The Telangana Authority of Advance Ruling (AAR) in its recent ruling in the case of M/s Vajra Infracorp India Private Limited has held that GST shall be payable from date of transfer of possession of the building or right to person supplying development rights even in case such transfer is as per agreement entered in pre GST regime.
Facts of the case:
- The applicant, M/s. Vajra Infracorp India Private Limited are providers of taxable services of construction of residential complexes. They have averred that they have entered into a supplementary agreement with land owner on 15.05.2017 duly fixing the total number of flats to be shared with the land owner. This was prior to the introduction of GST.
- The applicant sought advance ruling on 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 the GST regime.
Order of Telanagana AAR: Deliberation and Ruling
- According to the Notification No. 4/2018 Dated: 25.01.2018 the liability to pay central tax on supply of development rights to a developer, builder, construction company shall arise at the time when the said builder, developer, construction company or any other person as the case may be, transfers possession or the right in the constructed complex, building or civil structure to the person supplying development rights by entering into a conveyance deed or similar instrument ( for example allotment letter ).
- A plain reading of the Notification makes it clear that,-
a. There shall be a constructed complex or a building or a civil structure in existence,
b. The possession or right in the above shall be transferred,
c. Such transfer of possession or right shall be affected by way of a conveyance deed or a similar instrument like an allotment letter.
- 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.
- And 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.
- It follows from the above that as per Notification No. 4/2018 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.
- If the applicant has handed over the building after inception of CGST & SGST, then the liability to pay tax will arise under CGST & SGST.
In view of above deliberations it was held as under for each of the seven questions:
1. 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 Dt: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.
2. 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 at Point 1 above.
3. 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 at Point 1 above.
4. Once the time of supply is clarified and ruled, the appellant will plan for remittance of tax accordingly on hearing from office.
Not a question.
5. In the event the service tax is remitted based on the date of above supplementary agreement, will the appellant not required to comply with GST on the said value of service to land owner.
Does not arise.
6. Will this view in transitional period have any impact on the future projects to be explored by the applicant company.
Does not arise.
7. What is the ‘Constructed complex’ referred to in the notification.
‘Constructed complex’ refers to a building or a completed structure.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
