The Karnataka Authority of Advance Ruling (AAR) in its recent ruling in the case of B.R.Sridhar has held that the amounts received towards sale of shares in flats not eligible to GST only if the entire consideration is received after issuance of the Completion / Occupancy Certificate.
Facts of the case
The Applicant, B.R.Sridhar being the owner of an immovable property has entered into a Joint Development Agreement with M/s Suprabhat Constructions, a partnership firm, authorizing them to construct residential flats by incurring the necessary cost together with certain common amenities and upon the development of the said property, the applicant gets 40% share of undivided right, title and interest in the land proportionate to super built up area and 40% of car parking spaces.
Issue on which ruling was sought
The applicant has sought advance ruling on the issue whether the total amounts received by the Owner towards the advances or sale consideration of the flats fallen to his share of 40% in terms of the Joint Development Agreement and the subsequent Area Sharing Agreement, are not amenable for payment of GST, since applicant has sold or agreed to sell or gifted, the flats after obtaining Occupancy Certificate and that Applicant has not received any part of the sale consideration prior to the said date of occupancy certificate, thus falling under Entry No.5 of Schedule III of CGST Act read with Notification No.11/2017-Central Tax (Rate) dated June 28, 2017 and the corresponding provisions of SGST Act.
Order of Karnataka AAR: Deliberations and Ruling
- The applicant stated that their share of residential flats have been handed over by the developer after the issuance of completion / occupation certificate and also area Sharing Agreement restricts the right of the applicant to execute any sale agreement or any conveyancing deeds till the issuance of completion certificate and taking over of their share of units / flats. Thus the sale of said flats is not exigible , if and only if they are sold after issuance of of completion / occupation certificate, in which case the said transaction is to be treated neither as supply of goods nor supply of services, in terms of clause 5 of Schedule III.
- If the applicant themselves or the developer on behalf of the applicant have sold the applicant’s share of units / flats prior to issuance of completion certificate , then the transactions amount to supply of ‘works contract service’ are liable to supply.
- The value of aforesaid supply is to be ascertained from open market and would be equal to open market value as per rule 27 of the CGST / SGST Rules,2017.
- The time of supply would be the time at which the constructed flats are handed over by the developer to the applicant. In the instant case the applicant contends that they have received their share of flats of after issuance of completion / occupancy certificate.
In view of above deliberations the bench consisting of Dr. Ravi Prasad M.P. and Mashhood Ur Rehman Farooqui ruled that the amounts received by the applicant, either by himself or through his agents, towards sale of their share of flats are not eligible to GST, if and only if the entire consideration related to such sale of flats is received after the issuance of Completion Certificate dated August 26, 2019, as the said activities are treated neither supply of goods nor supply of service in terms of schedule III of the CGST Act 2017 subject to Clause 5(b) of the Schedule Il of the CGST Act, 2017.
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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.
