. Flat booked by the customer in FY 18-19 and is cancelled in FY 19-20 (assuming new scheme (GST @5%) is opted by the builder
Facts
- Flat booked by the customer in FY 18-19 is cancelled by the in FY 19-20 and the amount received from the customer is refunded along with GST. Builder has opted to pay GST @5% in cash from 1st April 2019 under the new scheme.
Analysis
- Credit note provisions discussed above will be applicable in this case as well. The builder can issue a credit note up to Sep’19 and adjust the taxable value and the taxes paid @12% from the subsequent month’s liability and pay GST @5% in cash on the balance amount.
- Same treatment was explained in the FAQ No. 22 released for real estate by CBIC dated 7th May 2019. (F. No. 354/32/2019 – TRU)
Illustration:
All the above mentioned scenarios can be explained with the help of the following illustration:
| Customer | Flat booking date | Flat cancelled date |
| A | 11th June 2016 | 10th November 2017 |
| B | 2nd August 2017 | 16th April 2018 |
| C | 10th December 2017 | 11th November 2018 |
| D | 3rd March 2018 | 31st December 2018 |
| E | 10th October 2018 | 3rd May 2019 |
Treatment to be given –
| Customer | Action to be taken | Reference |
| A | As the service tax paid earlier cannot be adjusted against the GST liability, apply for refund of the service tax paid within 1 year from the date of cancellation. | Sec. 142(5) of the CGST Act 2017 & Sec. 11B of the Central Excise Act, 1944. |
| B | Issue a credit note in the month of Apr’18 and reduce the taxes to the extent of credit note from April’18 liability. | Sec. 34(1) of the CGST Act, 2017 |
| C | Credit note cannot be issued. Apply for refund for the taxes paid within 2 years from the date of cancellation | Sec. 34(1) & 54 of the CGST Act, 2017 |
| D | Credit note cannot be issued. Apply for refund for the taxes paid within 2 years from the date of cancellation | Sec. 34(1) & 54 of the CGST Act, 2017 |
| E | Issue a credit note in the month of Apr’18 and reduce the taxes to the extent of credit note from April’18 liability. | Sec. 34(1) of the CGST Act, 2017 & FAQ No. 22 issued by the CBIC. |
Author Bio
I booked flat in Dec 2019 and paid GST for 5 installments. In 2020 canceled above flat and booked another flat in same recidency. Is this paid GST will be adjusted against another flat or shall i get refund. builder refused to pay back. he charged me full GST on another flat.
I have booked a flat on Feb 2021 and now cancelling due to some reason on Dec 2022. Builder has deducted GST now and refunded. Let me know how to get 100% refund.
I booked the flat in July 2022 , I decided to upgarde with same builder which is ready to move (OC received ) So I need to cancel my previous booking . Will I get the GST back for the previous flat which is still underconstruction ..
Dear Sir,
If a Flat is booked on 5.11.2018 and cancelled on 20.03.2019 , can the excess paid GST be adjusted by issuing credit note?
Regards
If a Flat is booked on 5.11.2018 and cancelled on 20.03.2019 , can the excess paid GST be adjusted by issuing credit note?
Dear Sir,
I have Booked a Flat on oct’20 and for that I have deposited Token money of Rs. 200000/- but after three months back deal cancelled as builder taken money on already sold flat hence I ask him to refund my token money. Yesterday i.e. 01.09.21 he make refund after deducting 8800/- towards expenses made by him. now he is demanding GST 12% which was deposited by him. please advise me in this regard.
Dear Sir/Madam,
The customer has booked a flat in March 2017, there are 10 installment with applicability of Service Tax and GST. Now this customer has come for the cancellation of the flat. what is the procedure to do in such cases and get claim of S.tax and GST
Dear Sit/Madam
I have booked a flat on August 2019 and paid 1st installment I.e. 25% of the total cost including GSY on August 2020. After that last month I have canceled the booking , as per agreement they are going to refund me the 1st installment after deduction of 15% of total money paid, that means they are also deducting 15% of the total GST paid by myself. Is this deduction as per rule?
For flat booked in service tax regime
(prior to 1st july 2017) and cancelled in gst regime say 19 march 2018) The builder is entitled to claim refund IF he has refunded the taxes collected from buyer or passed a credit note, and declared the effect in subsequent GSTR 3B etc.
what is the process of getting refund by the flat buyer who has cancelled the booking and
is mislead by builder that the refund will be given when he gets it from the authorities.
As the builder s application for refund was rejected
for various defects in application, what is the
remedy fo the flat buyer for getting the refund ?
obviously, the timeline for appeal is to contested .
30 March 2021
Dear Sir,
We had booked a flat in a Building where construction was completed and OC was awaited.
The initial payment of approx 20% was made in September 2019. The Allotment Letter was issued on 16 January 2020. Subsequently, with the COVID situation and certain other unforseen circumstances, we cancelled the flat booking, which was done on 20 October 2020. In the meantime, the Builder had paid the GST to the tune of approximately 1.90 Lakhs.
Later on we booked another flat in the same Building and finally took possession of this Flat in December 2020. All applicable GST in respect of the second flat was paid.
While completing the payments for the flat that we had taken subsequently, we were asked to pay up the GST paid by the Builder for the earlier Flat. It was only after paying up the earlier paid GST, we were given the final possession. In fact, we were not even aware that GST had been paid by the Builder when we were still in the process of finalising our purchase after the initial token payment of about 20%.
My Query:
(1) I would like to understand the position of the earlier paid GST and how I must proceed to claim the refund.
(2) Has it to be claimed by me from the GST Authorities or do I have to claim it from the Builder.?
(3) If the Builder has to refund my GST amount how does he claim it from the Authorities ?
(4) Is there any time limit to claim the refund with respect to the date of cancellation ?
(5) The Builder has issued letters to the effect that they have paid the GST and mentioning the dates of allotment and cancellation.
Being a Retired Senior Citizen , this amount of approximately 1.9 Lakhs is a major amount for us to lose. Your early response would be appreciated and I look forward to a positive response from you, giving the relevant clauses under which I can claim this refund.
Thanking you, in anticipation,
With warm regards,
Dear madam,
I have booked a flat in aug 2018 and i have paid 10 lakh as advace payment due to some circumstances Iam cancelling the flat booked. The builder is deducting the gst amount in refunding. Is he liable to deduct the gst Or how can i get my full amount.
no he is not liable to deduct
Hello Madam,
I have booked a flat in July 2018 and made some payments and due to some reasons I was compelled to cancel the flat in Sep 2020. Can the GST paid be refunded?
Sir, I booked a flat on jun 2017 and cancelled the booking in 2019. My GST amount is 4 lakhs 32 thousand. How can I get my GST refunded?
Very nice article.(1) In para C you have stated that builder can claim refund u/s 54 within 2 years from cancellation. However, such relevant date is not mentioned in explanation to sec 54. Relevant date applicable will be date of payment and from this date 2 years will be counted within which builder can apply for refund. Please clarify as cancellation date is not mentioned in relevant date provisions. (2) If builder has not refunded tax element to customer then can customer claim refund u/s 54?
the AA in various rulling have accepted the date of cancellation as the date to calculate the time limit for refund application as cause for the refund came in existence from the fact that a cancellation has been done. prior to cancellation there was no cause for refund.
Hello respected madam,
I’m in a dilemma re. my purchased flat cancellation….
Booked flat in Apr 2019
Booking amount paid – 28lacs
Flat cost – 2.05Cr
OC is done and ready for possession since Apr2020
Planning to cancel flat – Oct 2020
The builder has agreed to approve cancellation, but GST paid will be deducted from the booking amount which is 8% of the total cost.
So, I am in a dilemma re. this cancellation as I have no means due to the pandemic situation.
Its a big loss to me without even enjoying the benefits of owning the flat.
My question is what happens in my case. Can I as customer claim refund of the GST from govt given the scenarios presented?
Your advice would be greatly appreciated.
Regards,
Robin
Dear Sir,
I had booked 2 BHK flat in Dec 2016 and paid GST amount almost INR 2,28,770/-.
now in Sept 2020, I am cancelling Flat.
Will the builder be eligible refund as per the above article?
If so, can u help me with a Tax Expert who can professionally guide me to claim the same in Prayagraj (Allahabad)?
I had booked flat in August 2018 and paid 12% Gst.
now in October 2020, I am cancelling Flat.
Will the builder be eligible refund Gst.
If so, can u help me with a Tax Expert who can professionally guide me to claim the same in Ahmedabad?
Very Nice article Asiya..
Dear Sir,
I had booked flat in June 2016 and paid service tax in June 2017.
now in August 2020, I am cancelling Flat.
Will the builder be eligible refund as per the above article?
If so, can u help me with a Tax Expert who can professionally guide me to claim the same in Ahmedabad?
i(Mr Nitin) have purchase one flat and due to some reasons i am cancelling it. I have booked in dec 19 and have cancelled in march 20. i have paid 72000Rs gst. how will i get the refund as builder is saying that gst is not refunded.
pls reply fast
SIR, THE ARTICLE IS VERY USEFUL, I WOULD LIKE TO TAKE TO CONTENT FOR THE CIRCULATION WITH YOUR SOURCE NAME AND WEBSITE, WOULD SEEK YOUR PERMISSION FOR THE SAME.