UPDATE ON CREDIT AVAILABILITY ON ANCILLARY ACTIVITIES TO LAND-PART II

UPDATE ON CREDIT AVAILABILITY ON ANCILLARY ACTIVITIES TO LAND-PART II

In Pre GST regime the Builder or Developer had to deposit several Indirect Taxes collected from customer. But GST has reduced the cascading effect. GST has significant impact on real estate as it has increased the cost of construction for the builders after its implementation. There was slowdown in the real estate sector after demonetization and implementation of GST. This new transition has also brought new challenges for the common taxpayers who are involved in buying land majorly on their own account.

In the last update, we discussed the provisions relating to taxability and availment of credit categorically from the point of view of developers and brokers. This update is being prepared to bring out the ambiguity relating to availment of credit by the taxpayers other than developers and brokers.

We are hereby discussing one illustration in detail for better understanding with provisions. Supposedly Mr. A purchased a land as stock in trade. In addition to this, he has received an inward supply of real estate brokerage services for purchase of said land. Mr. A is not willing to capitalise the said amount in the cost of land. Will he be eligible to take credit of the said brokerage services received? The answer is clearly no. Certainly, we all are aware that GST is not applicable to the sale of land because it is neither treated as supply of goods nor the supply of services as per Schedule III of the CGST Act, 2017. Land is identified as immovable property, and so, it does not attract GST. Only stamp duty is payable on land purchases. If the sale is out of purview of GST, any related credit to it is purely ineligible. Moreover,GST law deems sale of land as an exempt supply as per Section 17 of the CGST Act,2017 and mandates proportionate reversal of common credits. This would result in an increase in tax cost as the credit attributed towards the sale of land shall be non-creditable.

Extending this example wherein, if Mr. A decided to construct a commercial building for its headquarters on the same land purchased. As per Section 17(5)(d) of the CGST Act,2017,No ITC is available for goods/services for construction of an immovable property on his own account. Even if such goods/services are used in the course or furtherance of business, ITC will not be available. The interpretation of the term “used for own account” is unclear as it ideally should mean a building which is used for own business and not sold. However, the situation when the building is leased out is unclear.

Recently, AAR ruling in case of M/s Adwitya Spaces Private Limited decided that the applicant is eligible to take credit of the CGST & SGST charged by M/ s. Catalyst Consulting Chennai (Consultant) raised on the applicant for real estate brokerage services for renting of property on a fee basis, subject to the conditions as per Section 16, 17 and 18 of CGST & SGST Act.
In the subject case, the applicant has received an inward supply of real estate brokerage services for renting of property on a fee basis. Due to the services of Catalyst Consulting Chennai, the applicant was able to make an outward supply of renting of the property to Vantec Logistics India Private Limited. Hence, this inward supply was used in the course of the applicants business. This inward supply rendered by catalyst Consulting is not listed in any of the exceptions mentioned in Section 17(5) of CGST Act/ SGST Act for availing the input tax credit of CGST and SGST and therefore, eligible for availing credit.
GST was introduced with the motive of flow of seamless credit. But non issuance of clarifications by the Government and less knowledge of the subject makes it more difficult for the assessee to exist in this competitive environment.
It is expected that the Government will address these concerns soon and give relief to taxpayers who have huge amounts that are blocked due to procedural challenges they faced or where they have failed to report credits due to inadvertent errors.

This is solely for 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

Comments

UPDATE ON CREDIT AVAILABILITY ON ANCILLARY ACTIVITIES TO LAND-PART II

Post a Comment

Query