This post provides an update about the recent decision of Telangana Authority for Advance Ruling (‘AAR’) in the case of Vajra Infracorp India Private Limited (TSAAR Order No. 03/2021) (Applicant). This AAR deals with the point of taxation and time of supply with respect to flats allotted (transfer of possession) to landowner by the builder Post-GST implementation and entered in agreement fixing the total number of flats to be allotted in Pre-GST period.
Facts of the case
> The applicant is provider of taxable services of construction of residential complexes. They stated that they have entered into a supplementary agreement with landowner on 15.05.2017 (Pre-GST) duly fixing the total number of flats to be shared with the landowner and construction was expected to be completed by October/November 2018 (post-GST).
> The applicant sought clarification on time of supply and point of taxation with respect to flats allotted to landowner by the builder by way of supplementary agreement.
The applicant has relied on CBE & C circular no. 151/2/2012-ST dated 10.02.2012, where in it is stipulated that the landowners share of flats are liable to service tax, but the date of possession or right in the property of said flats are transferred to the landowner by entering into the conveyance deed or any other instrument such as allotment letter. They also placed their reliance on Notification No. 4/2018 – Central Tax (Rate) dated 25.01.2018 also but stated as ‘Constructed complex’, where in the above stipulation of service tax was adopted in toto.
Findings and Decision
♦ From the understanding of the phrase ‘Constructed complex’ it follows that such a complex, building or civil structure should first be in place so that its possession or the rights in it may be transferred by the developer to the person supplying development rights – such transfer of possession or transfer of right in the building shall be accomplished by a conveyance deed or similar instrument such as allotment letter.
♦ As per Notification No. 4/2018 – Central Tax (Rate) dated 25.01.2018 the time of supply to determine liability to pay tax on development rights by a land owner to a developer is the date on which the building or the rights in an existing building are handed over to the land owner by way of a conveyance deed or an allotment letter -In the present case, applicant has handed over the building after inception of CGST & SGST, hence, the liability to pay GST shall arise.
♦ What is the Time of supply and point of taxation with respect to flats allotted to land owner by the builder by way of supplementary agreement on 15.05.2017(i.e., before GST regime) where as the construction will be completed during GST regime? –
As per Notification No. 4/2018 – Central Tax (Rate) dated 25.01.2018 the date of transfer of possession of the building or the right in it to the person supplying development rights will be the time of supply and the liability to pay tax on the said services shall arise on that day. The time of supply shall not be at any other time.
♦ Is this date to be concluded as the date of allotment for payment of service tax in respect of construction services provided to landlord ignoring the fact that the construction was continued subsequently from May, 2017 to November, 2018?
No, the applicant has to pay tax as per the time of supply indicated above.
♦ Will it be sufficient and adequate compliance, if the appellant complies law and remit entire service tax on the entire area earmarked to landlord? –
No, the applicant has to pay tax as per the time of supply indicated above.
♦ What is the ‘Constructed complex’ referred to in the notification? –
‘Constructed complex’ refers to a building or a completed structure.
Our Comments
- In our view, the decision of AAR is correct in law. The time of supply shall be the date when the transfer of possession of the flats allotted is done i.e. during GST regime in present case. Therefore, GST shall be payable for such transaction when the possession of flats is transferred to landowner.
- This decision shall be insightful for the real estate builders where construction of flats has commenced in Pre-GST regime but the possession/right of flats are provided to Landowners in GST regime.
- Further, the Government has made an amendment vide N.NO. 3/2019-CT(R) dt. 02.06.2021 that the Developer can pay GST on the construction service provided to Landowners at any time on or before issuance of Completion Certificate. This will be helping the landowners to avoid accumulation of ITC and use such ITC while selling of flats.
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Disclaimer:
This update is made available by the writer for educational purposes only and to give you general information and general understanding of law, not to provide specific legal advice. We would suggest that a detailed legal advice must be sought before relying on this update.
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