SLASHED GST RATE ON RESIDENTIAL PROPERTIES PART-2

SLASHED GST RATE ON RESIDENTIAL PROPERTIES PART-2

In our earlier update, we discussed about various issues pertaining to input tax credit with respect to builders availing benefit of reduced GST rates on residential properties constructed by the builders w.e.f. 01.04.2019. The present update seeks to discuss valuation issues arising on supply of such residential buildings by the builders.

Although it is too early to comment on the valuation aspect as the official notification with respect to the entry granting reduced rates to the builders for construction of residential buildings has not been released, but still, we wish to highlight the valuation issues that the builder might face due to implementation of the concessional GST rates without facility of ITC w.e.f. 01.04.2019.

It is better to have look at the present provision as regards valuation of construction of residential buildings contained in serial no. 3 of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The paragraph no. 2 of the said notification states that in case of supply of service against serial no. 3 of the table above, involving transfer of property in land or undivided share of land, as the case may be, the value of supply of service and goods portion in such supply shall be equivalent to the total amount charged for such supply less the value of land or undivided share of land, as the case may be, and the value of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply. Further, explanation states that for the purposes of paragraph 2, “total amount” means the sum total of,-
(a) consideration charged for aforesaid service; and
(b) amount charged for transfer of land or undivided share of land, as the case may be.

The above provision reflects that in case of construction services, if the consideration charged by the builder includes value of land as well, then deduction of one third of the total amount will be considered as that pertaining to land on which GST is not payable. The Press Release issued by the government does not clarify whether the provision contained in paragraph 2 giving one third deduction for share of land in the total consideration will continue for builders paying GST at concessional rate without the facility of ITC or not. Moreover, if the provision regarding deduction of value of land is not extended for concessional rate of GST as proposed in the GST Council Meeting, there are fair chances that the said concessional GST rate is challenged in the Courts of Law as was done in the erstwhile taxation regime. It is worth mentioning that the Hon’ble Delhi High Court in the case of SURESH KUMAR BANSAL VERSUS UNION OF INDIA [2016 (43) S.T.R. 3 (DEL)] has held that if there is no statutory mechanism to ascertain value of land in the service of construction of complex intended for sale by the builders provided in the Service Tax Law, levy of service tax on the entire consideration is ultra vires as service tax could not be levied on value of undivided share of land acquired by the buyer from the developer. It is submitted that if the provision regarding deduction of value of undivided share of land is not incorporated in the concessional rate of GST as proposed in the GST Council Meeting, the same would face the fear of challenge in the High Court as has been already observed in the erstwhile Service Tax Regime. It is hoped that the government brings the provision of concessional GST rate on construction of residential buildings by the builder complete in all respects and keeping in mind the probable areas of dispute so that litigation is avoided and the objective of boosting the residential segment of the real estate sector is achieved in its true spirit.

This is solely for the educational purpose. You can reach us at www.capradeepjain.com, at our facebook page on https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/ as well as follow us on Twitter at https://www.twitter.com/@capradeepjain21

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SLASHED GST RATE ON RESIDENTIAL PROPERTIES PART-2

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