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Corporate News *  Service tax penalty can’t survive when assessee acted on dept.’s own view of non-taxability: Delhi High Court. *  GST section 74 extended limitation questionable when form 26AS mismatch was already known: Karnataka High Court grants interim relief. *  CGST demand prima facie impermissible after state GST settlement under section 128A: Bombay High Court. *  Supreme Court asks GSTAT to sympathetically consider delay as taxpayers pursued remedy before wrong forum. *  Supreme Court stays Tripura High Court ruling protecting genuine buyers from ITC denial over supplier’s GST default. *  Diary entries alone can’t prove clandestine removal of goods: CESTAT quashes excise penalty on steel trader. *  Customs could investigate preferential tariff claims even before sec. 28DA: Delhi High Court. *  Customs dept. relied on fake AI generated case laws: supreme court quashes Rs. 425.28 crore penalty. *  No GST exemption in affiliation and annual registration charges for admission or conduct Of examinations: GSTAT. *  Mere invoices, cheque payments insufficient to establish genuine movement of goods: GSTAT restores Rs. 43.44 lakh ITC demand. *  Consolidated GST show cause notice covering multiple financial years is not without jurisdiction: Delhi High Court. *  Construction of independent houses on separate plots not taxable as ‘Residential Complex’ without common facilities: CESTAT. *  GST penalty exceeding statutory maximum unsustainable; Allahabad High Court quashes ? 50,000/- penalty after taxpayer filed return and paid late fee. *  GST order against standard chartered bank passed without hearing set aside by Bombay High Court. *  Retracted statements can’t be relied upon without cross-examination: CESTAT quashes gold confiscation. *  Burden to prove misclassification lies on customs department: CESTAT. *  CESTAT quashes Rs. 98 lakh excise demand on clearance of used refractory brick scrap. *  Service tax demand on irrigation works quashed: Karnataka High Court rules sale of goods component not taxable as service. *  GSTAT restores tax and penalty for transporting iron scrap without E-way bill citing intent to evade tax. *  Madras High Court stays GST recovery from directors without opportunity to show cause under section 89. *  Madras high court stays GST recovery notice against directors; finds prima facie case on applicability of section 79(1)(c). *  Procedural lapses can’t justify harsh punishment without serious customs breach: CESTAT quashes customs broker licence revocation. *  Service tax payable on land leasing and sports complex charges: CESTAT. *  Settled customs dispute can’t be reopened through Article 226 challenge to interest liability: Delhi High Court. *  Mere facilitation of customs clearance can’t establish knowledge of smuggling: Madras High Court. *  GST registration cancellation stayed: Allahabad High Court questions 99% ITC utilisation cap under rule 86B. *  Composition scheme lapses automatically on crossing Rs. 1.5 crore turnover: GSTAT. *  Gujarat High Court quashes GST cancellation orders after officer relied on non-existent AI-generated case laws. *  Importers liable for customs duty benefits availed through manipulated scrips: Delhi High Court. *  Procedural E-way bill lapse alone can’t justify penalty where genuine transaction and absence of tax evasion are established: GSTAT.
Subject News *  Documentary evidence dominates probe, further custody unwarranted: mumbai court grants bail in Rs. 22.44 crore customs duty evasion case. *  Business premises can’t remain sealed for non-participation in GST search: Allahabad High Court. *  GST pre-deposit must be refunded proportionately when taxpayer partly succeeds in appeal: Bombay High Court. *  Supreme Court grants 30 days to file GST appeal; keeps pre-deposit issue open due to deposit in parallel CGST proceedings. *  GST demand can’t exceed amount proposed in SCN: Allahabad High Court quashes Rs. 20.47 Crore order. *  Hundreds-of-crores GST demand and heavy 10% pre-deposit no ground to bypass statutory appeal: Punjab & Haryana High Court. *  Delhi High Court refuses to entertain challenge to gold confiscation due to statutory appeal remedy and unexplained delay. *  Procedural error in customs broker licence inquiry can be rectified through remand: Delhi High Court. *  GSTR-2A mismatch alone can’t justify ITC denial without invoice-wise verification; personal hearing mandatory: GSTAT. *  GST order passed without uploading personal hearing notices violates sec. 75(4): Allahabad High Court. *  TAX EVASION - Sec. 74 GST SCN quashed for not spelling out fraud, wilful misstatement or suppression: Allahabad High Court. *  STPI’s SOFTEX certification and NoC charges taxable as business support services: CESTAT. *  Suspicion can’t replace proof: CESTAT quashes penalty in alleged gold-smuggling operation. *   Limitation runs from communication of order: Madras High Court upholds rejection of delayed GST Appeals. *  Rajasthan High Court quashes GST demand over unsigned show cause notice. *  ITC recovery upheld where supplier failed to deposit GST: Rajasthan High Court. *  Customs commissioner’s empowered to make port trust liable for duty on pilfered goods: Supreme Court. *  Rectification proceedings can’t be used to challenge an uncontested GST assessment through a writ petition: Andhra Pradesh HC. *  GST proceedings against deceased proprietor unsustainable without notice to legal heir: GSTAT. *  Mere availment of ineligible self-assessed ITC doesn’t amount to suppression without evidence of fraud or wilful misstatement: GSTAT. *  Disposal of mining overburden by entity authorised by mining lease holder constitutes taxable service: CESTAT. *  Toll plaza data not mandatory for ITC refund: GSTAT. *  Disputed GST fraud allegations require investigation: Punjab and Haryana High Court makes interim bail absolute in alleged fraud and GST fraud case. *  Non-manufacturer contractor liable to deposit excess excise duty collected from buyer: CESTAT. *  GST order can’t reject taxpayer’s reply as “not satisfactory” without reasons: Madhya Pradesh High Court. *  Uncorroborated statements can’t establish alleged diversion of duty-free goods: CESTAT. *  Erection services were not liable to service tax prior to 10th september 2004: CESTAT. *  Sec. 74 GST notice must spell out statutory ingredients for invoking extended tax demand proceedings: Allahabad High Court. *  No jurisdictional bar under section 6(2)(b) in parallel CGST SGST proceedings: Delhi High Court refuses to bypass GST appeal remedy. *  Madras High Court remits GST demand for fresh adjudication after taxpayer claims it was unaware of SCN following business closure.  

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GST UPDATE ON TAXABILITY OF TDR/FSI PART-7

GST UPDATE ON TAXABILITY OF TDR/FSI PART-7
GST UPDATE ON TAXABILITY OF TDR/FSI PART-7:-
 
In earlier update, we have discussed about the GST rates and various issues pertaining to affordable housing schemes post implementation of new scheme for real estate sector w.e.f. 01.04.2019. In the present update, we seek to discuss the taxability of Transfer Development Rights (TDR)/ Floor Space Index (FSI).
 
There has been a lot of debate over the taxability of TDR in a Joint Development Agreement. In this context, the provisions of Notification No. 04/2018-Central Tax (Rate) dated 25.01.2018issued in the context of payment of tax by registered person supplying service by way of construction against transfer of development right are worth noting. The above notification only says that GST is leviable on supply of development rights by land owner to builder/developer and by developer supplying construction service to the land owner and specifies the ‘time of supply’ for the said transactions. This notification does not speak about valuation but only states that liability to pay GST would arise on the date of issue of allotment letter. However, the provisions with respect to taxability of TDR have been substantially changed w.e.f. 01.04.2019 vide Notification No. 04/2019-Central Tax (Rate) dated 29.03.2019. The provisions of the notification are summarised as follows:-
  1. There shall be exemption from levy of GST on TDR in case of construction of residential apartments by a promoter in a project on or after 01.04.2019 except where the entire consideration has been received after issuance of completion certificate by the competent authority or after its first occupation, whichever is earlier.
  2. In nutshell, there will be exemption from levy of GST on TDR only on residential apartments sold before issuance of completion certificate or first occupancy whichever is earlier, on which the promoter has paid GST.
  3. With respect to TDR on residential apartments sold after issuance of completion certificate or first occupancy, whichever is earlier, the liability to pay tax on TDR will be on the promoter under reverse charge mechanism. The liability to pay tax will arise on the date of completion or first occupation of the project, whichever is earlier.
  4. The value of supply of service by way of transfer of development rights or FSI by a person to the promoter against consideration in the form of residential or commercial apartments shall be deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter.
  5. However, there is no such GST exemption on TDR with respect to commercial projects. The TDR on commercial projects will continue to be liable to GST at the rate of 18%.
  6. The exemption will be computed as follows:-
GST payable on TDR for construction of project* carpet area of residential apartments in the project/Total carpet area of residential and commercial apartments in the project.
  1. The amount of tax payable by the promoter under reverse charge mechanism will be computed as lowest of the following:-
  2. GST payable on TDR for construction of residential apartments in a project but for exemption contained herein* carpet area of residential apartments in a project which remain un-booked on the date of issuance of completion certificate or first occupation/Total carpet area of residential apartments in the project.
  3. GST at the rate of 1% of the value in case of affordable residential apartments and 5% of the value in case of residential apartments other than affordable residential apartments remaining un-booked on the date of issuance of completion certificate or first occupation.  
  4. The liability to pay tax on TDR for projects commenced prior to 01.04.2019 would continue to be governed by the provisions of notification no. 04/2018-Central Tax (Rate) dated 25.01.2018 and tax on the same will be payable by the landowner under forward charge.
The computation of GST exemption on TDR and GST payable by the promoter under reverse charge mechanism may be explained with the help of an example as follows:-
ABC Ltd, land-owner and XYZ Ltd, developer have entered into a Joint Development Agreement (JDA) on 05.04.2019 for construction of 100 apartments wherein 50 apartments are allocated to Landowner and 50 apartments are allocated to Developer. The other information is as follows:-
 
  • The carpet area of each apartment would be 1000 sq ft.
 
  • Out of the 50 apartments allocated to the developer, developer sells 30 apartments prior to the completion certificate to independent buyers.
 
  • The remaining 50 apartments are allocated to the landowner before issuance of completion certificate.
 
  • The value of apartments sold to independent buyers nearest to the date of JDA is Rs. 75 Lakhs.
 
  • The value of apartments sold to independent buyers nearest to the completion certificate date is Rs. 85 Lakhs .
Solution:- The developer XYZ Ltd. is liable to pay GST under reverse charge mechanism on TDR with respect to 20 apartments sold after obtaining completion certificate. GST on TDR is exempt for 30 apartments sold before completion certificate. Furthermore, since all 50 apartments pertaining to ABC Ltd., Landowner have been sold by the developer prior to completion certificate, no GST is payable on TDR with respect to those 50 apartments by the developer under reverse charge mechanism. For the purpose of determining tax liability on TDR, only sale of apartments by the developer are to be considered and it is irrelevant whether the landowner further sells the apartments before completion certificate or not. The calculation of GST payable by the developer under reverse charge mechanism will be lowest of following:-
  1. (7500000*100*5%) * (1000 *20) /(1000*100) = Rs. 75,00,000/-
  2. (85,00,000*20*5%) = Rs. 85,00,000/-
The developer will be liable to pay GST amounting to Rs. 75,00,000/- under reverse charge mechanism.
 
This is solely for the educational purpose.
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