The CBIC introduced sub-rule (4) in Rule 36 of the CGST Rules, 2017 w.e.f. 09.10.2019.

According this Rule, a registered person can avail ITC in respect of the invoices, the details of which have not been uploaded by the suppliers and reflected in GSTR-2A of the registered person availing ITC, only to the extent of 20% of the total eligible ITC i.e. the ITC as reflected in its GSTR 2A. This limit was reduced from 20% to 10% w.e.f. 01 Jan 2020.

In simple terms, a person can avail ITC only 10% more than what is reflecting in GSTR-2A as eligible credit or actual eligible ITC in its purchase register, whichever is less.

Rule 36(4) : Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 10 per cent * of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.

*Before 01 Jan 2020, it was 20%.

Relief due to COVID-19 spread:

Notification No. 30/2020 – Central Tax, 3^rdApril, 2020

In the said rules, in sub-rule (4) of rule 36, the following proviso shall be inserted, namely:-
“Provided that the said condition shall apply cumulatively for the period February, March, April, May, June, July and August, 2020 and the return in FORM GSTR-3B for the tax period September, 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.” 

It is provided that the said limit of 10% shall apply cumulatively for the tax periods Feb-20 to Aug-20 and the return in GSTR-3B for Sep-20 shall be furnished with the cumulative adjustment of ITC for the said months in accordance with the above condition of 10%.

*CBIC Circular No. 136/06/2020-GST, dated 3.4.2020:*

Whether restriction under rule 36(4) would apply during the lockdown period?
Vide notification No. 30/2020- Central Tax, dated 03.04.2020, a proviso has been inserted in CGST Rules 2017 to provide that the said condition shall not apply to input tax credit availed by the registered persons in the returns in FORM GSTR-3B for the months of February, March, April, May, June, July and August, 2020, but that the said condition shall apply cumulatively for the said period and that the return in FORM GSTR-3B for the tax period of September, 2020 shall be furnished with cumulative adjustment of input tax credit for the said months in accordance with the condition under rule 36(4).

ILLUSTRATION :

Month	Case 1			Case 2
	Total ITC	Eligible ITC in 2A	Maximum ITC can be claimed in GSTR-3B	Total ITC	Eligible ITC in 2A	Maximum ITC can be claimed in GSTR-3B
Feb-20	100	85	100	150	100	150
Mar-20	150	120	150	200	120	200
Apr-20	60	40	60	100	70	100
May-20	80	50	80	80	60	80
Jun-20	100	70	100	70	55	70
Jul-20	110	100	110	60	50	60
Aug-20	120	100	120	50	40	50
Sub-total	720	565	720	710	495	710
Sep-20	150	130	?	80	75	?
Total	870	695		790	570

 

Calculation of ITC for Sep-2020	Case 1	Case 2
Eligible ITC till End of Sep-20	695	570
Add 10%	69.5	57
Total A	764.5	627
Total ITC till date B	870	790
ITC than can be availed as per rule 36(4) (Whichever is lower from A &B )C	764.5	627
Less: ITC already availed till August D	720	710
ITC to be availed/ (Reversed) in September (C-D) [Interest as per section 50 will also be paid]	44.5	(83)

Here we can see that in case 1, the tax payer is able to avail ITC of only Rs.44.5 as against total credit of 130 in his purchase register, due to 2A mismatch. While there can be a situation like case 2, which may lead to reversal of ITC Rs. 83 to meet the requirement of rule 36(4). This is how the cumulative effect of Rule 36(4) will be given in September 2020.

Therefore, vendor compliance will again play a very important role for maximizing the ITC. Rule 36 (4) is not suspended but its effect of Feb 2020 to Aug 2020 has been deferred till September, 2020.

CONCLUSION :

• Whether 10% rule is suspended? – No
• Whether 10% rule is Not Applicable for February 2020 to August, 2020? – It is applicable but the application of this rule is to be done cumulatively for the months of Feb 2020 to Aug, 2020
• May I file GSTR 3B without applying rule 36(4)? – Yes, you may.
• How shall it impact the GSTR 3B of September (to be filed as per due date i.e. 20 Oct 2020)? – In Sep-20 return, we need to consider the rule 36(4) but cumulatively by taking effect of the new amendment. (as explained in the illustration below)
• If I have not filed GSTR 3B of Jan 2020 before 20 March 2020 then whether the same shall be relaxed as per the Notification No. 36/2020 – Central Tax, 3rdApril, 2020 – No, Proviso inserted is only to give the relaxation for the months of Feb 2020 to Aug 2020 only.
• Is this relaxation is relevant for composition scheme?– No, Person registered under Composition scheme is not eligible to take the ITC itself so question of relevance of rule 36(4) does not arise at all.
• Whether the person switching from composition scheme to normal scheme w.e.f. 01/ 04/2020 will be eligible to get the relaxation as per the Notification No. 36/2020 – Central Tax, 3^rd April, 2020?- Yes, because from April 2020, he does not remain the composition taxable person rather the same is under the purview of normal scheme.
• Whether this deferment will cause the interest deferment on the excess ITC taken for the period Feb 2020- Aug 2020? – If the cumulative effect of the period of Feb 2020- Aug 2020 is taken care of as per the Notification No. 36/2020 – Central Tax, 3rdApril, 2020 in the months of Sep 2020 then there is not a consequence of interest to be into the picture

Brief Introduction

1. The issue is, can place of supply be determined by AAR? Till the judgment of the Kerala High Court (being discussed below) there was a view that it was not the cup of tea of AAR. But the said Court held Advance Ruling Authorities responsible for not deciding on “Place of supply” matters. In this article we have tried to convey the impact of this judgement.

2. Crux : Applicant sought the question “Whether supply of services by India Branch of Sutherland Mortgage Services Inc., USA to the customers located outside India shall be liable to GST in the light of the intra-company agreement entered into by the said branch with the principal company incorporated in USA?”

To answer this query firstly it should be examined whether it is an export of service and for examining this, issue “place of supply of service” should be determined. AAR says (May 24, 2019) that the determination of same is not within its ambit but the Hon’ble Kerala HC (Feb 03, 2020) has stated that section 97(2)(e) of the CGST Act (determination of the liability to pay tax on any goods or services or both) is having wider coverage and determination of place of supply is covered under the same. As per the court AAR is bound to pronounce the ruling on place of supply.

2.1 Future steps : Now again the matter would be in the lap of AAR and it will take time to provide the ruling on it. of course, it is the instance of “Justice delayed is justice denied”. It is not a good sign for the financial health of the nation, which follows a principle of “one nation, one tax”. Despite this an investor can-not get the clarity on such issues. Lawmakers should create such an eco-system where one can get more certainty from tax authorities. Earlier also a number of business houses have applied before AAR on determination of place of supply. All of such applications remained unanswered by stating that it is out of the scope of AAR. Hope the order of the Hon’ble HC of Kerala will make the business tax decision more convenient.

2.2 Parties to the case : Sutherland Mortgage Services INC. v. Principal Commissioner  [2020] taxmann.com 82.

2.3 Judgment provided by : The HIGH COURT OF KERALA

3. Issue : The point on which advanced ruling has been sought by the petitioner is on the following aspect:

“Whether supply of services by Indian Branch of Sutherland Mortgage Services Inc. USA to the customers located outside India shall be liable to GST in the light of the intra-company agreement entered into by the said branch with the principal company incorporated in USA.”

3.1 AAR’s Views :

Advance Ruling Authority has proceeded to hold that as per the submissions of the petitioner, it is evident that the question raised is whether the supply made by the petitioner would qualify as “export of service” as defined in Sec. 2(6) of the IGST, 2017 and that, therefore, the question would essentially and substantially involve the determination of place of supply, etc.

Thereafter, the Advance Ruling Authority has proceeded to hold that, the issue which is to be determined is one relating to the place of supply of service and then such an aspect may not be subject matter of an Advance Ruling as envisaged in Sec. 97, for the simple reason that the issue relating to the “determination of place of supply of service” as in the instant case, is not covered by any of the provisions contained in Sec. 97(2) of the CGST Act.

Thus, the Advance Ruling Authority after having determined that in this case the supplier of service is located in India and the recipient of services is located outside India, took a view that the other issue to be determined, viz., the “place of supply of service” cannot be the subject matter of advance ruling and expressed its inability to proceed further. Authority stated that the issue of place of supply is not expressly enumerated in Sec. 97(2) for an advance ruling authority to comment upon.

Advance Ruling to be provided on following matters: (For Ready Reference)

“Sec.97: Application for advance ruling.–

(2) The question on which the advance ruling is sought under this Act, shall be in respect of,–

• (a) classification of any goods or services or both;
• (b) applicability of a notification issued under the provisions of this Act;
• (c) determination of time and value of supply of goods or services or both;
• (d) admissibility of input tax credit of tax paid or deemed to have been paid;
• (e) determination of the liability to pay tax on any goods or services or both;
• (f) whether applicant is required to be registered?
• (g) whether any particular thing done by the applicant with respect to any goods or services

or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

Kerela HC Held :

3.2 That, though the issue relating to determination of place supply as aforestated is not expressly enumerated in any of the clauses as per clauses (a) to (g) of Sec. 97(2) of the CGST Act, but there cannot be any two arguments that the said issue relating to determination of place of supply, which is one of the crucial issues to be determined as to whether or not it fulfills the definition of place of service, would also come within the ambit of the larger of issue of “determination of liability to pay tax on any goods or services or both” as envisaged in clause (e) of Sec. 97(2) of the CGST Act.

The Advance Ruling Authority has proceeded on a tangent and has missed the said crucial aspect of the matter and has taken a very hyper technical view that it does not have jurisdiction for the simple reason that the said issue is not expressly enumerated in Sec. 97(2) of the Act. This Court has no hesitation to hold that the said view taken by the Advance Ruling Authority is legally wrong and faulty.

Comments :

4. The Parliament in its wisdom has decided to mandate such a provision as in Sec. 97(2)(e), whereby the applicant is empowered to seek advance ruling even on the said larger issues of determination of liability to pay tax on goods or services or both. In view of above scenario, the Advance Ruling Authority is obliged to entertain such plea and consider it on merits and then render its opinion/answer and its advance ruling on those aspects in accordance with the provisions contained in the aforesaid Acts.

We hope that after such constructive decision of the Hon’ble Kerala High Court, Advance Ruling Authorities will understand solemnity of the issue and entertain the other applications/plea lying unanswered for determination place of supply, with a view to facilitate the tax decision of business.

1. Nature of business of GGL Hotel and Resort Company Ltd.

1.1 Nature of Business – The GGL was in the hospitality and real estate business. It had embarked on a project of starting a hotel and banquet. For the purpose of this project the GGL had taken land on lease from West Bengal Housing Infrastructure Development Corporation Limited (WBHIDCL) for 32 years.

1.1-1 Financial understanding between both of the parties was finalised on a lease premium+annual lease rent at the rate of 10% of the lease premium for the first 2 years, which would be escalated at the rate of 5% per annum in the subsequent years from the start of the 3rd year over the last annual lease rent per annum. The project was proposed to be completed within a period of 2 years and the lease rent paid during the aforesaid pre-operative period was capitalized in the books of account by the GGL. The WBHIDCL charged GST at the rate of 18% on the lease rent.

Question

2.Whether ITC would be available on input tax paid on lease rent during pre-operative period for the leasehold land on which the resort was being constructed?

This article deals with the tax treatment of lease rent during pre-operative period only and not for the post–operative period.

3. Provision: Section 17(5)(d) of the CGST Act/WB GST Act deals with Blocked Credit concept

“(d) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.”

The expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.

4. Case analysis

(1)	GGL Hotel and Resort Company Ltd., In re [2019] 101 taxmann.com 138/71 GST 577 (AAR – West Bengal)
(2)	GGL Hotel & Resort Company Ltd., In re [2019] 105 taxmann.com 248 (AAAR – West Bengal)

4.1 A few issues before going into the case analysis.

First Issue : Whether leasehold land is the immovable property?

Reply :  The word ‘immovable property’ is not defined in GST law. As per section 2(26) of the General Clauses Act, “immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. Therefore, leasehold land is the immovable property.

Second Issue : Is there any difference between lease premium and lease rent?

Reply : Yes, Lease premium pretends for upfront premium and lease rent is the consideration to be paid on interval basis.

Third Issue : Whether 17(5)(d) is applicable for builder?

Reply : Section 17(5)(d) may be applied for person irrespective of the fact whether he is builder or otherwise. Section 17(5)(d) uses the word ‘taxable person’ and not just the ‘builder’. It says that ITC shall not be available for goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account. So, if the taxable person himself is builder and he is receiving goods or services or both for the for construction of an immovable property (other than plant or machinery) on his own account then also ITC shall be blocked u/s 17(5)(d).

Fourth Issue : Why this ruling is focusing on the lease rent and not on the lease premium?

Reply : One time lease premium is exempted vide Notification No.12/2017 CT (R), Dated 28-6-2017. Entry is reproduced as below

“One time upfront amount (called as premium, salami, cost, price, development charges or by any other name) leviable in respect of the service, by way of granting long-term (thirty years, or more) lease of industrial plots, provided by the State Government Industrial Development Corporations or Undertakings to industrial units.”

Then an amendment came into the picture w.r.t. this entry vide Notification No. 32/2017-Central Tax (Rate), dated 13-10-2017, w.e.f. 13-10-2017.

Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long-term lease of thirty years, or more of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 50 per cent or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area.

Explanation.—For the purpose of this exemption, the Central Government, State Government or Union territory shall have 50 per cent or more ownership in the entity directly or through an entity which is wholly owned by the Central Government, State Government or Union territory.

It is clear that upfront premium amount is exempted supply and so, there cannot be the question of input tax and input tax credit on this transaction. Lease rent is not exempted and so the tax is levied and the same is bone of contention.

Fifth Issue : What is the significance of ‘capitalisation’ in section 17(5)(d)?

There are 2 interpretations w.r.t. construction (we are discussing on the construction activity only and not about re-construction, renovation, additions or alterations or repairs) :

1st : ITC is blocked only if construction is capitalized [Colour of construction is required to be tested]

2nd : ITC is blocked even if construction is not capitalized as the explanation is talking about those activities which are not construction activities but included in the definition of construction [Here in this approach colour of construction is required to be tested]. It is beyond doubt that capitalization test is always required to be performed in case of re-construction, renovation, additions or alterations or repairs to the said immovable property.

Ruling has adopted the first way of interpretation.

5. Analysis of Arguments by GGL

5.1 First Argument – The GST Act does not define the exact nature of the goods and services received that are deemed to relate to construction of immovable property. As a result, the meaning of construction cost is to be construed as is taken in the modern parlance. GGL is required to pay the lease rent to the lessor whether or not the construction has been carried out and shall be paying the lease amount even after the completion of the construction of the immovable property for the balance period of the lease period.

5.1-1 AAR countered – The GGL will admittedly capitalize the lease premium The property is, therefore, admittedly being constructed on the GGL’s own account and treated as fixed asset, including the lease rental paid.

5.1-2 Comment – Argument of GGL can not sustain in the law because of following reasons:

Section 17(5)(d) says ITC shall not be available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account.

Taking land on lease is nothing but a service as per section 2(102) of the CGST/WBGST Act.

Here law does not refer to the specific category of goods or services.

5.2 Second Argument – The lease rent for the pre-operative period is capitalized under the head ‘Leasehold Land’ and not under the head ‘Building Block’. It can, therefore, be inferred that the lease rent is not used for construction of the resort.

AAR stated  – Whether the lease rental paid for the pre-operative period is capitalized under the head ‘Leasehold Land’ or ‘Building Block’ is of little significance in this context.

AAR says that capitalization under the head ‘Leasehold Land’ or ‘Building Block’ is of little significance is creating apprehension. Does it not mean that there is a gap where ITC cannot be blocked by using this gap?

Comment  – AAR says that classification of lease rental is of little significance, whereas classification is of no significance (instead of ‘little significance’).

5.3 Third Argument – The renting services cannot be said to be received for the construction of immovable property as there is no nexus, direct or indirect, between the construction of the hotel and banquet and the rental service availed.

AAR stated – The GGL’s argument about absence of any nexus – direct or indirect – between the lease rental and construction of the buildings for hotel, etc., is incorrect. Construction of the hotel, etc., is impossible unless the GGL enjoys uninterrupted right to use the land. It is clear from the Agreement that the GGL cannot enjoy that right if he fails to pay the lease rental. Construction of the immovable property is, therefore, critically dependent on the supply of the leasing service. The nexus between them is, therefore, direct and the two are inseparable. The leasing service for right to use the land is, therefore, a supply for construction of the immovable property.

Arguments in continuity before AAAR – Construction of an immovable property is critically dependent on the supply of the leasing service. So there is an inseparable and direct nexus between lease rent of land and construction of the building. The lease rent if capitalized, will be capitalized under “Leasehold Land” and not under the “Building Block”. Thus, lease rent is not used for construction of the building. Further, the same cannot be used for construction of land since no development of land is taking place. There is no nexus between lease rent of land and construction of the building.

AAAR countered – Para A clause (i) of the Lease Agreement clearly stipulates that the Lessee shall use demised land exclusively for the purpose of constructing building at the cost of the Lessee. Further, the GGL is entitled to collect, inter-alia, all revenue from the project. So, the GGL’s argument on the absence of any nexus, direct or indirect between lease rental and construction of the Project is incorrect. The Lease Rent paid during preoperative period for the lease hold land, on which the construction activity had been taken for furtherance of business, has direct nexus with the Lease Rent and construction of resort. Had the GGL not paid the Lease Rent during pre-operative period they would not be able to take any construction activity thereon. Further, the asset will be capitalized in the books of account of the GGL. So it is clear that the GGL is building the Eco Resort on its own account for furtherance of business, and credit of Tax paid on input goods/services is debarred in terms of section l7(5)(d) of the GST Act.

Comment – In view of AAR, nexus between leasing services and construction of hotel is said to be a direct nexus and two are inseparable. GGL says both types of nexus, i.e., direct and indirect whereas AAR backed it’s view by referring to that both are having direct nexus (but not referring to the indirect nexus). An issue arises, whether ITC shall be blocked if the goods or services are having indirect nexus. In our opinion, even if there is indirect nexus, ITC is blocked.

Further, mere capitalization of the lease rental cannot make such services as received for the construction of immovable property.

5.4 Fourth Argument :

Arguments before AAAR  – The building will be constructed on a part of leased area (only 7,861.64 sq. m. out of 20,039.75 sq. m.) and the unconstructed area would be used for auxiliary services. Thus, the lease rent is partly used for construction of immovable properly and the GST on lease rental in respect of the area on which no immovable property is constructed would be eligible for input tax credit.

AARR countered – The Respondent submitted that the availability of input tax credit on goods and services used for construction of immovable property except plant and machinery comes under blocked credit as per the provisions of section 17(5)(d) of the CGST/WBGST Act. Further, the GGL’s prayer for allowing proportionate credit of lease rental on the unconstructed area of the project only strengthens the point that input tax credit on lease rental is not available in case of construction of an immovable property.

Comment – This was the fresh argument raised by GGL Hotel and Resort Company Ltd. It is like spider’s web where GGL itself is entrapped in it’s own net. AAAR smartly countered this one !!

5.5 Fifth Argument :

Arguments before AAAR – GGL said that it was providing construction service to the WBHIDCL and it was not the construction of an immovable property on his own account. Hence, the input on supply of construction should not be blocked. In support of this argument the GGL emphasized on the insertion of clauses in Para A (v) and (vi) of the Agreement, whereby the GGL is barred from excavation of land and removal of sub-soil except in the normal course of construction or alter the location of sewer/water connection.

AAAR countered – GGL acquired the land on lease for the sole purpose of building an Eco-Resort on DBO (Design, Built and Operate) Model in conformity with the development guidelines set by the West Bengal Housing Infrastructure Development Corporation Limited (WBHIDCL), who has been entrusted with the development of the entire area of ECO Park, New Town. WBHIDCL not only holds the title of the leased land but also is the town planner. Development/construction guidelines and restrictions are an integral part of town planning with an objective to conserve environment and ecosystem and is not a unique feature of this particular Lease agreement between the GGL and the WBHIDCL.

The project is building and operating a Hotel and Banquet with all added features in totality on the entire area of land measuring 20,039.75 sq. m. on lease. GGL’s submission that it is providing two types of services to the WBHIDCL, namely, construction service and operating service is incorrect. As per the Lease Agreement the scope of the project is to Design, Built and Operate the Eco-Resort. Now construction service is classified under SAC 9954 and the recipient of the service at the end of the construction also comes in possession of an asset in the manner of an immovable property. Para A clause (x) of the Lease Agreement stipulates that the GGL “shall restore the land to its original condition before expiry of lease period, and again Para A clause (xx) stipulates that at the end of lease period the GGL “shall make over peaceful vacant Khas possession of the demised land in as good a condition as the same is now ” to the WBHIDCL. So it is clear that the WBHIDCL holds the ownership title of the land only and holding no proprietary interest in the immovable property constructed or being constructed on it. The GGL is not providing any construction service to the WBHIDCL and also will not be operating the hotel on behalf of the latter. Further, the Eco-Resort comes not only with hotel building but also with swimming pool, cafeteria, outdoor barbeque, landscape gardens. The construction of Resort is not limited to the hotel building only as a significant amount of construction is involved for creating swimming pools and landscaping. The area for auxiliary services as presented by the GGL cannot be truncated from the area of the hotel building; the Resort and its facilities come under a single project. So the GGL’s argument of ownership of the project lies with the WBHIDCL is incorrect. Further, the GGL at the same time cannot capitalize the constructed property and not have ownership rights.

Comments – AAAR seems to have wrongly drafted the treatment of capitalization of the constructed property.

At the bottom of para 12 of AAAR ruling, it has mentioned “Further the GGL at the same time cannot capitalize the constructed property and not have ownership rights.” Whereas para 14 of AAAR ruling said “Further, the asset will be capitalized in the books of account of the GGL. So it is clear that the GGL is building the Eco-Resort on its own account for furtherance of business, and credit of Tax paid on input goods/services is debarred in terms of Section l7(5) (d) of GST Act.”

In our view the building will be capitalized in the books of GGL and thereby ITC shall not be available as mentioned in para 14. Conclusion reached upon by AAAR was same but it seems that they have drafted it mistakenly in para 12.

One may kindly refer to AS-19 Leases (Ind AS 116 wherever applicable), AS-10 Property, Plant and Equipment (IND AS 116) to understand the capitalization principle and treatment of lease in hands of lessor and lessee.

6. Conclusion

It can be inferred that AAAR has rightly upheld the decision of the AAR in above case. One may recall the judgment of the HC of Orissa in case of Safari Retreats (P.) Ltd. v. Chief Commissioner of Central Goods & Services Tax [2019] 105 taxmann.com 324 (Orissa) based on the same provision. It is held that in case of Safari Retreats (P.) Ltd. (supra) that if assessee is required to pay GST on rental income arising out of investment made in construction of shopping mall on which he has paid GST, it is eligible to take benefit of input credit on GST, which he has paid for construction and restriction under section 17(5)(d) is not applicable. Though judgment is pro-assessee, still this judgment is not free from the doubts on ITC. Interpretation taken by the Hon’ble HC for the wordings ‘on own account’ and acceptability of arguments on ITC eligibility by referring Eicher Motors Case are highly questionable. Therefore, this judgment is not referred to used here in this article for analysis.

Introduction

1. GST Council in its Meeting held on 10 January 2019 took a major decision to bring in composition scheme for services. The press release of the meeting itself stated as follows:

Extract of Press Release

“3. Composition Scheme for Services – A Composition Scheme shall be made available for Suppliers of Services (or Mixed Suppliers) with a Tax Rate of 6% (3% CGST +3% SGST) having an Annual Turnover in the preceding Financial Year up to INR 50 lakhs.

3.1 The said Scheme shall be applicable to both Service Providers as well as Suppliers of Goods and Services, who are not eligible for the presently available Composition Scheme for Goods.”

Therefore, everyone was waiting for the modalities to be rolled out for the composition scheme for services. The modalities were rolled out vide Notification No. 02/2019-Central Tax (Rate), dated 7 March 2019 (hereinafter referred as the “scheme notification”) for the commonly called “composition scheme for services” on 7 March 2019. This article tries to decipher and analyse the scheme and raise issues relevant to the scheme at relevant places.

Is this really a composition scheme or a tax rate on services with no input tax Credit?

2. The scheme notification has been issued u/s. 9(1), u/s. 11(1) and u/s. 16(1) of the CGST Act, 2017 whereas notification for composition scheme 08/2017-Central Tax dated 27th June 2017 was issued u/s. 10(1) of the CGST Act, 2017.

Therefore, it is clear that the present scheme is not a composition scheme for the service providers as normally understood in common parlance subsequent to the meeting of the GST Council. Had the scheme notification been issued u/s. 10 of the CGST Act, 2017, it would have been treated as a composition scheme for service providers.

One of the questions which arises is why Notification No. 02/2019-Central Tax (Rate), dated 07 March 2019 has been issued u/s. 9(1), u/s. 11(1) and u/s. 16(1) of the CGST Act, 2017. In the article we would be discussing on the same at relevant places.

What is the impact of scheme under Notification No. 2/2019-Central Tax (Rate), 7 March 2019 not being a composition scheme u/s. 10 of the CGST Act, 2017?

3. The impact of scheme notification being issued u/s. 9(1), u/s. 11(1) and u/s. 16(1) of the CGST Act, 2017 and not being issued u/s. 10 of the CGST Act would be the fact that the scheme would not per se have the attributes and the conditions mentioned u/s. 10 of the CGST Act, 2017, read with Rule 5 of the CGST Rules 2017. Therefore, tax levied and collected under the scheme notification would not be composition levy in lieu of tax u/s. 10 and other conditions like Time limit to opt in or out of composition scheme, Turnover limit, Ineligibility to Input Tax Credit, denial of outward Inter State Supply, etc., would have to be provided for in the notification separately. Consequently, none of the forms for opting in and opting out for composition scheme and claim of Input Tax Credit on opting out of composition scheme would be applicable.

Thus, in a nutshell, scheme would have to be a complete code by itself which Notification No. 2/2019-Central Tax (Rate), dated 7 March 2019 has sought to lay down. Although in common parlance (but not technically) one may call the scheme as a composition scheme for “service providers” but in effect it has no link whatsoever with the provisions of section 10 of the CGST Act, 2017.

Further, conditions as set out in scheme notification might be similar to the ones present in section 10, read with Rule 5 of the CGST Rules, 2017. Since the scheme notification has not been issued in section 10, it was required that the notification had to prescribe the code in entirety itself.

Therefore, taxpayers opting for the scheme would be governed by the conditions as set out in the scheme notification and not be conditions as set out in section 10 of the CGST Act, 2017, read with rule 5 of the CGST Rules, 2017.

One more important aspect is that the scheme Notification No. 2/2019-Central Tax (Rate), dated 7 March 2019 gives an option to registered supplier to opt for scheme, although modus operandi to exercise this option has not been provided by this scheme notification.

Notification only prescribes rate of tax on the intra-State supply of goods or services or both

4. The scheme notification at the outset provides that:

“Central Government, on the recom-mendations of the Council, and on being satisfied that it is necessary in the public interest so to do, hereby notifies that the central tax, on the intra-State supply of goods or services or both…”

Firstly, the tax rate provided in the scheme notification is for supply of goods or services or both. Secondly, rate prescribed is only for intra-State supply of goods or services or both. The reason for the same is that Condition 1(iv) of the Notification puts a bar on making outward supply of goods or services or both. Since there is bar on making any inter-State outward supply, therefore a person opting for the scheme would only be making intra-State supply of goods or services and, hence, notification only prescribes rate for intra-State supply.

5. Condition 1 : Conditions for opting for Scheme as set out in Notification No. 2/2019-Central Tax (Rate), dated 7 March 2019

(a)	Condition 1(i) – Supplies are made by a registered person whose aggregate turnover in the preceding financial year was INR 50 lakhs or below
	The term aggregate turnover has been defined u/s. 2(6) of the CGST Act, 2017 to include all taxable and exempt supplies by a person having the same Permanent Account Number, to be computed on all India basis. Therefore, turnover of the person having the same PAN on all India Basis has to be INR 50 lakhs or below in the previous year. Therefore, if a person has multiple branches in different states, then turnover of all his branches should be fifty lakh or below in the previous year on an aggregate basis.
	Next question is what happens to a person who was not registered in the previous year? There might be two situations in such case-
	Person might have started a new business in the current year and would not have any turnover in the previous year- Such person would be eligible to opt for the scheme as his turnover was less than 50 Lakhs in the previous year.
	Person could have been exclusively dealing in exempted goods or services in the previous year and was not required to be registered- Such person would be eligible if his turnover of exempted goods or services or both was less than INR 50 Lakhs but if his turnover of exempted goods or services or both was more than INR 50 Lakhs (although not required to be registered under GST as dealing exclusively in exempted goods), then he would not be eligible to opt for the scheme.
(b)	Condition 1(ii) – Supplies are made by a registered person who is not eligible to pay tax under sub-section (1) of section 10 of the said Act :
	Importantly, the condition sets out that the registered person shall not be eligible to pay tax u/s. 10(1) of the CGST Act.
	Section 10 of the CGST Act, 2017, read with Rule 5 of the CGST Rules, 2017 sets out provisions for the conditions to be satisfied by a person to be eligible to opt for composition scheme. Therefore, it could be possible that a person might satisfy all conditions as set out therein but does not opt for composition scheme. Therefore, it is pretty clear that ‘eligibility’ and ‘opting’ are two different actions and cannot be held synonyms to each other. Now let’s consider scenarios that have been listed as below:
	Situation-1 – Eligible to pay tax u/s. 10(1) of the CGST Act, 2017 but not opted to pay tax therein (as discussed earlier)-:
	Situation-2 – Not Eligible to pay tax u/s. 10(1) of the CGST Act, 2017, therefore did not opt to pay tax therein:-
	Since the scheme notification uses the term “registered person should not be eligible to pay tax u/s. 10(1)”, therefore, a person who is eligible u/s. 10(1) but has not opted (Situation-1 as narrated above) would not be able to opt for the scheme as set out in Notification No. 2/2019-Central Tax (Rate), dated 7 March 2019. Only persons who are falling in Situation-2 as narrated above would be able to opt for the scheme.
	In a nutshell, if a person wants to opt for the scheme notified vide 02/2019-Central Tax (Rate) then following would be the process:
	Want to opt for the scheme notified vide 02/2019-Central Tax (Rate) dated 7 March 2019 – Yes
	Whether ‘Eligible to pay tax u/s. 10(1) of the CGST Act, 2017’- If yes then either opt for Composition Scheme u/s. 10(1) of the CGST Act, 2017 or wait till the person becomes ineligible to opt to pay tax under composition scheme u/s. 10(1) of the CGST Act.
	Whether ‘Ineligible to pay tax u/s. 10(1) of the CGST Act, 2017’- Yes, then opt for the scheme notified vide 02/2019-Central Tax (Rate) dated 7 March 2019.
	Therefore, an absurd scenario has been created wherein every person opting to pay tax under the scheme Notification 2/2019-Central Tax (Rate), dated 7 March 2019 should either be ineligible to pay tax u/s. 10(1) of the CGST Act, 2017 at that time or if he is not ineligible therein, then he would have to first opt to pay tax under composition scheme u/s. 10(1) of the CGST Act or would have to wait till he becomes ineligible to opt to pay tax under composition scheme u/s. 10(1) of the CGST Act, and then once he becomes ineligible to pay tax therein only he can opt to pay tax under the scheme Notification No. 2/2019-Central Tax (Rate), dated 07 March 2019.
(c)	Condition 1(iii): – Supplies are made by a registered person who is not engaged in making any supply which is not leviable to tax under the CGST Act
	Registered person should not be engaged in making supply which is not leviable to tax under the Act. Supply not leviable to tax has been termed as non-taxable supplies u/s. 2(78) of the CGST Act, 2017. Supplies of following goods are not leviable under GST
	Alcoholic liquor for human consumption
	Petroleum crude,
	High speed diesel,
	Motor spirit (commonly known as petrol),
	Natural gas and
	Aviation turbine fuel.
(d)	Condition 1(iv) – Supplies are made by a registered person who is not engaged in making any inter-State outward supply
	Registered person should not be engaged in making any inter-State outward supply. The condition might seem to be a simple one and an obvious one but needs to be checked very carefully. The condition casts restriction on making any inter-State outward supply which covers both taxable and exempt supply and supply of goods or services or both. Therefore, there should not be any inter-State outward supply of exempted goods or services or both also.
(e)	Condition 1(v) – Supplies are made by a registered person who is neither a casual taxable person nor a non-resident taxable person
	Registered person should neither be a casual taxable person nor a non-resident taxable person. The term casual taxable person and non-resident taxable person has been defined u/s. 2(20) and 2(77) of the CGST Act, 2017 respectively.
(f)	Condition 1(vi) – Supplies are made by a registered person who is not engaged in making any supply through an electronic commerce operator who is required to collect tax at source u/s. 52
	Registered person should not be engaged in making any supply through an electronic commerce operator who is required to collect tax at source u/s. 52. It would be pertinent to highlight that, although registered person engaged in making any supply through an electronic commerce operator who is required to collect tax at source u/s. 52 is barred from opting the scheme, but the person who is himself an electronic commerce operator is not barred from opting the scheme.
(g)	Condition 1(vii) – Supplies are made by a registered person who is not engaged in making supplies of the goods falling under Tariff item, sub-heading, heading or Chapter 21050000, 21069020 and 24

Supplier should not be engaged in making supplies of the goods specified below falling under Tariff Item, sub-heading, heading or chapter as detailed out:

Tariff item, sub-heading, heading or Chapter	Description
2105 00 00	Ice cream and other edible ice, whether or not containing cocoa
2106 90 20	Pan masala
24	All goods, i.e., Tobacco and manufactured tobacco substitutes

It would be apt to highlight here that notifications – Central Tax (Rate), dated 7 March 2019 casts restriction on supplier making any making supplies of the goods falling under Tariff item, sub-heading, heading or Chapter as narrated above however, section 10(2)(e) of the CGST Act, 2017 only casts restriction on opting for composition for the manufacturer of such goods. Therefore, section 10(2)(e) casts restriction only on manufacturers but Notification 2/2019-Central Tax (Rate), dated 7 March 2019 casts restriction upon both manufacturer and traders as well. Therefore, the condition as set out in Notification No. 2/2019-Central Tax (Rate), dated 7 March 2019 is a much wider one than section 10(2)(e) of the CGST Act, 2017.

Condition 2 : Persons having multiple registrations on Permanent Account Number

6. Where more than one registered person has same Permanent Account Number, issued under the Income-tax Act, 1961(43 of 1961), tax on supplies by all such registered persons would have to be paid under the scheme notification. Registered persons having same Permanent Account Number can be in the same State or in different States. Hence, if a person is registered in Gujarat as well as Rajasthan, then both registrations would have to pay tax under Notification No. 2/2019-Central Tax (Rate), dated 7 March 2019. There can not be a situation wherein one registration is paying tax under the scheme notification and other one is paying tax otherwise. This condition exists on similar lines to the one prescribed u/s. 10(2) of the CGST Act, 2017

Condition 3 : Restriction on collection of Tax and Input Tax Credit

7.Registered person shall not collect any tax from recipient on supplies made by him nor shall he be entitled to any credit of input tax.

(a)	Supplier can not collect any tax from recipient – Scheme notification casts a restriction on the supplier to collect tax from the recipient. Therefore, amount to be paid as tax under this notification would have to be paid by the supplier himself without being collected from the recipient.
	The next question is on what amount such tax would be collected and whether amount collected from the recipient would be deemed as inclusive of taxes or otherwise? Suppose, a person has a receipt of INR 20 lakhs and GST has to be paid @ 6%. Whether such person can pay GST @ 6% treating amount collected as inclusive of such amount, i.e., INR 20 Lakh/1.06*.06 or 6% has to be paid at Rs. 20 Lakh, i.e., Rs. 20 Lakh*6%. Since the notification casts restriction on any amount being collected from the recipient as tax, therefore 6% would have to be paid on 20 Lakh and it cannot be deemed that Rs. 20 Lakh is inclusive of the tax to be paid.
	Further, it would be apt here to highlight that in case of restaurants or passenger transportation services, although the rate has been prescribed at 5% but there is no restriction on the amount being collected from the recipient. This is an additional restriction being placed on the supplier which is not present in case of similar tax rate being prescribed without entitlement of input tax credit.
(b)	Supplier not eligible to any credit of input tax – Scheme notification casts a restriction on the entitlement of input tax credit of the supplier. The supplier would not be eligible to claim any input tax credit against the tax payable on the supplies made by him.
	Requirement to issue notification u/s. 16(1) of the CGST Act: The very fact that the scheme is not covered u/s. 10 and scheme notification casts restriction on entitlement of input tax credit of supplier, therefore notification has been issued u/s. 16(1) of the CGST Act, 2017. Had the notification not been issued u/s. 16(1), it would not have been possible to restrict the entitlement of input tax credit of the supplier against the tax payable by him.

Condition 4 : Registered person to issue Bill of Supply instead of tax invoice

8. Registered person would be required to issue bill of supply as referred to in clause (c) of sub-section (3) of section 31 of the said Act with particulars as prescribed in rule 49 of the Central Goods and Services Tax Rules. The reason behind the restriction stems from the fact that as the supplier cannot collect tax from recipient, therefore instead of tax invoice he would be required issue bill of supply.

The moot question here is whether a notification issued under sub-section (1) of section 9, sub-section (1) of section 11, sub-section (1) of section 16 of the CGST Act, 2017 can require a person to issue Bill of Supply without referring to section 31 of the CGST Act, 2017? It would not have been possible in the present scheme and therefore to remove said anomaly, a Removal of Difficulty order No. 3/2019-Central Tax, dated 8 March 2019 was issued to clarify that provisions of section 31(3)(c) of the CGST Act shall apply to a person paying tax under Notification No. 2/2019- Central Tax (Rate), dated 07 March 2019.

Condition 5 : Registered person to mention at top of bill of supply: – ‘taxable person paying tax in terms of notification No. 2/2019-Central Tax (Rate) dated 7-3-2019, not eligible to collect tax on supplies’

9.The condition is similar to the one mentioned in section 10 of the CGST Act, 2017, read with Rule 5 of the CGST Rules, 2017. A person opting to pay composition levy in lieu of the tax payable has to mention “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him. In the scheme notification, taxable person opting to pay tax under the given notification has to mention at top of bill of supply: – ‘taxable person paying tax in terms of Notification No. 2/2019-Central Tax (Rate) dated 7-3-2019, not eligible to collect tax on supplies’.

Condition 6 : Registered person shall be liable to pay tax at the rate of six per cent on all outward supplies notwithstanding any other notification issued under sub-section (1) of section 9 or u/s. 11 of the said Act

10. Registered person opting to pay tax under this notification shall be liable to pay tax at the rate of six per cent on all outward supplies specified in column (1) notwithstanding any other notification issued under sub-section (1) of section 9 or u/s. 11 of the said Act. This is one of the most onerous conditions prescribed in this notification. This requires the registered person to pay tax at the rate of 6% on all outward supplies whether they are taxable or exempted from the levy of tax. For e.g., Let’s take following scenarios for better understanding:

Scenario	Particulars	Tax Liability
Scenario-1 :	Taxable Supplies of Goods: INR 15 Lakh Exempted Supplies of Services: INR 10 Lakh	INR 1.5 Lakh
Scenario-2 :	Taxable Supplies of Goods: INR 25 Lakh	INR 1.5 Lakh
Scenario-3 :	Exempted Supplies of Services: INR 25 Lakh	INR 1.5 Lakh

Thus, it is immaterial whether supplier is supplying exempted or taxable goods or services or both, once opted for payment of tax under this notification, he would be liable to pay tax at the rate of 6% on all supplies irrespective of their nature, i.e., taxable or exempt.

This brings us to another question, i.e., whether such tax at the rate of 6% is payable on ‘Non-GST Supplies’ also. In such a case Condition 1(iii) of scheme notification as discussed above clearly spells out the fact that any person engaged in making supplies which are not leviable to tax would not be eligible to opt to pay tax under the given notification. Therefore, such situation would never arise wherein a person is engaged in making supplies not leviable to tax under the Act and who has opted to pay tax under this notification.

(a)	How notification overrides exemption given to goods or services from levy of Tax under GST? – The next question arises is that supposedly a particular service or goods are exempted from levy of tax. Now scheme Notification No. 02/2019-Central Tax (Rate), dated 7 March 2019 requires the registered person to pay tax even on the exempted goods or services or both irrespective of any other notification issued under sub-section (1) of section 9 or u/s. 11 of the said Act.
	The very fact that the scheme notification requires registered person to pay tax even on otherwise exempted supplies, thus it was required that such notification had to be issued u/s. 11 of the CGST Act, 2017 to override all other exemption notifications. Therefore, to allow to override any other exemption given previously to goods or services or both from levy of tax for persons opting to pay tax under this notification; scheme Notification No. 2/2019-Central Tax (Rate), dated 7 March 2019 has been issued under sub-section (1) of section 11 along with sub-section (1) of section 9 and sub-section (1) of section 16 of the CGST Act, 2017. Thus, a supply otherwise exempted from tax vide any other notification has been made leviable to tax under this notification overriding any other previous exemption for the persons opting to pay tax under this notification.
(b)	Whether supplier would also be liable to pay tax on supplies made by him which are liable to reverse charge and tax is payable by the recipient – The moot question now arises is whether supplier would be liable to pay tax on supplies made by him which are liable to reverse charge and tax is payable by the recipient? The condition provides that “registered person opting to pay central tax at the rate of three per cent under this notification shall be liable to pay central tax at the rate of three per cent on all outward supplies specified in column (1)”.
	Section 2(83) defines the outward supply as below:
	‘”outward supply” in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business;’
	All Outward Supplies specified in Column 1 of the notification are “First supplies of goods or services or both upto an aggregate turnover of INR 50 lakhs made on or after the 1st day of April in any financial year, by a registered person.”
	Therefore, on a conjoint reading it transpires that registered person opting to pay tax at the rate of 6% under the scheme notification shall be liable to pay tax at the rate of 6% on first supplies of goods or services or both upto an aggregate turnover of INR 50 lakhs made on or after the 1st day of April in any financial year.
	Since this condition provides that tax is payable on all outward supplies upto an aggregate turnover of INR 50 lakhs and no specific exclusions have been made for outward supplies liable for payment of tax under reverse charge from aggregate turnover under this notification, it appears that tax is payable @ 6% on the supplies on which tax is payable under reverse charge mechanism by the recipient.
	The next question arises whether in such case tax would also be payable by the recipient? It seems so because liability of the recipient is not affected by this notification and notifications in which liability of the recipient has been created have not been override or have been carved out as an exception through this notification. Therefore, liability of the recipient remains unaffected under those notifications and a new liability has been created under this notification on the supplier for such supplies.
	However, further clarity in this regard would be welcome.

Condition 7 : Registered person shall be liable to pay tax under reverse charge on inward supplies u/s. 9(3) or 9(4) of the CGST Act

11. Registered person opting to pay tax under this notification shall be liable to pay tax on inward supplies on which he is liable to pay tax under sub-section (3) or, as the case may be, under sub-section (4) of section 9 of said Act at the applicable rates. The condition is similar to the one prescribed for the persons opting to pay composition levy in lieu of tax payable u/s. 9(1) of the CGST Act, 2017 wherein they are required to pay tax under reverse charge on inward supplies u/s. 9(3) and 9(4) of the CGST Act, 2017.

The issue now arises is what was the need of casting the said condition in this notification or without this condition, whether liability of the registered person to pay tax u/s. 9(3) and 9(4) would have been affected?

Composition levy u/s. 10(1) is in lieu of tax payable u/s. 9(1) of the CGST Act, 2017. Section 10(1) starts with a non-obstinate clause “Notwithstanding anything to the contrary contained in this Act”. Therefore, section 10(1) was required to be made subject to provisions of section 9(3) and 9(4) so as to maintain liability of the registered person u/s. 9(3) and 9(4) of the CGST Act, 2017, irrespective of the payment of composition levy in lieu of tax payable u/s. 9(1) of the CGST Act, 2017. Since the scheme notification does not have a similar overriding impact such as section 10 of the CGST Act, 2017, such condition seems to be more clarificatory in nature.

The second question arises is why reference has been made only to Reverse charge payable u/s. 9(3) and 9(4) and not to reverse charge under 5(3) and 5(4). Since the reference to liability of reverse charge u/s. 9(3) and 9(4) is clarificatory in nature, therefore reference to section 5(3) and 5(4) was not required. Since the notification has been issued under the relevant provisions of the CGST Act, 2017 as such the levy u/s. 5(1), read with 5(3) and 5(4) remains as unaffected.

Thus, reference to liability u/s. 9(3) and 9(4) of the CGST Act, 2017 seems to have been taken out from the scheme of composition levy u/s. 10 of the CGST Act, 2017 but, it seems more in the nature of clarification.

Condition 8 : The scheme would be applicable till supplies of goods or services or both upto an aggregate turnover of INR 50 lakhs made on or after the 1st day of April in any financial year, by a registered person

12. A person who has opted for the scheme would be able to continue in the scheme till first supplies of goods or services or both upto an aggregate turnover of INR 50 lakhs made on or after the 1st day of April in any financial year. Once the turnover crosses the threshold limit of Rs.Fifty Lakh, then in such case he will have to opt out of the scheme.

The term aggregate turnover has been defined u/s. 2(6) of the CGST Act, 2017 to include all taxable and exempt supplies by a person having the same Permanent Account Number, to be computed on all India basis. Turnover of the person having the same PAN on all India Basis has to be INR 50 lakhs or below. Therefore, if a person has multiple branches in different States, then he will be eligible for the scheme till the turnover of all his branches is fifty lakh or below on an aggregate basis.

(a)	What is meant by “first supplies of goods or services or both” – Explanation to the notification classifies meaning of “first supplies of goods or services or both” in two categories, i.e.
	For the purposes of determining eligibility of a person to pay tax under this notification – Explanation to the notification clarifies that “first supplies of goods or services or both” shall, for the purposes of determining eligibility of a person to pay tax under this notification, include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act.
	For the purpose of determination of tax payable under this notification – Explanation to the notification clarifies that “first supplies of goods or services or both” shall, for the purpose of determination of tax payable under this notification not include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act.
(b)	Whether a person who has obtained new registration can opt for the scheme? – Yes, subject to other conditions being satisfied, a person who has obtained a new registration can opt for payment of tax under the scheme notification. The question arises is that suppose a person applied for registration when his turnover was Rs. 19 Lakh. In such case how would be the limit of aggregate turnover of INR 50 lakhs be worked out? whether he would get an additional turnover of Rs. fifty lakh for the purpose of determining eligibility or whether he would only get additional turnover of Rs. 31 lakh and after that he would have to opt out of the scheme?
	For the purpose of determining his eligibility to opt to pay tax under this notification, his turnover would include supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act. Therefore, his turnover of Rs. 19 Lakh would be includible for determining eligibility upto a limit of INR 50 lakhs and he would only get additional turnover of INR 31 Lakh to be under the scheme notification and after that he would have to opt out of the scheme.
(c)	How does a person who has obtained a new registration pay tax under the scheme notification? – Suppose a person has obtained a new registration and at that time his turnover was INR 19 lakhs. Now suppose he has opted for payment of tax under the scheme notification. The issue that arises is whether he would be required to pay tax on the turnover of INR 19 lakhs or he would only be liable to pay tax on the remaining turnover upto the limit of INR 50 lakhs i.e. Rs. 31 Lakh?
	For the purpose of determination of tax payable under this notification, first supplies of goods or services or both shall not include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act. Therefore, such person would only be liable to pay tax on the remaining turnover of Rs. 31 Lakh and would not be required to pay tax on the initial Rs. 19 Lakh.

Condition 9 : Treatment of Value of supply of exempt services by way of extending deposits, loans or advances insofar as the consideration is represented by way of interest or discount for the purpose of determining of eligibility of scheme under the scheme notification and taxability thereof

13. Scheme notification provides that in computing aggregate turnover in order to determine eligibility of a registered person to pay tax under this notification, value of supply of exempt services by way of extending deposits, loans or advances insofar as the consideration is represented by way of interest or discount, shall not be taken into account.

Therefore, for the purpose of computing aggregate turnover in order to determine eligibility of a registered person to pay tax under this notification, value of supply represented by way of interest or discount would be excluded, however for the purpose of payment of tax, the notification is silent and therefore tax would be leviable on the value of supply represented by way of interest or discount.

Notification is silent on Key Issues: Government needs to clarify at the earliest

14. The notification is silent on certain key aspects which are as follows:

(a)		Registered person crosses the aggregate turnover in the FY of INR 50 lakhs or violates any conditions required to be fulfilled to opt for this scheme, whether he will be entitled to take the credit on the remaining inputs and capital goods? – Such situations have been catered to by provisions of section 18(1)(c) of the CGST Act, 2017 for the persons who have opted for composition scheme but subsequently become ineligible for the composition scheme, where he is entitled to take ITC through ITC-01 but no such provisions exist for this scheme.
(b)		Notification does not provide any time limit for opting for the scheme and opting out of the scheme – The notification is silent upon the time limit available for opting for the scheme or opting out of the scheme.
(c)		Whether registered person opting to pay tax under this notification would be required to maintain books of account in a similar manner as required by the persons opting for composition scheme? – No corresponding changes have been made in the provision relating to maintenance of books of account. Section 35, read with Rules 56, 57 and 58 regulate the provision for books of account. It can be observed that provisions relating to maintenance of books of account and records by persons registered under the composition scheme are relaxed w.r.t. stock, ITC, tax payable etc. [for detail kindly read with rule 56(2) and 56(4)] however, no corresponding changes have been made for registered person opting to pay tax under this notification.
	Rule 56(2) – Every registered person, other than a person paying tax under section 10, shall maintain the accounts of stock in respect of goods received and supplied by him, and such accounts shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample and the balance of stock including raw materials, finished goods, scrap and wastage thereof. Rule 56(4) – Every registered person, other than a person paying tax under section 10, shall keep and maintain an account, containing the details of tax payable (including tax payable in accordance with the provisions of sub-section (3) and sub-section (4) of section 9), tax collected and paid, input tax, input tax credit claimed, together with a register of tax invoice, credit notes, debit notes, delivery challan issued or received during any tax period.
		In our opinion, there is a requirement to change the rules suitably in this regard. For example, being with the scheme opted under scheme notification, registered supplier can not take ITC then how a law can expect to maintain the records related to ITC?
(d)		Forms under GST law till date are not yet notified for the persons opting to pay tax under scheme notification – Till date no forms under GST law have been prescribed for the persons opting to pay tax under this notification. The scheme would be effective from 1st April 2019 and forms being released nearing the last date would again create hassles for the person opting to pay tax under this notification.
(e)		Treatment of balance ITC lying as on the date of opting to pay tax under this notification – The notification is silent on the issue of treatment of ITC lying unutilized as on the date of opting to pay tax under the scheme notification.
(f)		Can we say that this once opted for, means always applicable? – Under this scheme GST will be levied at 6% on first supplies of goods or services or both (intra-State) upto an aggregate turnover of INR 50 lakhs made on or after the 1st day of April in any financial year. However, notification is not clear whether scheme would have to be opted for each year separately or like composition scheme, once opted for no need for renewal every year until the conditions are violated or specifically opted out.

Disclaimer : Analysis has been done based on press release came out of 33^rd GST Council meeting. We have seen the history of GST where the wordings of press release differ from respective notification. One has to wait for notification for authentic reading. Authors of this article are not responsible for any decision taken based on this document.

(1) Rates are revised w.r.t. residential properties only (1% without ITC for affordable, 5% without ITC for non affordable). Kindly note that there is no change in rate w.r.t. commercial properties. Moreover, these are effective rates, which means it will be applied to the total amount charged and not on 2/3 portion of total amount charged.

One may note that press release is not talking about the rate of inward supply of works contract to builder w.r.t. construction of residential property. It seems that such supply will be levied as per earlier position. Let’s wait for the notification to have the clarity.

Issue arises how ITC shall be availed in cases where the subject matter is partially residential and partially commercial project because residential properties are charged without ITC (1%/5%), whereas commercial properties are charged without restricting ITC. It will emerge new issues for builders.

It will bring another transitional phase for builders. Few instances can be as below:

(a)	Where properties are under construction out of which few are sold on or before effective date (i.e. 01.04.2019 to be notified) and few are sold post such effective date. How ITC/ ITC reversal shall be dealt with in such cases?
(b)	Where the part of the tax is levied (on account of advances/demand as per completion stage on booking of unit) before effective date and part of the tax to be levied post the effective date. How the tax liability shall be determined on the entire unit? It is also noticeable that meaning of affordable housing is different before and after the effective date.
(c)	What will be the fate of ITC remaining as on 31.03.2019?

Note: Residential house/flat shall be affordable house/ flats based on below conditions

City	Conditions
For Metropolitan city/ town	First Condition : Carpet area of upto 60 sqm in metropolitan cities / towns+ Second condition : having value upto INR 45 lakhs Implications : In citites like metro, rarely the units are sold on below INR 45 lakhs then this will be out of the definition of affordable housing. It is also amazing to note that in first condition the criteria of carpet area is kept different in metropolitan city and non- metropolitan city but value of INR 45 lakhs is kept same.
Meaning of metropolitan city/ town is different. Here for this purpose , metropolitan cities are Bengaluru, Chennai, Delhi NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of MMR). As per the 2011 census, we have 46 metropolitan cities in India but here it covers limited cities/ towns
Non-metropolitan city/ town	First Condition : Carpet area of upto 90 sqm in non-metropolitan cities/towns + Second condition : having value upto INR 45 lakhs.
So far as value of INR 45 lakhs is concerned, one may understand that this value is exclusive of GST and not inclusive of GST. So one has to plan properly where price is agreed inclusive of facilities of club house etc, as pricing of such facilities being part of the value may keep such housing units out of the definition of affordable housing in particular transactions. (Say value of flat is INR 46 lakhs (inclusive of club facilities) and say here, club facilities having worth of INR 2 lakhs. Need of reviewing the agreement and prospective agreements arise here.)

(2) ITC reversal will be a challenge, as any rate which is subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken shall also mean as if supply of such service is an exempt supply and which will attract ITC reversal related provisions (i.e. Sec 17(2), Sec 17(3), Rule 42, Rule 43). For the ready reference the excerpt from Notification 11/2017- CT(R) is given as under:

Explanation 4 of NOTIFICATION NO. 11/2017-CENTRAL TAX (RATE), DATED 28-6-2017.

Wherever a rate has been prescribed in this notification subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken, it shall mean that,—

(a)	credit of input tax charged on goods or services used exclusively in supplying such service has not been taken; and
(b)	credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such service is an exempt supply and attracts provisions of sub-section (2) of section 17 of the Central Goods and Services Tax Act, 2017 and the rules made thereunder.

(3) Press release also states that tax on development right, such as TDR, JDA, lease (premium), FSI shall be exempted only for such residential property on which GST is payable.

Though post this amendment, issues relating to development rights and one time lease payment will be limited to non residential properties but in cases where the project is partially residential and partially commercial, what would be the fate of this exemption. Clarity is expected from the notification.

Also one may note that in case of JDA, buyer of residential properties will face the double costing due to the tax implication as below:

First Transaction :	Developer will charge tax from landowner.
Second Transaction :	Landowner will again charge tax from buyer whereas he is not eligible for ITC on such residential properties received from developer. So eventually buyer will face two times cost of tax in cases of JDA.

(4) Section 14 and Section 171 (anti profiteering will again come into the picture due to changes in output tax rate and input tax credit both). Both of the sections are reproduced here for the ready reference.

Section 14 of CGST Act: Change in rate of tax in respect of supply of goods or services.
Notwithstanding anything contained in section 12 or section 13, the time of supply, where there is a change in the rate of tax in respect of goods or services or both, shall be determined in the following manner, namely:— (a) in case the goods or services or both have been supplied before the change in rate of tax,— (i) where the invoice for the same has been issued and the payment is also received after the change in rate of tax, the time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier; or (ii) where the invoice has been issued prior to the change in rate of tax but payment is received after the change in rate of tax, the time of supply shall be the date of issue of invoice; or (iii) where the payment has been received before the change in rate of tax, but the invoice for the same is issued after the change in rate of tax, the time of supply shall be the date of receipt of payment; (b) in case the goods or services or both have been supplied after the change in rate of tax,— (i) where the payment is received after the change in rate of tax but the invoice has been issued prior to the change in rate of tax, the time of supply shall be the date of receipt of payment; or (ii) where the invoice has been issued and payment is received before the change in rate of tax, the time of supply shall be the date of receipt of payment or date of issue of invoice, whichever is earlier; or (iii) where the invoice has been issued after the change in rate of tax but the payment is received before the change in rate of tax, the time of supply shall be the date of issue of invoice : Provided that the date of receipt of payment shall be the date of credit in the bank account if such credit in the bank account is after four working days from the date of change in the rate of tax. Explanation.—For the purposes of this section, “the date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier.
Section 171 : Anti-profiteering measure
171(1) : Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. 172(2) : The Central Government may, on recommendations of the Council, by notification, constitute an Authority, or empower an existing Authority constituted under any law for the time being in force, to examine whether input tax credits availed by any registered person or the reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or services or both supplied by him. 172(3) : The Authority referred to in sub-section (2) shall exercise such powers and discharge such functions as may be prescribed.

Issues are endless in real estate sector so far as indirect taxation is concerned. Let’s wait for the clarity. India is the country of high optimism!!