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!!

Query

Facts of the case-

(1) It is in the context of the development agreement.
(2) Landowner and developer entered in to the development agreement before GST regime and rights in the flats were transferred on the signing date of development agreement.
(3) Service tax was levied but not paid.
(4) Almost 70% construction was done before the GST regime and balance of 30% was completed in GST regime.
(5) Occupancy certificate was received by the developer in GST regime and physical possession of agreed number of flats was transferred post-obtaining the occupancy certificate.

Query

To submit implication of GST and Service Tax.

These types of activities are to be examined in the light of transitional provisions as laid down under GST laws.

First view: transitional provisions

Miscellaneous transitional provisions

Section 142(11)(b)of CGST Act – Notwithstanding anything contained in section 13, no tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the Finance Act, 1994 (32 of 1994).

Inference – It can be inferred from transitional provision that if the service tax is leviable on transfer of development rights then GST will not be leviable on the same.

So, here the need arises to check whether service tax is leviable on such transfer of development rights?

Provisions of service tax

Definition of Services [Section 65B(44)] – “service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

• an activity which constitutes merely,—
  • a transfer of title in goods or immovable property by way of sale, gift or in any other manner; or
  • such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution, or
  • a transaction in money or actionable claim;
• a provision of service by an employee to the employer in the course of or in relation to his employment;
• fees taken in any Court or tribunal established under any law for the time being in force.

As the consideration is not defined in the Finance Act- Service Tax it is apt to borrow the meaning of consideration from the Indian Contract Act.

Definition of Consideration [Section 2(d) of Indian Contract Act] – When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

Inference – In nutshell, Consideration means quid pro quo, i.e., something in return. It can be either monetary or non-monetary. In the instant case, providing the construction services by the builder to the landowner is also the consideration as against receiving the development rights.

As in the instant case, builder is providing the construction services in form of flats to the landowner as per the agreed ratio against the consideration in the form of land/ development rights so here it is important to understand whether GST will be levied or service tax will be levied on such services?

It may be noted that in service tax law or GST law, point of taxation rules or time of supply related provisions (respectively) decide when tax will be levied. Leviability is not just decided when the actual supply is made. So, here we are referring to the relevant provisions.

Determination of point of taxation [Rule – 3, Point of Taxation Rules, 2011] — For the purposes of these rules, unless otherwise provided, “point of taxation” shall be,—

• the time when the invoice for the service provided or agreed to be provided is issued:
  Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules, 1994, the point of taxation shall be the date of completion of provision of the service;
• in a case, where the person providing the service receives a payment before the time specified in clause (a), the time when he receives such payment, to the extent of such payment.

Inference – When the service provider receives the payment it is also a point of taxation in the service tax laws. Here the word ‘payment’ signifies the ‘consideration’. For builder the consideration is the development right being transferred by the landowner. It is further clarified by the Circular No. 151/2/2012-ST dated 10-2-12. (given below)

Clarification from Department

Circular No. 151/2/2012-ST dated 10-2-12 (Service Tax)

The circular issued by CBEC, about taxability of flats given to landlord, in its para 2(B) states that Service tax is liable to be paid by the builder/developer on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (e.g., allotment letter).

Inference – In service tax regime, point of taxation is attracted at the time when rights in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (e.g., allotment letter), which means that even if possession is transferred later on, the service tax shall be levied on the date of transferring the rights in the flat.

FAQs issued in respect of construction of residential complex by builders/developers may also be referred to in this regard.

CGST Act, 2017 – FAQ on GST in Respect of Construction of Residential Complex by Builders/Developers

FAQ (MEDIA & ENTERTAINMENT SECTORAL GROUP, HYDERABAD), DATED 28-6-2017

FAQ (11) – Whether the builders/developers are liable to pay tax again under GST in cases where the Service Tax had already been paid/payable on flats, as per earlier law?

Ans. 11:- No. In terms of Section 142 (11) (b) of the CGST Act, 2017, GST is not payable to the extent of the Service Tax paid/payable under the provisions of Chapter-V of the Finance Act, 1994. Nevertheless, the leviability of Service Tax on the subject services shall be determined by applying the Point of Taxation Rules, 2011 as per which if services have been provided or deemed to have been provided on or before 30-06-2017, no GST is payable on the same.

Interest related provision under service tax

Section 75 Interest on delayed payment of service tax

Every person liable to pay the tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at such rate not below 10% and not exceeding 36% per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette for the period by which such crediting of the tax or any part thereof is delayed.

Provided that in the case of a service provider, whose value of taxable services provided in a financial year does not exceed INR 60 lakhs during any of the financial years covered by the notice or during the last preceding financial year, as the case may be, such rate of interest, shall be reduced by 3% per annum.

Revised Rate of Interest w.e.f. 1.10.2014

Vide Notification No.12/2014-ST, dated 11-7-2014, rate of interest to be charged on delayed payment of service tax has been enhanced w.e.f. 1.10.2014, based on period of delay. Thus, longer the delay period, higher would be the rate of interest payable. Accordingly, the rate of interest is as under:

Sl. No.	Period of delay	Rate of Simple Interest Per Annum
1.	Up to Six Months	18%
2.	More than six months and up to one year	18% for the first six months of delay; 24% for delay beyond six months.
3.	More than one year	18% for the first six months of delay; 24% for period beyond six months up to one year; 30% for any delay beyond one year.

Conclusion

1. Transferring the rights in the flats to the landowner by the builder triggers the taxability then itself (Point of Taxation) in service tax regime and even the physical possession is transferred in GST regime. So, the tax is to be paid in the service tax regime and is not to be paid in the GST law by virtue of section 142(11)(b) of the CGST Act, 2017.
2. It will not be regarded as supply in GST regime also; so no declaration shall be needed in GST returns.
3. Service tax is required to be paid along with interest as per section 75 of the Finance Act, 1994. Interest shall be calculated from the due date of such liability till the date of payment.