GST Update on whether partial completion certificate obtained for commercial shops applicable to residential flats also? 140/2020-21

GST Update on whether partial completion certificate obtained for commercial shops applicable to residential flats also?
With the introduction of new taxation regime, the difficulties and compliances for the realty sectors have escalated to a higher level. Applicability of GST on sale of developed land, reversal in case of flats sold after completion certificate are few of the complexities faced by every builder in normal course of operations. Recently, The Gujarat Authority of Advance Ruling in case of V2 REALTY (ADVANCE RULING NO. GUJ/GAAR/R/26/2020 dated 02.07.2020) ruled that selling of residential flats after the date of completion certificate of commercial shops is liable to GST under para 5(b) of Schedule II. This ruling has increased the tension amongst the builders of realty sector as the sale after first occupancy was also held to be liable to GST in absence of evidence regarding occupancy in commercial shop or residential flat. The outcome of this advance ruling is the subject matter of discussion of the present update.
The applicant is engaged in construction business. Their project V2 Signature is going on at Chala, Vapi and in the said project, Ground and First Floor in all wings of their projects are commercial shops. Remaining floors are residential flats. The applicant submitted that they have received BUP (Completion Certificate) for commercial shops i.e. Ground and First floors on 26.09.2017. There is also first occupancy in the building from 26.12.2017. Accordingly, the applicant sought the advance ruling on the following question:

Whether selling of residential flats after date of completion certificate of commercial shops or after first occupancy in building is exempt supply?
Manner of reversal of ITC on expenses incurred up to date of completion certificate shops.
Manner of claiming ITC on expenses incurred after date of completion certificate of commercial shops.

AAR has referred to Para 5(b) of Schedule II to the CGST Act, 2017 which reads as under-
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 treated as supply of services.
The AAR held that the applicant has received BUP (Completion Certificate) for commercial shops i.e. Ground and First floors on 26.09.2017 but not for residential units. The applicant has not submitted any evidence/document by which it can be seen that whether first occupancy is in commercial shop or Residential Flat. Therefore, AAR held that since no Building used permission has been issued by the competent authority in respect of residential flat and since no residential unit has been occupied by prospective buyer, supply of residential flats shall be treated as supply of service in terms Para 5(b) of Schedule-II of CGST Act, 2017.
With regard to second question, it is ruled that the manner of reversal of ITC on expenses incurred up to date of completion certificate shops is provided in Rule 42 and Rule 43 of CGST Act, 2017 read with Notification No. 16/2019-CT dated 29.03.2019.
The third question regarding the manner of claiming ITC on expenses incurred after date of completion certificate of commercial shops was answered by referring to provisions contained in section 16 and 17 of CGST Act, 2017.
The above ruling indicates that issuance of completion certificate is pre-requisite condition for not levying GST on flats sold after issuance of completion certificate. 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, proper rain water harvesting system etc., the civic authorities’ issues Completion Certificate. It is also important to obtain completion certificate for the entire project and not for portion of the project as in the present case, the completion certificate was obtained only for commercial shops. Hence, this ruling creates another challenge before the builders to obtain completion certificate for their entire project in order to ensure that their sale of flats sold after issuance of completion certificate are not liable to GST.

This is solely for educational purpose.

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GST Update on whether partial completion certificate obtained for commercial shops applicable to residential flats also? 140/2020-21

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