GST Daily
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Today’s newsletter analytically summarizes the top GST stories reported at?taxmann.com.
The GST Council in its 48th meeting has made several recommendations relating to changes in GST and now, the CBIC has issued Central Goods and Services Tax (Fifth Amendment) Rules, 2022 to notify changes recommended by the GST Council. In this regard, notification has been issued. The key changes are: ? ? ?
1. Form GSTR-1 has been amended to change the manner of reporting details relating to supplies made through the e-commerce operator (‘ECO’) ? ? ?
2. Procedure is prescribed for filing application of refund by the unregistered buyers where the contract/ agreement for supply of services, like construction of flat/house and long-term insurance policy, is cancelled. ? ? ?
3. Rule 37A is inserted under the CGST Rules to provide for the mechanism and time limit of reversal of ITC by the recipient where tax is not paid by the supplier to the Government ?
4. New Rule 88C and Form GST DRC-01B in the CGST Rules for issuing intimation to the taxpayer for the differences between liability reported in Form GSTR-1 and in Form GSTR-3B, where such difference exceeds a specified amount and/ or percentage ? ? ?
5. Rule 37(1) of the CGST Rules is amended w.e.f. 01-10-2022 to provide for the reversal of input tax credit only proportionate to the amount not paid to the supplier vis-a-vis the value of the supply, including tax payable ? ? ?
6. Rule 108 and Rule 109 of the CGST Rules are amended to provide clarity on the requirement of submission of the certified copy of the order appealed against and the issuance of final acknowledgement by the appellate authority ? ? ?
7. New Rule 109C and new Form GST APL-01/03W to provide the facility for withdrawal of an application of appeal up to a certain specified stage ? ? ?
The taxability of real estate and construction is always a topic of challenge in indirect tax jurisdictions across the world, and more so in the context of a developing nation like India. In the Indian context too, the Goods and Services Tax (GST) regime has also made numerous amendments which are relevant to the real estate and construction segment.
In this article, we first summarise some basic provisions of GST that are relevant to real estate and thereafter, discuss the recent pronouncements related to a refund mechanism that was made during the recent GST Council Meeting on 17th?December 2022.
Taxability of construction of flat/ house
Schedule III to the Central Goods and Services Tax Act, 2017 prescribes activities that are neither a supply of goods nor a supply of services. As per the said Schedule, "Sale of land, and subject to paragraph 5 of Schedule II, sale of building" are neither supply of goods nor services.
Further, if we consider the Schedule II para 5(b), it is mentioned, inter alia, that "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" would be considered a supply of services.
Thus, if we read these combined, the following are some of the conclusions that may be drawn:
1.?The sale of flats/ houses where the entire consideration i.e. 100% amount towards sale of flat, is received after the completion certificate or occupation certificate would be covered by Schedule III to the CGST Act and therefore would not attract any GST.
2.?In respect of an under construction property, where neither occupation certificate nor completion certificate is issued, any amount received towards such supply, would be considered a supply of services.
3.?It would not matter whether the amount towards under construction property is received before or after completion certificate or occupation certificate, and in such cases, the entire amount would be taxed as supply of services. Thus, in such situations, the real estate companies would need to issue a tax invoice, charging GST on the consideration received.
Credit Note mechanism under Goods and Services Tax
Under Section?34?of the CGST Act,
"Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed."
Thus, if we place reliance on the provision supra, a credit note can be issued by the supplier in the following situations only after suitable tax invoice has been raised with respect to supply of services:
1.?Where the taxable value or tax charged is found to exceed the taxable value or tax paid in respect of supply of service OR
2.?Where service supplies is found to be deficient.
Thus, the supplier, in case of the sale of an under construction flat, can issue credit note in case if the contract for sale of flat/ house is cancelled for any reason. Under GST law, however, there is a time limit to issue credit notes, which is discussed in the next section.
Time limit to issue credit note and adjust taxes which are excess paid
As per section 34(2) of the CGST Act,
"Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than the thirtieth day of November following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed."
The time limit of 30th?November has been in force from the financial year ended 31st?March 2022 onwards and for prior financial years, the time limit was the thirtieth day of September.
Thus, any credit notes which were issued after the time limit i.e. after 30th?November or 30th?September, as the case may be, cannot be adjusted by the supplier and the tax paid on such time barred credit notes would become a cost.
This time limit aspect is a serious issue, for long duration contracts, such as construction of flat(s) and it is possible that credit notes issued towards sale of under construction flats may become time barred. For example, suppose a buyer Mr. ABC entered into contract of sale for an under construction unit from builder XYZ on 1st?November 2021. For some reason, only in December 2022, it was communicated by builder XYZ that he has been unable to obtain permissions from zonal authorities, and therefore the agreement with XYZ stood cancelled. As the cancellation took place beyond 30th?November 2022, the time limit to issue credit note under GST had elapsed. Thus, the GST amount cannot be adjusted by XYZ. As per the GST law, the only option in case of excess payment of tax, is to adjust the excess paid amount or to take a refund of the tax paid.
Recommendations pursuant to the 48th?GST Council Meeting
The process for refund of excess tax paid is cumbersome and involves several procedures under GST law. It was being observed that in such situations, many real estate companies were taking the refund of excess tax paid, but not passing on the benefit of this refund to the buyers. As a result, many buyers were facing huge burden on account of the GST paid by them to the builders for the under construction units.
The GST Council, pursuant to the 48th?Meeting held on 17th?December 2022 in virtual mode, recommended amendment in CGST Rules, 2017, along with issuance of a circular, to prescribe the procedure for filing application of refund by the unregistered buyers in such cases. This would be a welcome relief for persons whose contracts for under construction properties are cancelled for any reason. Both the notification and Circular are yet to be issued, as at the date of publishing of this article.
That’s it from us for today! Stay Tuned for more updates from?Taxmann.com.
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