GST Update on First occupancy requires clarity first

Clause (d) of Section 7 of Central Goods and Service Tax Act, 2017 that determines the scope of supply includes the list of activities specified in schedule II of CGST Act.
The Schedule II of the CGST Act, 2017 specifies activities to be treated as supply of goods or services. The paragraph 5(b) of the aforementioned Schedule provides that:-
“Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier”
shall be covered under supply of service.
The reading of this item of Schedule II may lead to a conclusion that in following two situations the sale of building will not be covered under the definition of supply, accordingly will be excluded from the purview of GST:-
1) Where entire consideration has been received after issuance of completion certificate, or
2) after first occupation
Whichever is earlier.
Upon completion of the building construction, the builder or the developer of the apartment needs to apply for the ‘building completion certificate’ with the local authorities. If the building construction is completed as per the building approval plan and if it also meets other building standards like distance from road, height of the building, if rain water harvesting system is in place etc., the civic authorities issues Completion Certificate.
So, in cases where the entire consideration is received after getting the completion certificate from the local authority or first occupation; the sale of building will come out of purview of GST. Accordingly, the entire Input tax credit availed in respect of such flats will be denied. Also, interest will be payable as the said credit was wrongly availed.

However, the word "first occupancy" is very critical in the entire issue. The language suggests that even if a single flat is occupied, the entire project will come out of purview of GST, accordingly the credit will be denied. Practically, the project may compromise of more than one building, say 4, 5 or even 10 buildings may be there in a single project. Say, if two buildings are under-construction and remaining 8 buildings have not yet started and occupancy of one flat out of the two under-construction buildings is given, the entire project (i.e. all the 10 buildings) will come out of the purview of GST. Accordingly, neither any credit can be taken nor the credit already taken is admissible. Thus, the credit already taken will be required to be reversed alongwith interest.
This is very harsh provision and language is clear. So, a clarification on the term "first occupancy" is the need of hour, else it will create a havoc in the construction sector and since no ITC will be available, it will become the part of cost of the building thereby leading to hike in sale prices of the same.

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GST Update on First occupancy requires clarity first

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