D.S. Developers

CASE STUDY
BRIEF FACTS OF THE CASE:
M/s D.S. Developers (Appellant) is engaged in the construction of residential complex. Anti Evasion team of CGST department visited the premises on the basis of information gathered that the appellant is involved in evasion of GST. Financial records of the appellant were examined and details relating to booking/sale of flats were recorded. Pursuant to which, 14 summons were issued to the partner of M/s D.S. Developers out of which the adjournment was sought for 13 summons. The partner of the appellant than appeared to tender his statements. Thereafter, SCN was issued to the partner wherein following allegations have been raised:-
(i) Non-payment of GST on amount received from customers against booking/sale of residential flats for the project during January 2021 to March, 2022.
(ii) Short payment of interest for the month of November 2019.
(iii) Non-reversal of ITC in terms of Notification no. 03/2019-Central Tax (Rate) dated 29.03.2019 (Annexure-II of Notification) against the unsold inventory as on 1.04.2019.
(iv) Non-payment of GST under RCM on the purchase from unregistered suppliers in terms of Notification no. 03/2019-Central Tax (Rate) dated 29.03.2019
The appellant filed a detailed reply to rebut the allegations raised in the SCN. However, submissions made in the reply was not considered by the adjudicating authority, and an order was passed confirming the allegations raised in the impugned notice. Being aggrieved by the order, appellant preferred appeal before the Appellate Authority.
CA Pradeep Jain, authorised representative of the Appellant appeared for the personal hearing to present the submissions and relevant explanations on behalf of the Appellant.
Key issues covered in the case:
• Whether GST can be levied on the amount received from the customers after the first occupancy is held?
• Whether ITC is required to be reversed in terms of Notification No. 03/2019 availed on the unsold inventory?
• Whether GST is liable to be paid on reverse charge basis as per Notification No. where purchases has been made less than 80% from the registered suppliers?
• Whether penalty can be imposed under Section 122(3)(d) due to non compliance with summons issued?
Submissions by Appellant:
CA. Pradeep Jain submitted the following contentions: -
Technical Grounds
• Impugned Order and impugned SCN contained various inconsistencies:
a) Manual issuance of Show Cause Notice contrary to Rule 142:
The show cause notice was issued manually instead of through the GST portal in FORM GST DRC-01, and the order was also passed manually. Both the SCN and the order were uploaded on the portal on the same day, violating the procedure prescribed under Rule 142 of the CGST Rules, 2017.
b) Absence of computation and inconsistency in demand:
The show cause notice did not disclose the basis or computation of the tax demand despite repeated requests by the appellant. Further, the tax demand was bifurcated only after the order was passed, and the financial years reflected in the portal records differed from those mentioned in the original show cause notice.
c) Mismatch in penalty amount:
The penalty confirmed in the operative part of the adjudication order differs from the penalty reflected in FORM GST DRC-07 uploaded on the portal. The excess penalty shown in the summary has no discernible basis, rendering the order arbitrary and unsustainable.
d) Single Show Cause Notice and Order issued for multiple years in violation of the judgment of hon’ble High Court

Merits of the Case
• Issue One: Demand of GST on booking/sale of flats has been wrongly confirmed:
The appellant contended that GST on booking/sale of residential flats during Jan 2021 to Mar 2022 was not sustainable because the booking of flats done during the disputed period is neither covered under supply of goods nor as supply of service in view of clause 5 of Schedule III of CGST Act 2017 read with clause 5(b) of Schedule II of CGST Act 2017 as in the instant case. Sale of a building after the earlier of first occupancy or issuance of completion certificate is outside the scope of GST. Since the construction of the project started in 2011, bookings of flat started in 2014, registries of flat started in 2015, hence first occupancy happened when the first registry was completed, therefore the project had already come out of the ambit of GST from the date of first occupancy.
• Notification no. 03/2019-CT (rate) dated 29.03.2019 was referred that as the project was registered with RERA and single registration has been taken for the same. Hence, the condition contained in the Notification No. 03/2019 (rate) shall be applicable to the project. Furthermore, as single registration was obtained thus all the towers shall be treated as single project. Thus, in such case, as the first occupancy took place in year 2017, therefore, no tax can be levied on the flats booked thereafter in any of the tower.
Issue 2: Demand of GST for the month of Nov 2019 is not sustainable:
In this regard, it is submitted that impugned order has confirmed the demand on the grounds that the flats booked after the first occupancy are neither treated as supply of goods nor as supply of service. Therefore, the demand of tax on such flats in respect of which the entire consideration is received after the first occupancy is void ab initio. However, the appellant has mistakenly deposited tax. Hence, such tax which is deposited under mistake of law does not assume character of tax and is liable to be refunded.
In alignment with above, it was contended that as there is no tax payable in the flats booked after 17.05.2017 and the tax paid has been paid mistakenly. Thus, as the tax itself does not arise at all, hence, interest cannot be levied.
Issue 3: -Reversal of input tax credit under Notification no. 03/2019-Central Tax (Rate) dated 29.03.2019 is not required:
The appellant contended that the demand for reversal of ITC under Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019 is unsustainable as the project had already come out of the purview of GST on account of first occupancy having taken place before 01.04.2019, rendering the notification inapplicable.
The impugned order has held that only 10% of the ITC was admissible and remaining 90% of the ITC was supposed to be reversed as only 5 out of 50 flats had been sold, and consequently directed reversal of the remaining 90% ITC. In this regard, it is submitted that the construction of flats in a project is a continuous process. Even after a flat is booked and constructed, there are certain services that are continuously being received on which ITC is availed. Thus, the contention that the entire ITC pertains to construction only 5 flats is void ab initio.
In alignment with above, it is contended that GST law is clear if a flat is booked before the earlier of issuance of completion certificate or first occupancy, it will be treated as supply of service by the builder to the buyer of the flats. Thus, as and when the amount is due or received from the buyer and supply of services have ended. Not every buyer of flats wishes to take over the possession at the same time. This depends on various factors like whether the buyer is going to live in that flat or it will be used for renting purpose, funds available with them, muhurat told by astrologer etc. Thus, there are different dates on which different buyers takes the possession. The 10% balance is recovered from the buyers at the time of giving them possession. Furthermore, builder buys and put AC, Fan, Sanitary, Sink, Chimney, Furniture etc. Thus, the goods and services continue to be received even after the issuance of completion certificate. Therefore, the input tax credit has been rightly availed on such inputs and input services as he same have been received against the flats booked prior to issuance of completion certificate or first occupancy which-ever is earlier.
• Demand of interest and penalty on ITC is not sustainable:
The fact of construction of flats in the project in issue could not be suppressed as it is clearly visible on the website of RERA and all the details are available on it. Hence, impugned order invoking penalty under Section 74 is not valid.
• Issue 4: Allegation of non-payment of GST under reverse charge is not maintainable:
Letter seeking details of computations made in this regard was also moved by the appellant on 26.02.2024. Appellant submitted computations in respect of the F.Y. 2020-21 and 2021-22 as was asked by the impugned show cause notice which depicted that some expenditure had GST charged on them already, and some expenditure were Non-GST in the nature. Hence, in both cases, GST cannot be asked to be paid under reverse charge.

Further, during FY 2020-21, most of the expenditure comprised non-GST items such as interest, salary, electricity, bank charges, insurance and other exempt expenses. The remaining taxable procurements were made exclusively from registered suppliers, who had already charged and discharged GST. Similarly, during FY 2021-22, all expenditures were either non-taxable or outside the ambit of GST, and no purchases were made from unregistered suppliers. Consequently, no liability under the reverse charge mechanism arose for either financial year. The appellant completely analysed the Balance Sheet figures and showed the figures on which GST is not payable. After deducting the same, for remaining amount, individual expenditure shown in Profit and Loss account was taken up. Every ledger along with invoices of that expenditure was presented and it was showed that GST has been paid on all of them. Hence, there is no purchases of more than 80% from registered person. Hence, there is no purchase from non-registered person and as such the demand under RCM is not sustainable.

The appellant further argued that levying GST under the reverse charge mechanism on supplies for which tax had already been paid by the registered suppliers would amount to double taxation, which is impermissible in law.

It was also submitted that all relevant Profit & Loss Accounts, ledger extracts and supporting documents pertaining to FY 2020-21 and FY 2021-22, being the only years covered by the show cause notice, had been furnished before the adjudicating authority. However, the authority ignored these records, wrongly alleged non-submission of documents for FY 2019-20, a year not even covered by the notice, and confirmed the demand without considering the evidence.

• Personal penalty imposed is not sustainable:
Appellant contended that the personal penalty imposed on the partner of the appellant for non-compliance with summons was invalid as it was already submitted by the partner that he could not appear for tendering the statements as he was suffering from the neuro and heart problem and due to which he was out of town. However, despite submitting letter of reply by the partner, department continuously issued summons to the partner of the appellant.
• Demand of Interest and Penalty is not Sustainable
Based on the submissions of the appellant, when the demand itself is not sustainable, question of interest and penalty does not arise.
Submissions by Revenue Department:
Revenue Department contended the following:
Appellant failed to pay tax on payment received during the period Jan 2021 - Mar 2022:
• That the appellant received payment during the Jan 2021- Mar 2022 on which GST was required to be paid by them, but they have neither paid the applicable GST on such receipts nor filed GSTR-3B of the said period. GST registration was cancelled but even after the cancellation of the GST registration, they were receiving taxable consideration continuously during the said period, they have neither filed an application for revocation of GST registration, nor did they deposit the due tax amount in Govt exchequer.
New tax structure introduced by the notification was applicable:
• new tax structure was introduced w.e.f. 01.04.2019 onwards by amending Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 by Notification No. 03/2019- Central Tax (Rate) dated 29.03.2019. Admittedly, services of construction are also being rendered by the appellant after 01.04.2019, as the completion certificate for their project is not issued by the competent authority and as per RERA details. Hence, the rate as notified under the new tax structure is also applicable in respect of the services provided by them.
Completion certificate has not been issued thus GST is applicable:
• The competent authority has not issued the completion certificate for this building. Thus, rate of GST applicable for entry at item (i) is 1.5% [0.75% CGST + 0.75% SGST] and for the entry at Item no. (ia) is 7.5% [ 3.75% CGST + 3.75% SGST].
Liable to reverse ITC availed in respect of unsold inventory as per the Notification No. 03/2019:
• That the appellant was required to reverse the ITC on the unsold inventory of residential flats as on 01.04.2019 as has been provided in the annexure contained in the notification no. 03/2019- Central Tax (Rate) dated 29.03.2019. Appellant has sold 30 residential flats in their said project before 01.07.2017 i.e. the date of implementation of GST, thus they have inventory of 50 unsold flats during the period July 2017 to March 2019. Further, they have sold 5 more residential flats during the period. Since, the appellant failed to provide the details of total carpet area, carpet area sold as on 31.03.2019 and value of supply of construction of residential and commercial apartments booked on or before 31.03.2019. The amount of ITC reversible. Thus, as on 01.04.2019, the appellant had 45 unsold flats as inventory i.e. 90% of the total inventory. Thus, as per the provisions of Notification no. 03/2019- dated 29.03.2019- only 10% of the total ITC availed, appears admissible to them and remaining 90% amount of total ITC availed was required to be reversed by them.
Liable to pay interest on delayed payment of tax:
• Furthermore, appellant had belatedly filed GSTR-3B returns for the month of Nov 2019 and make late payment to the extent of their GST liability. Hence, they are liable to pay interest on such delayed payment of GST.
Along with that, on examination of GSTR-3B of the Nov 2019, it appears that the appellant has collected GST but failed to deposit the same to the Government account within due date of such payment. Therefore, the delayed GST was liable to be recovered from them under Section 73(1) along with interest under Section 50 and penalty.
ITC on reverse charge basis in accordance with Notification No. 03/2019:
• Furthermore, as per the conditions prescribed in Notification No. 03/2019 Central Tax (rate) dated 29.03.2019- 80% of the value of input and input services used in supplying the service required to be received from registered supplier only. On perusal of the documents, submitted by the appellant that they have only purchased input/services aggregating to 9.8 % of the total purchase from the registered suppliers during the said period. Whereas, eighty percent of the total purchase was required to be purchased from the registered suppliers. Therefore, as per the condition provided in Notification No. 03/2019- Central Tax (rate) dated 29.03.2019, it appears that the appellant is required to pay GST on reverse charge.
Personal Penalty to be imposed under Section 122(3)(d) on account of non-compliance by partner:
• Furthermore, penalty under Section 122(3)(d) due to non-compliance with the with the 13 summons issued to the partner of the firm. Therefore, penalty under Section 122(3)(d) deserves to be invoked on the partner of the appellant.
Judgement & Findings:
Based on the submissions given by legal counsel of both the parties, the Appellate Authority observed the following findings: -
Issue (i): GST demand on booking/sale of residential flats (Jan 2021–Mar 2022)

The appellate authority held that Clause (b) of Paragraph 5 of Schedule II read with Paragraph 5 of Schedule III of the CGST Act, 2017 clearly provides that sale/booking of flats after the earlier of first occupation or issuance of completion certificate falls outside the ambit of GST. In the present case, the commencement certificate had already been issued by the Commissioner, Jodhpur Nagar Nigam, and the appellant established through the registered sale deed dated 17.05.2017 that the first occupation of the project had taken place much before the disputed period (January 2021 to March 2022) and prior to 31.03.2019. The authority observed that even if possession was assumed to have been handed over six months after the date of registry, the first occupation would still have occurred well before the disputed period. It was further held that the adjudicating authority had erred in relying solely on the absence of a completion certificate while ignoring the independent statutory expression "after its first occupation", as first occupation is itself a determinative event and does not require certification by any statutory authority. The finding of the adjudicating authority that the purchaser had not actually started residing in the flat was also rejected in view of the documentary evidence of the registered sale deed. Further, referring to Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019, it was held that since the first occupation had taken place before 31.03.2019, the project could not be regarded as an ongoing project for the purpose of the notification.
Based on the above observation, the demand of GST on amount received during Jan 2021 to March 2022 was set aside.

• Short paid Interest for the month of Nov 2019 and penalty under Section 73(9) read with Section 73(11) and Section 122(2)(a).

It was held that as the first occupation was on 17.05.2017 which is prior to implementation of GST, the transactions relating to flats for which consideration was received thereafter cease to fall within the ambit of taxable supply under para 5(b) of Schedule II to CGST Act. Consequently, no levy of GST could be imposed upon such transactions. Hence, the deposit made by appellant was not in discharge of any legal tax liability, and should be treated as deposit. Hence, such deposit is liable to be refunded. Any amount collected or deposited without authority of law cannot partake the character of “tax”.
Furthermore, as the principal amount itself is not legally payable as tax, hence, the consequential levy of interest under Section 50 of CGST Act 2017 is wholly sustainable and liable to be set aside. Hence, the Interest and penalty under Section 73(9) read with Section 73(11) and Section 122(2)(a) has been set aside.
• Non reversal of ITC in terms of Notification No. 03/2019- Central Tax (Rate) dated 29.03.2019 against the unsold inventory as on 01.04.2019.
It was observed that the condition for reversal of ITC as per Annexure-II of Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019 apply when Input Tax credit attributable to construction of residential and commercial portion in a residential real estate project (RREP), having time of supply on or after 01.04.2019. Furthermore, same shall be applied project wise for all the projects which commenced on or after 01.04.2019 or ongoing projects on which the promoter has not exercised option to pay tax on construction at the rates specified for item (ie) or (if).
It was held that reversal of ITC is required when the project is considered as “on going” project. However, as per term mentioned in Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019 shall mean a project which meets the conditions specified in the notification.
In view of above findings, it was held that commencement certificate/order no. has already been issued by the Commissioner of Jodhpur Nagar Nigam. Further, first occupation of the project has already taken place on 17.05.2017 i.e. before 31.03.2019. Hence, project cannot be considered as ongoing project at this stage. Thus, applicability of reversal of ITC is not applicable on this project.
Based on above findings and observations, it was held that as the appellant is out of ambit of GST, hence, they are not liable to reverse the ITC related so called the unsold inventory of residential or commercial apartments, thus, liable to be dropped. Accordingly, dropped along with interest and penalty.

• RCM on expenditure during the F.Y. 2019-20 to 2021-22
It was observed that expenditure during the F.Y. 2019-20 to 2021-22 as flat cost and 80% of the said value was required to be purchased from the registered suppliers. Notification No. 03/2019 – Central Tax dated 29.03.2019, eighty percent of the total purchase was required to be purchased from the registered suppliers. Therefore, they are required to pay GST on the purchase made from unregistered suppliers under RCM. Appellant continuously contended that.
It was held that the adjudicating authority failed to adequately address the appellant's specific grievance regarding the basis and methodology adopted for quantification of the proposed demand. Despite the appellant’s repetitive request seeking details and supporting computations of the alleged liability under Reverse Charge Mechanism, no documentary evidence, calculation sheet, or transaction wise analysis appears to have been furnished to enable the appellant to effectively rebut the allegations. Adjudicating authority has merely relied upon the findings of the investigation authority without independently examining whether the demand was supported by verifiable records and without ensuring.
Further, it was observed that the show cause notice itself sought explanation and supporting documents only in respect of the Financial years 2020-21 and 2021-22. Hence, the appellant was correct in providing the documents relating to F.Y. 2020-21 and 2021-22. Appellant had provided copy of invoices, establishing that such supply or services have been incurred by them from registered person. Also, the tax has been charged by the said registered person on these expenses.
Upon analysis of the above expenditure, It was found that all the expenditure could be bifurcated into:
? Expenses for the invoices which contain GSTN of their supplier and proper GST has been charged;
? Non-GST expenditure, no tax thereof is payable on the same under Reverse Charge Mechanism.
? Furthermore, it was observed that due to COVID-19 there was severe downfall in the real-estate sector and number of contracts got cancelled. Hence, only fixed expenses were incurred and no other expenses were incurred during the Financial year. AS all these expenses incurred were non – taxable, the question of payment of GST under reverse charge does not arise at all.
? are Non-GST expenditure, therefore, no tax is payable on the same under reverse charge. Copies of Profit and Loss Account and ledger accounts of all the expenses also explain and justify the non-applicability of GST. Further, it is also pertinent to

• Imposition of penalty under Section 122(3)(d) of the CGST Act 2017
As the records reveal that there were consistent submission of application by the partner of the appellant that as he is suffering from certain illness and was required to remain out of the station for medial consultation and treatment during the relevant period. This submission was totally ignored by the adjudicating authority and it was observed that the partner of the appellant ultimately appeared before the investigating authority on 24.06.2022 and tendered his statement, thereby extending cooperation to the investigation.
The substantive GST demands forming the basis of the proceedings have not been found sustainable to the extent alleged. Consequently, the gravity and impact of the alleged non-compliance stand substantially mitigated.
Penalty under Section 122(3)(d) is re-determined and reduced to Rs. 20,000/- (CGST Rs. 10,000/- and SGST Rs. 10,000/-) upon partner of the appellant.
AUTHOR’s COMMENT:
The above laid judgement has a vast implication as it grants relief to the genuine taxpayer by quashing the arbitrary adjudication proceedings and resulting order passed by the departmental authorities. This judgement reinforces the provision laid down by the Schedule II and Schedule III of the CGST Act 2017 that in cases where entire consideration is received after the first occupancy is held or completion certificate is received. Such a transaction gets outside the purview of GST. Along with that, this judgement reinforces the settled principle of law that any tax paid without authority of law does not partake the character of tax and is therefore refundable. Department cannot detain such tax paid which is in the form of legitimate deposit.
Furthermore, this judgement directs the department authorities to consider the submission made by the taxpayer fairly and should understand the genuine circumstances of the case, rather than mechanically proceeding against the taxpayer.
Various case laws, sections, rules, circulars, notifications referred in the instant case study:
Clause b of para 5 of Schedule II and Schedule III of CGST Act 2017
Notification No. 03/2019- Central Tax (Rate) dated 29.03.2019
Notification No. 11/2017- Central Tax (Rate) dated
PARSHANT TIMBER Versus COMMISSIONER OF DELHI GST [2023 (73) G.S.T.L. 346 (Del.) / (2023) 5 Centax 162 (Del.)]:
JAI BAHADUR SINGH Versus STATE OF U.P. [2023 (74) G.S.T.L. 324 (All.)]
WORLD SOLUTION Versus STATE OF U.P. [2023 (79) G.S.T.L. 204 (All.)]
COMMR. OF C. EX. (APPEALS), BANGALORE VERSUS KVR CONSTRUCTION [2012 (26) S.T.R. 195 (KAR.)] AFFIRMED BY SC REPORTED AS [2018 (14) G.S.T.L. J70 (S.C.)]
GEOJIT BNP PARIBAS FINANCIAL SERVICES LTD. VERSUS C.C.E., CUS. & S.T., KOCHI [2015 (39) S.T.R. 706 (KER.)]

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