GST update on rate of builders

The government has released the final GST rate schedule for various services vide Notification No. 08/2017-Integrated Tax (Rate) dated 28.06.2017 wherein GST rate of 18% has been specified for construction services of a complex, building, civil structure or part thereof, including a complex or building intended for sale to 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. It is worth noting that earlier, the GST Council in its meeting held on 19.05.2017 had prescribed the GST rate of 12% if the value of land is included with the condition that no refund of overflow of ITC is allowed. It is submitted that the tax rate for works contract services were specified as 18% and since the construction of residential complex services can also be considered as works contract services, there was possibility of dispute as regards the applicability of GST rate. It appears that the government seeks to remove the possible dispute and has kept the GST rate same for all construction services at the rate of 18%. However, the effective rate of GST for builders where cost of land is included in the taxable value is kept at 12%.

The notification no. 08/2017-Integrated Tax (Rate) mentions that the provisions of paragraph 2 shall apply for valuation of service of construction of residential complex which states that the value of land or undivided share of land shall be reduced from the total amount charged for the supply and the value of land/undivided share of land shall be deemed to be one third of the total amount charged for such supply. Consequently, the effective rate of GST remains to be 12% and there is no change in the same. It is submitted that it is worth mentioning that this provision regarding deduction of value of land from the total value of supply has been incorporated in order to nullify the judgment given in the case of SURESH KUMAR BANSAL VS UNION OF INDIA & OTHERS [2016-TIOL-1077-HC-DEL-ST] wherein it was held that since no mechanism of computing the value of land is being prescribed in the law as regards construction of residential complex service, the levy was not legally tenable. However, it appears that the government has realised the flaw in the GST regime and has accordingly issued the revised rates for construction of complex services with provision for deduction in the value of land.

It is also submitted that although the effective rate of GST for construction of complex services has been specified as 12% with no refund of outflow of credit which is very disappointing for the builders because in construction services, most of the inputs are procured at higher GST rate of 18% with most of the goods/services being procured from unregistered suppliers on which GST is payable under reverse charge mechanism. Therefore, the restriction as regards non-refund of accumulated credit will definitely have adverse impact on the builders because no such restriction of refund of outflow of credit is there for works contract services. The government should re-look its decision to deny refund of outflow of credit to the builders.

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GST update on rate of builders

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