GST refund to unregistered recipient in case of real estate transactions

Overview:

In real estate transactions successive payments from buyer of property is involved in form of advances. Considering general view provision of construction services exceeds duration of 3 months therefore can be termed as continuous supply of services* as per Section 2(33) of CGST Act. There are situations in which contract between buyer of property and builder is terminated at future date. In case time limit to issue credit note as per Section 34(2)* of CGST Act has been lapsed, builder has no other option than to withheld the portion of GST involved in advance amount received from buyer as he cannot adjust the tax liability after such period as mentioned in Section 34.In such a scenario buyer has to face loss of GST involved in advances given.

As per Section 54 of CGST act any person can claim refund of tax paid under GST. Thing to be noted here is it is not necessary for a person to be registered person under GST to claim refund of tax paid.

Considering the above point Government has prescribed manner of filing refund application by unregistered person in circular No. 188/20/2022.

Eligibility of refund:

Refund can be claimed by unregistered person when he has paid GST to builder against receipt of construction services and contract has been terminated in future, meanwhile time limit to issue credit note under Section 34 has lapsed on the date of termination of contract.

Time limit to apply for refund:

Refund can be applied within 2 years from the date of issuance of letter of cancellation of the contract/ agreement for supply by the supplier

Minimum Refund Amount:

No refund shall be claimed if amount is less than Rs 1000

Amount of refund:

GST amount withheld on the amount paid back to unregistered person can be claimed as refund.

Procedure to claim refund:

• Obtain temporary registration using PAN
• While applying select same state where supplier is registered
• Person has to undergo Aadhar Authentication
• After Registration file for RFD-01 under category “Refund for Unregistered Person”
• Applicant shall upload Statement 8 in PDF format and all relevant documents* along with application

*Documents required for making application of refund:

• Statement 8 to be attached in pdf form.(Annexure-1)
• Copy of invoices
• Proof of making payment to supplier(Debit Entries in Bank Statement)
• Copy of agreement entered between supplier and unregistered person
• Letter issued by the supplier for cancellation or termination of agreement or contract for supply of service
• Proof of payment received from supplier against cancellation(Credit entries in Bank Statement)
• A certificate issued by the supplier to the effect that he has paid tax in respect of the invoices on which refund is being claimed by the applicant; that he has not adjusted the tax amount involved in these invoices against his tax liability by issuing credit note; and also, that he has not claimed and will not claim refund of the amount of tax involved in respect of these invoices.

Statement 8-Annexure 1

Author’s view on practical difficulties in claiming refund:

In some cases if due date is ascertainable from the contract between buyer and unregistered person, then as per Section 31(5) invoice might not be issued till due date and if agreement is terminated before due date credit note cannot be  issued as there is no invoice for such services. In such cases amount can be rightfully reduced from advances received in subsequent periods and GST liability can be adjusted and payment voucher to be issued to unregistered person as there is no time limit to issue payment voucher on advances received. Thus unregistered recipient is in no need to claim refund.

*Relevant Sections:

Section 2(33)-“continuous supply of services” means a supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such services as the Government may, subject to such conditions, as it may, by notification, specify;

 Section 34(2)-Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than [the thirtieth day of November] following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:

 Section 31(5) Time limit to issue tax invoice

Subject to the provisions of clause (d) of sub-section (3), in case of continuous supply of services,-

(a) where the due date of payment is ascertainable from the contract, the invoice shall be issued on or before the due date of payment;

(b) where the due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment;

(c) where the payment is linked to the completion of an event, the invoice shall be issued on or before the date of completion of that event.

Note: This article has been prepared solely for general information purpose and is not intended to constitute a recommendation, consulting or advice.