[Opinion] Unjustified levy of GST on composite supply of residential apartments

S.V.S. Raghavendra Rao & S.V.S.N. Sasidhar Rao – [2022] 142 taxmann.com 187 (Article)

Notification No. 03/2019-Central Tax (Rate) Dt. 29-03-2019

Construction of residential apartments for sale. (1) GST tax applicable rate of tax @ 12 % with input tax credit and without RCM on inwards till 01-04-2019 (2) GST tax applicable rate of tax @ 1 % OR @ 5 % without input tax credit in addition tothe payment of RCM on inwards after 01-04-2019.

(ie) Construction of an apartment in an ongoing project under any of the schemes specified in sub-item (b), sub-item (c), sub- item (d), sub-item (da) and sub-item (db) of item (iv); sub-item (b), sub-item (c), sub-item (d) and sub-item (da) of item (v); and sub-item (c) of item (vi), against serial number 3 of the Table, in respect of which the promoter has exercised option to pay central tax on construction of apartments at the rates as specified for this item.

Provided that in case of ongoing project, the registered person shall exercise one time option in the Form at Annexure IV to pay central tax on construction of apartments in a project at the rates as specified for item (ie) or (if), as the case may be, by the 10th of May, 2019; GST Rate of tax @ 12 % with input tax credit. (No RCM on inward supplies when received from unregistered)

Provided also that where the option is not exercised in Form at annexure IV by the 10th of May, 2019, option to pay tax at the rates as applicable to item (i) or (ia) or (ib) or (ic) or (id) above, as the case may be, shall be deemed to have been exercised;

So, the promoter who started projects prior to 01-04-2019 against payment of tax @12% is eligible for Input tax credit without any payment of RCM on Inwards supplies. And also has given him an option to continue even after 01-04-2019 if he opted to continue under the old scheme. (S. NO. 17 of FAQ Part II – F.No 354/32/2019 – TRU Dt 14-05-2019).

Defeasible rule for Residential projects started after 01-04-2019

Notification No 3/2019 Dt 29-03-2019

Provided also that where value of input and input services received from registered suppliers during the financial year (or part of the financial year till the date of issuance of completion certificate or first occupation of the project, whichever is earlier) falls short of the said threshold of 80 per cent., tax shall be paid by the promoter on value of input and input services comprising such shortfall at the rate of eighteen percent on reverse charge basis and all the provisions of the Central Goods and Services Tax Act, 2017 (12 of 2017) shall apply to him as if he is the person liable for paying the tax in relation to the supply of such goods or services or both; (as prescribed in notification No. 11/ 2017- Central Tax(Rate), dated28thJune,2017,atitems (i), (ia), (ib), (ic) and (id) against serial number 3 in the Table, as amended. – Notification 7/2019. Dt 29/03/2019)

Provided also that notwithstanding anything contained herein above, where cement is received from an unregistered person, the promoter shall pay tax on supply of such cement at the applicable rates on reverse charge basis and all the provisions of the Central Goods and Services Tax Act, 2017 (12 of 2017), shall apply to him as if he is the person liable for paying the tax in relation to such supply of cement; (as prescribed in notification No. 11/ 2017- Central Tax(Rate), dated 28thJune, 2017, at it ems(i),(ia),(ib),(ic) and (id)against serial number 3 in the Table as amended. – Notification 7/2019 Dt. 29/03/2019)

So as per Notification 3/2019 every promoter who started construction after 01-04-2019 for sale of apartments, should purchase at least 80% of Materials and Services from Registered Persons in Every financial year. And the promoter is liable to pay tax at 18% on reverse charge basis, on the short fall of 80% value of goods from unregistered suppliers. This condition will apply during the period of construction, till end.

And with regard to Cement, the promoter should compulsorily purchase entire cement from registered persons only. Otherwise the promoter has to pay tax @ 28% under RCM, on the total value from unregistered suppliers.

So, the levy of RCM on financial year basis is not justified, when the construction of project is more than a financial year.

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