RCM on purchase of inputs, input services or capital goods from unregistered supplier by promoters

RCM on purchase of inputs, input services or capital goods from unregistered supplier by the promoters.

Here (i) the term ‘promoter’ shall have the same meaning as assigned to it in clause (zk) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);

(ii) “project” shall mean a Real Estate Project (REP) or a Residential Real Estate Project (RREP);

(iii) the term “Real Estate Project (REP)” shall have the same meaning as assigned to it in in clause (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);

(iv) “Residential Real Estate Project (RREP)” shall mean a REP in which the carpet area of the commercial apartments is not more than 15 per cent. of the total carpet area of all the apartments in the REP.

The government has lowered GST rates on construction services commenced on or after 1^st April 2019 or on ongoing projects who has opted in new rate scheme i.e. 0.75 % / 3.75 % depending on the type of project or scheme.

However the said concessional rate comes with various conditions which is to be fulfilled. Hence one needs to fulfill following conditions for such lower rates.

Condition 1 : Input tax credit on goods or services procured has not been taken.

Condition 2 : Eighty percent of value of input and input services, [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI), electricity, high speed diesel, motor spirit, natural gas], used in supplying the service shall be received from registered supplier only.

Condition 3 : 100 percent of value of cement should be purchased from registered supplier

Condition 4 : 100 percent of capital goods should be purchased from registered supplier.

So, in case of non-compliance of condition 2, 3 and 4 above. The promoter shall be liable to pay GST on Reverse Charge Mechanism basis.

Let us discuss the same in detail along with the practical example.

1.) Applicable to whom

The promoters who provide following services shall be liable to pay GST under RCM on purchase of inputs, input services and capital goods purchased from unregistered supplier subject to some conditions.

a) Construction of affordable residential apartments by a promoter in a Residential Real Estate Project (herein after referred to as RREP) which commences on or after 1^stApril, 2019 or in an ongoing RREP in respect of which the promoter has not exercised option to pay central tax on construction of apartments at old rates i.e. 6% or 9 % as the case may be, in the manner prescribed therein, intended for sale to a buyer, wholly or partly.

b) Construction of residential apartments other than affordable residential apartments by a promoter in an RREP which commences on or after 1^stApril, 2019 or in an ongoing RREP in respect of which the promoter has not exercised option to pay central tax on construction of apartments at old rates i.e. 6% or 9 % as the case may be, in the manner prescribed therein, intended for sale to a buyer, wholly or partly.

c) Construction of commercial apartments (shops, offices, godowns etc.) by a promoter in a RREP which commences on or after 1^stApril, 2019 or in an ongoing RREP in respect of which the promoter has not exercised option to pay central tax on construction of apartments at old rates i.e. 6% or 9 % as the case may be, in the manner prescribed therein, intended for sale to a buyer, wholly or partly.

d) Construction of affordable residential apartments by a promoter in a Real Estate Project (herein after referred to as REP) other than RREP, which commences on or after 1^stApril, 2019 or in an ongoing REP other than RREP in respect of which the promoter has not exercised option to pay central tax on construction of apartments at old rates i.e. 6% or 9 % as the case may be, in the manner prescribed therein, intended for sale to a buyer, wholly or partly.

e) Construction of residential apartments other than affordable residential apartments by a promoter in a REP other than a RREPwhich commences on or after 1st April, 2019 or in an ongoing REP other than RREP in respect of which the promoter has not exercised option to pay central tax on construction of apartments at old rates i.e. 6% or 9 % as the case may be, in the manner prescribed therein, intended for sale to a buyer, wholly or partly

2.) At what rate and by when to pay GST

Sr.No.	Particulars	Rate of Tax	Time of Payment
1 (a)	Input and Input Services purchased from unregistered supplier	18 % on short of 80 % (irrespective of actual rate)	Every year on or before June following the end of financial year
1(b)	Cement purchased from unregistered supplier	28 % (As the present rate on Cement is 28 %)	In the month in which cement is received
2	Capital Goods purchased from unregistered supplier	Rate of such capital good as specified in notification No. 11/ 2017- Central Tax (Rate)	In the month of Purchase

3.) How to Calculate GST payable under RCM on

a) Inputs and Input Services purchased in the F.Y. 2020-21

Sr. No.	Particulars	Amount	Remarks
1	Registered Purchase	50,00,000	Registered
2	Other Unregistered Purchase	14,00,000	Unregistered
4	Purchase of FSI	10,00,000	Exclude
5	Electricity Expense	78,000	Exclude
6	Diesel Expense	54,000	Exclude
7	Interest Expense	1,52,000	Unregistered(Exempt)
8	Salary Expense	2,40,000	Non GST
9	Transportation of Goods	48,000	Unregistered(Exempt)

Exempted goods or services included in the value of supplies from unregistered persons. ( As per FAQ issued by CBIC )

Total Purchase (Registered + Unregistered)	66,00,000	100.00%
Minimum Registered Purchase	52,80,000	80.00%
Actual Registered Purchase	50,00,000	75.76%
Shortfall	2,80,000	4.24%

*Hence the promoter is liable to pay GST of Rs. 50,400 (18% on 2,40,000) on short unregistered Purchase of inputs or input services on or before June following the end of financial year i.e. 2020-21 and to be added in output tax liability.

b) Purchase of Capital Goods

Sr. No.	Particulars	Amount	Remarks
1	Registered Capital Goods Purchase	11,00,000	Registered
2	Unregistered Capital Goods Purchase	1,00,000	Unregistered

In this case the promoter is liable to pay GST on Capital goods falling under any chapter in the first schedule to the Customs Tariff Act, 1975 (51 of 1975) at the rate specified in notification No. 11/ 2017- Central Tax (Rate), dated 28th June, 2017, as amended from time to time.

Let us say for example, the capital goods purchased from unregistered supplier is Mobile which attracts GST at the rate of 18%. Hence the promoter shall be liable to pay GST Rs. 18000 (18 % on 1,00,000) in the month of purchase.

Note:  Please also refer to our Article on GST on Redevelopment Projects published on 21st July, 2020 at Taxguru.in at below link-

https://taxguru.in/goods-and-service-tax/gst-redevelopment-projects.html