Goods and Services Tax – GST – By: – CASanjay Kumawat – Dated:- 29-1-2018 Last Replied Date:- 6-3-2018 – Introduction One of the fundamental features of GST is seamless flow of input credit across the chain (from the manufacture of goods or provider of services till it is consumed) and across the Country. Input Tax Credit (ITC) is the backbone of the GST regime. GST is nothing but a value added tax on goods & services combined. In this article, an attempt is made to analyse one very important aspect of GST and its implication on the real estate industry (on builders). Taxability and exemption According to paragraph 5(b) of the Schedule-II of the CGST Act, 2017 read with section 7 of the CGST Act, 2017, 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
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subject to GST. Relevant provisions for Input Tax Credit Section 2(119) of the CGST Act, 2017: works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. Section 16(1) of the CGST Act, 2017: Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. Section 16(4) of the CGST Act, 2017: A registered person shall not be entitled to take input tax cre
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se charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. Section 17(5) of the CGST Act, 2017: Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:- ……………… ……………… works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. **************Rest are not relevant****************** Analysis of ITC provisions from the point of the Builder
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or services or both received by a builder for construction of an immovable property on his own account including when such goods or services or both are used in the course or furtherance of business. Section 17(2) read with section 17(3) of the CGST Act, 2017: Common inputs/input services/capital goods are used for supplying both works contract service and sale of constructed building, the eligibility of credit shall be restricted to the proportion attributable to works contract service/construction service and not on the land component. Accordingly, from the combined reading of the restrictions, as given in section 17, and time limit to avail credit, as given in section 16(4) of the CGST Act, 2017 as discussed above, following points can be drawn for the builders: The builder can t avail input tax credit till the time he finds a buyer otherwise it will result in constructing in his own account. It may be noted that credit shall be allowed only to the extent of outward taxable supply
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to reverse the entire credit attributable to those flats. Further, there is no mechanism has been provided under GST to reverse the credit availed during the previous years by the registered person, accordingly, the liability may be required to be discharged through cash by the builder. If the builder is constructing an office space for his business then in that case also he can t avail input tax credit on the input supply of goods and or services. Therefore, in view of the above discussion, it can be said that the main objective of GST, i.e., seamless flow of credit, is an illusion for the builders. Existing provisions of input tax credit will lead to various litigation and assessment related disputes. Further, management of the separate books of accounts for project wise/ credit wise/ flats wise/common utility wise will lead to new and biggest headache for the builders. If the Government does not relax any of the aforementioned restrictions, then the GST may burden the real-estate i
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We have different Opinion – The section 17(5) © as well as Section 17 (5) (d) does not apply to builder or developer. In the above clauses the input tax credit on works contract will not allowed, where construction is for immovable property. The construction has been explained as – construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property. The construction carried out by the builder does not fall under the above types, as given in the explanation. Moreover, the builder is doing the construction for inventory and not for capitalization. The builder can t avail input tax credit till the time he finds a buyer otherwise it will result in constructing in his own account. It may be noted that credit shall be allowed only to the extent of outward taxable supply or sale of flats to the respective buyer and not on the whole project. The builder can t take input tax credit after the time period pre
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