The construction industry has always been the talk of the town be its continuous rising prices or be its indirect tax implications. Even under the earlier tax regime, indirect tax implication, for the construction industry, was very complicated and confusing and the same was carried forward under the Goods and Service Tax Act.
Under the present article we would analyze the Goods and Service Tax (GST) applicability on the completed flats i.e. ready to move in flats.
In order to get covered within the scope of Goods and Service Tax, there has to be either supply of goods or supply of service. Schedule II of the Central Goods and Service Tax Act, 2017 contains provisions relating to activities to be treated as a supply of goods or supply of services and para 5 of the said schedule provides a list of services which are to be treated as ‘Supply of Service’.
As per para 5 (b) of the schedule the service of construction of a complex / building / civil structure or part thereof shall be treated as ‘supply of service’. It is significant to point here that the word ‘construction’ includes any additions, alterations, replacements or remodeling of any existing civil structure.
Exemption from ambit of ‘supply of service’ –
As per para 5(b) the cases wherein the entire consideration have been received after issuance of the completion certificate, were required, by the competent authority or after its first occupation, whichever is earlier will not be considered as ‘supply of service’.
Central Board of Indirect Taxes and Customs (CBIC), vide press release dated 8th December, 2018, has come up with the latest clarification on the matter of applicability of the GST on completed flats / ready to move-in flats.
The following points were clarified by CBIC in the said press release –
Thus in order to decide the applicability of GST on completed flats / ready to move in flats, the time of sale and issue of completion certificate is crucial. If the time of sale is prior to the issue of completion certificate, GST is applicable, otherwise the same is not applicable.
As since above, the issue of completion certificate and time of sale of the complex is the deciding factor for fixing the GST liability in case of the completed flats, hence it is important to understand the term ‘completion certificate’.
It is mandatory for the builder to construction the building / complex as per the approved plan. Once the construction of the building / complex is completed, the builder / developer is required to apply for ‘completion certificate’ with the local authorities.
If the building / complex has been constructed on the basis of the approved plan and further the constructed building / complex meets the other building standards like the height of the building, distance from the road etc. the authority would issue the completion certificate. Obtaining of the completion certificate ensures that the builder / developer has constructed the building as per the approval plan.
The Government has tried to make its stand, in relation to the GST on completed flats, cleared up various times. The final clarification issued by the government states that the GST applicability on completed flats is based on two factors the time of sale and issue of completion certificate. If the time of sale is prior to the issue of completion certificate, GST is applicable and if the time of sale is after the issue of completion certificate, GST is not applicable.