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1. 1 Presented by: CA Payal (Prerana) Shah In National Conference on Indirect Taxes organised by ICAI hosted by Indore Branch of CIRC of ICAI On: 03.06.2022 Builders, Developers, Contractors GST and

2. 03/06/2022 CA Payal (Prerana) Shah 2

3. Legal background of GST viz-a-viz builders/developers GST levied on under-construction development services vide Section 7 (1) read with Entry 5 (b) of Schedule II of CGST Act 2017 with effect from 1 July 2017 Sale of land and building subject to Entry 5 (b) of Schedule II – Not a supply of goods or services as per Schedule III Entry 5 (b) of Schedule II: 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 Retrospective amendment to introduce Section 7 (1A) of CGST Act 2017 vide CGST (Amendment) Act 2018 with effect from 1 July 2017 and therefore, only when a transaction is supply, classification of such supply is determined as supply of goods or supply of services vide Schedule II Rate notification (12/2017-CGST (R)) to provide rates for works contract as well as construction services under HSN (SAC) 9954 03/06/2022 CA Payal (Prerana) Shah 3

4. 6/8/2019 CA Prerana Shah 4 PARADIGM SHIFT OF GST ON REAL ESTATE WEF 01.04.2019 ONGOING PROJECTS (OPTION NOT EXERCISED)/ NEW PROJECTS WITHOUT ITC Note: The rates are effective rates after 1/3 rd deduction for land

5. NEW SCHEME WEF 01.04.2019 IS OPTIONAL? 03/06/2022 CA Payal (Prerana) Shah 5

6. IS NEW SCHEME OPTIONAL?... Do builders have an option to not to go for 1% or 5% if is not beneficial to them? As per FAQ no. 23 on Real estate dated 07.05.2019 03/06/2022 CA Jayesh Gogri 6 Sr. No Question Answer 23. Whether the option to pay tax at the applicable effective rate of 12% or 8% (with ITC) is available to the Promoter in respect of the New Project, which has been commenced on or after 1 st April 2019? No, there is no option to pay tax at the effective rate of 12% or 8% with ITC on construction of residential apartments in projects which commences on or after 01-04-2019. Can Government mandate rate consisting of conditions? If yes, w hat if a person fails to satisfy conditions for availing GST rate of 1%/5%? Person cannot opt for 1%/5% Does notification provide for any other rate? If not, will levy fail in absence of rate?

7. …IS NEW SCHEME OPTIONAL?... Larsen & Toubro Ltd. vs. State of Karnataka 2014 (303) E. L. T. 3 (S.C.) – Construction is a specie of works contract Section 2 Definitions In this Act, unless the context otherwise requires,–– (119) “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 03/06/2022 CA Jayesh Gogri 7

8. …IS NEW SCHEME OPTIONAL?... Notification no. 3/2019-CT(R) dated 29.03.2019 – Rate entry for works contract 03/06/2022 CA Jayesh Gogri 8 Sr. No Question Rate Condition 3(va) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, other than that covered by items ( i ), ( ia ), ( ib ), ( ic ), (id), ( ie ) and (if) above, supplied by way of construction , erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of affordable residential apartments covered by sub- clause (a) of clause (xvi) of paragraph 4 below, in a project which commences on or after 1st April, 2019, or in an ongoing project in respect of which the promoter has not exercised option to pay central tax on construction of apartments at the rates as specified for item ( ie ) or (if), as the case may be, in the manner prescribed therein, 6 Provided that carpet area ….. at the rate prescribed therein

9. …IS NEW SCHEME OPTIONAL? Residuary entry notification no. 11/2017-CT(R) dated 28.06.2017 03/06/2022 CA Jayesh Gogri 9 Sr. No Description Rate Condition 3(xii) (xii) Construction services other than ( i ), ( ia ), ( ib ), ( ic ), (id) , ( ie ), (if), (iii), (iv), (v), (va), (vi), (vii), (viii), (ix), (x) and (xi) above. Explanation. - For the removal of doubt, it is hereby clarified that, supply by way of services specified at items ( i ), ( ia ), ( ib ), ( ic ), (id), ( ie ) and (if) in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry 9 - Seems that there is no rate entry if conditions are not satisfied

10. COLLECTIBILITY OF GST IF AGREEMENTS ARE SILENT 03/06/2022 CA Payal (Prerana) Shah 10

11. Case Study ABC LLP, a developer, had executed a Development Agreement with XYZ Land owner As per the terms of agreement, ABC LLP was responsible to undertake all the costs and expenses related to redevelopment. ABC LLP agreed to provide units free of cost to XYZ Land owner However, the Development Agreement was silent on applicability of GST on free units provided to XYZ Land Owner Now, ABC LLP has issued a demand note to XYZ Land Owner and demanded GST from XYZ Land Owner. However, XYZ Land Owner is denying to pay GST to ABC LLP One of the partner of ABC LLP is of the view that GST is an indirect tax wherein the supplier is allowed to charge and collect GST from recipient 03/06/2022 CA Payal (Prerana) Shah 11

12. Collectability of GST if agreements are silent BENGAL SHRACHI HOUSING DEVELOPMENT LIMITED 2017 (6) G.S.T.L. 356 (S.C.) 21. It is thus clear that the judgments of this Court which referred to service tax being an indirect tax have reference only to service tax being an indirect tax in economic theory and not constitutional law. The fact that service tax may not, in given circumstances, be passed on by the service provider to the recipient of the service would not, therefore, make such tax any the less a service tax. It is important to bear this in mind, as the main prop of Shri Jaideep Gupta’s argument is that service tax being an indirect tax which must be passed on by virtue of the judgments of this Court, would make the recipient of the service the person on whom the tax is primarily leviable. 03/06/2022 CA Payal (Prerana) Shah 12

13. BUYING AND SELLING PLOT OF LAND 03/06/2022 CA Payal (Prerana) Shah 13

14. GST ON SALE OF PLOT OF LAND??? Mr. Zamindaar is owner of plot of land He has developed his plot by carrying out primary activities like drainage line, water line, electricity line, land levelling, street lights, etc. Is GST applicable on sale of such developed plot of land? 03/06/2022 CA Payal (Prerana) Shah 14

15. GST ON SALE OF PLOT OF LAND??? Schedule III “5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.” M/s. Shree Dipesh Anilkumar Naik 2020 (6) TMI 448 – AAR (Guj.) 12. In present case, we also find that the applicant is the owner of the land, who develops the land with an infrastructure such as Drainage line, Water line, Electricity line, Land levelling etc . …. His sales price includes the cost of the land as well as the cost of common amenities, Drainage line, Water line, Electricity line, Land levelling charges, etc. on a proportionate basis…… 14. We find that the activity of the sale of developed plots would be covered under the clause ‘construction of a complex intended for sale to a buyer ’. Thus, the said activity is covered under ‘construction services’ and GST is payable on the sale of developed plots in terms of CGST Act / Rules and relevant Notification issued time to time 03/06/2022 CA Payal (Prerana) Shah 15

16. GST ON SALE OF PLOT OF LAND??? M/s Vidit Builders, Jabalpur ((AAR Madhya Pradesh dated 06.01.2020) In respect of Joint Development Agreement AAR Madhya Pradesh held It is not the land owner , it is the developer who will be responsible for paying the GST on the amount of his share The activities of the developer will be taxed as the services of Work Contractors 03/06/2022 CA Payal (Prerana) Shah 16

17. SELLING DEVELOPMENT RIGHTS 03/06/2022 CA Payal (Prerana) Shah 17

18. TAXABILITY OF DEVELOPMENT RIGHTS… Notifications that hint taxability of TDR/FSI in indirect manner Notification 4/2019-CT(R) dated 29.03.2019 Exempts TDR/FSI subject to following conditions: Transfer of TDR/FSI takes place on or after 01.04.2019 TDR/FSI used for the construction of residential apartment Such residential apartments are booked prior to first occupation or date of completion certificate Notification 5/2019-CT(R) dated 29.03.2019 GST payable on RCM by Developer on supply of service by way of transfer of development rights/FSI Notification 6/2019-CT(R) dated 29.03.2019 GST on TDR/FSI (except commercial portion for monetary consideration) to be paid on or before the date of completion certificate or first occupation, whichever is earlier to the extent of unsold flats 03/06/2022 CA Payal (Prerana) Shah 18

19. TAXABILITY OF DEVELOPMENT RIGHTS… 03/06/2022 CA Payal (Prerana) Shah 19

20. … TAXABILITY OF DEVELOPMENT RIGHTS… Schedule III Activities or transaction which shall be treated neither as a supply of goods nor a supply of services 5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building DLF Commercial Projects Corporations 2019 (5) TMI 1299 - Cestat Chandigarh Transferable Development Right is a immovable property 03/06/2022 CA Payal (Prerana) Shah 20

21. … TAXABILITY OF DEVELOPMENT RIGHTS… Section 2(14) of the Maharashtra Regional and Town Planning Act,1966 defines “land” to include benefits to arise out of land , and things attached to the earth or permanently fastened to anything attached to the earth Section 3(p) The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 defines “land” to include benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth Supreme court in case of Safiya Bee vs Mohd . Vajanath Hussain [2011 2 SCC 94] stated that land includes right in or over land and benefits arising out of land Constitution of India – Entry 18, List 2 Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization” 03/06/2022 CA Payal (Prerana) Shah 21

22. IS GST LEVIABLE ON FREE UNITS? 03/06/2022 CA Payal (Prerana) Shah 22

23. CASE STUDY Laxmichand executed a Development Agreement with Nirmit Pvt Ltd on 17.02.2020 for redevelopment of plot and providing free units As per the terms of Development Agreement: Nirmit Pvt Ltd agreed to provide newly constructed units free of cost to Laxmichand Society agreed to allow Nirmit Pvt Ltd to utilise full FSI by paying applicable premium to Municipal Corporation and load TDR from open market Nirmit Pvt Ltd will incur all the cost and expenses for redevelopment Nirmit Pvt Ltd can sell the additional units to various buyers and earn revenue from it Is GST leviable on units given free of cost to Society? 03/06/2022 CA Payal (Prerana) Shah 23

24. IS GST LEVIABLE ON FREE UNITS?... Notification no. 03/2019 CT(R) dated 29.03.2019 Provided also that where a registered person (landowner- promoter) who transfers development right or FSI (including additional FSI) to a promoter (developer- promoter) against consideration, wholly or partly, in the form of construction of apartments, - ( i ) the developer- promoter shall pay tax on supply of construction of apartments to the landowner- promoter, and Extract of FAQ dated 14.05.2019 03/06/2022 CA Payal (Prerana) Shah 24 Sr. No Question Answer 9. In case of redevelopment or slum rehabilitation project, (new or an existing project) whether the constructed units supplied to existing occupiers by the developer free of monetary consideration are taxable? .... Yes, units supplied free of cost also attract GST as their consideration is not money but TDR/ FSI or rights relatable to land on which construction takes place …

25. …IS GST LEVIABLE ON FREE UNITS?... Consideration – Is there any consideration? Definition of consideration (31) “consideration” in relation to the supply of goods or services or both includes–– (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply 03/06/2022 CA Payal (Prerana) Shah 25

26. ….IS GST LEVIABLE ON FREE UNITS?... Vasantha Green Projects 2019 (20) G.S.T.L. 568 (Tri. - Hyd.) – Pending in SC Para 7. It has to be construed, in the above factual matrix, that construction of villas for the landowners is a consideration towards the land on which villas were constructed and offered for sale to prospective customers. It would not be a rocket science to understand that the value which has been arrived at for sale of villas to prospective customers, would include the consideration paid or payable for acquisition of land . It is not a case that appellant has not discharged the service tax liability on the value received for the villas from prospective customers. In our view, if the consideration towards the acquisition of the land has been included in the value of the villas sold to prospective customers and appropriate service tax liability has been discharged the same value, it cannot be again made liable to service tax under the premise that sale value of the villas given to land owners is a consideration on which service tax liability was not discharged 03/06/2022 CA Payal (Prerana) Shah 26

27. ….IS GST LEVIABLE ON FREE UNITS?... Ethics Infra 2022 (1) TMI 1015 (Tri. - Mum.) 4.8 In the present case the respondent has discharged the complete service tax liability on the gross amount received by him for providing the taxable services. Once he have discharged the tax liability on the gross consideration received by him by the sale of flats to new buyers , the demand of service tax for the flats handed over to the existing members of the societies without any consideration cannot be sustained . 03/06/2022 CA Payal (Prerana) Shah 27

28. CAN NOTIFICATIONS PRESCRIBE VALUE? 03/06/2022 CA Payal (Prerana) Shah 28

29. CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY?... Notification no. 3/2019-CTR dated 29.03.2019 2A. Where a registered person transfers development right or FSI (including additional FSI) to a promoter against consideration, wholly or partly, in the form of construction of apartments, the value of construction service in respect of such apartments shall be deemed to be equal to the Total Amount charged for similar apartments in the project from the independent buyers, other than the person transferring the development right or FSI (including additional FSI), nearest to the date on which such development right or FSI (including additional FSI) is transferred to the promoter, less the value of transfer of land, if any, as prescribed in paragraph 2 above. Notification no. 3/2019-CTR dated 29.03.2019 takes power from section 15(5) 03/06/2022 CA Payal (Prerana) Shah 29

30. …CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY?... Section 15. Value of supply (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed (5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed Definition of term “prescribed” (87) “prescribed” means prescribed by rules made under this Act on the recommendations of the Council 03/06/2022 CA Payal (Prerana) Shah 30

31. …CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY?... Notification no. 4/2019-CTR dated 29.03.2019 also prescribes value . However, the said notification does not take power from Section 15 of CGST Act 1A. Value of supply of service by way of transfer of development rights or FSI by a person to the promoter against consideration in the form of residential or commercial apartments shall be deemed to be equal to the value of similar apartments charged by the promoter from the independent buyers nearest to the date on which such development rights or FSI is transferred to the promoter 1B. Value of portion of residential or commercial apartments remaining un-booked on the date of issuance of completion certificate or first occupation, as the case may be, shall be deemed to be equal to the value of similar apartments charged by the promoter nearest to the date of issuance of completion certificate or first occupation , as the case may be 03/06/2022 CA Payal (Prerana) Shah 31

32. …CAN NOTIFICATION PRESCRIBE VALUE OF SUPPLY? Notification no. 4/2019-CTR dated 29.03.2019 – Opening para In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No.12/2017- Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section ( i ), vide number G.S.R. 691(E), dated the 28th June, 2017, namely: 03/06/2022 CA Payal (Prerana) Shah 32

33. VALUE OF LAND? 03/06/2022 CA Payal (Prerana) Shah 33

34. VALUE OF LAND IN TOTAL VALUE OF SUPPLY… ABC Pvt Ltd had sold a flat 1000 sq. ft. of flat for Rs. 2,00,00,000 (i.e. Rs. 20,000 per sq. ft.) in its newly started project The rate of Rs. 20,000 per sq. ft. consists of the following two components: Rs. 16,000 for land Rs. 4,000 for construction However, the above two components were not separately recorded in the agreement and a single lump sum price of Rs. 2 crs was charged How much GST is payable on the flat sold by ABC Pvt Ltd? 03/06/2022 CA Payal (Prerana) Shah 34

35. VALUE OF LAND IN TOTAL VALUE OF SUPPLY… Deemed value of land – Notification 11/2017- CT(R) dated 28.06.2017 as amended by notification no. 3/2019 CT(R) dated 29.03.2019 Entries of construction services provide as under: (Provision of Paragraph 2 of this notification shall apply for valuation of this service) 2. In case of supply of service specified in column (3), in item ( i ); ( i ) ( ia ), ( ib ), ( ic ), (id), ( ie ) and  (if ) against serial number 3 of the Table above, involving transfer of land or undivided share of land, as the case may be, the value of such supply shall be equivalent to the total amount charged for such supply less the value of transfer of land or undivided share of land, as the case may be, and the value of such transfer of land or undivided share of land, as the case may be, in such supply shall be deemed to be one third of the total amount charged for such supply. 03/06/2022 CA Payal (Prerana) Shah 35

36. …VALUE OF LAND IN TOTAL VALUE OF SUPPLY… MUNJAAL MANISHBHAI BHATT 2022 (5) TMI 397 - GUJARAT HIGH COURT 122. In the result, the impugned Paragpragh 2 of the Notification No. 11/2017-Central Tax (Rate) dated 28.6.2017 and identical notification under the Gujarat Goods and Services Tax Act, 2017, which provide for a mandatory fixed rate of deduction of 1/3rd of total consideration towards the value of land is ultra-vires the provisions as well as the scheme of the GST Acts. Application of such mandatory uniform rate of deduction is discriminatory, arbitrary and violative of Article 14 of the Constitution of India . 123. While we so conclude, the question is whether the impugned paragraph 2 needs to be struck down or the same can be saved by reading it down. In our considered view, while maintaining the mandatory deduction of 1/3rd for value of land is not sustainable in cases where the value of land is clearly ascertainable or where the value of construction service can be derived with the aid of valuation rules, such deduction can be permitted at the option of a taxable person particularly in cases where the value of land or undivided share of land is not ascertainable . 03/06/2022 CA Payal (Prerana) Shah 36

37. …VALUE OF LAND IN TOTAL VALUE OF SUPPLY… As per section 15(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply Schedule III Activities or transactions which shall be treated neither as a supply of goods nor a supply of services Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. 03/06/2022 CA Payal (Prerana) Shah 37

38. …VALUE OF LAND IN TOTAL VALUE OF SUPPLY… Commissioner of Service tax vs. Bhayana Builders (P) Ltd. 2018 (10) GSTL 118 (SC) 18. In the first instance, no material is produced before us to justify that aforesaid basis of the formula was adopted while issuing the notification. In the absence of any such material, it would be anybody’s guess as to what went in the mind of the Central Government in issuing these notifications and prescribing the service tax to be calculated on a value which is equivalent to 33% of the gross amount 03/06/2022 CA Payal (Prerana) Shah 38

39. … VALUE OF LAND IN TOTAL VALUE OF SUPPLY… As per section 15(4) of CGST Act (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. Rule 27 of CGST Rules prescribes value of supply as ‘open market value’ in a situation where consideration is not wholly in money As per explanation to Rule 35 of CGST Rules “(a) "open market value" of a supply of goods or services or both means the full value in money, excluding the integrated tax, central tax, State tax, Union territory tax and the cess payable by a person in a transaction, where the supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such supply at the same time when the supply being valued is made” Stamp Duty value may be taken as open market value as the same is also adopted by State Government 03/06/2022 CA Payal (Prerana) Shah 39

40. Whether value of land notification can be retrospectively amended? Govind Saran Ganga Saran Vs. CST [1985] 155 ITR 144 (SC) The taxable event, the person liable to pay the tax, the rate of tax and the value on which the tax is payable are the essential ingredients of a taxation statute and they have to be clearly and unambiguously conveyed. If there is any ambiguity regarding any of these ingredients in a taxation statute, there is no tax in law Larsen and Toubro Ltd [2015] 60 taxmann.com 354 (SC) Works contract cannot be taxed prior to 01.06.2007 in absence of valuation Rule like Rule 2A of the Service Tax (Determination of Value) Rules, 2006 Suresh Kumar Bansal [2016] 70 taxmann.com 55 (Delhi) pending in SC Purchase of an under-construction flat was held to be not leviable to tax in absence of a valuation mechanism to deduct the value towards land Subsequent to this decision, Rule 2A of the said rule was amended retrospectively so as to provide for a valuation mechanism for deduction of land 03/06/2022 CA Payal (Prerana) Shah 40

41. REVENUE SHARING AGREEMENT 03/06/2022 CA Payal (Prerana) Shah 41

42. REVENUE SHARING AGREEMENT… M/S. MAARQ SPACES PRIVATE LIMITED Revenue sharing agreement for development of land into residential layout 25% to Maarq 75% To land owner Land Owner Revenue from sale of developed plots shared between Maarq Spaces and Landowner Queries: Whether the activity of development and sale of land attracts tax under GST? the answer to the above question is yes, for the purpose of taxable value, whether provision of Rule 31 can be made applicable in ascertaining the value of land and supply of service? M/S. MAARQ SPACES PRIVATE LIMITED 2020 (5) TMI 415 – APP. AAR KAR. Maarq to obtain required licences, sanctions, consent, permissions, NOC and procure sanction plan 03/06/2022 CA Payal (Prerana) Shah 42

43. …REVENUE SHARING AGREEMENT…. Pronounced by App. AAR 15. The Appellant has also contended that there is no supply of any service by him to the landowners; that the JDA has been executed with a mutual agreement by both the parties to jointly develop the land and share the revenues out of the sale of land. In real estate transactions involving plotted development, one party owns the land and another party has the expertise to develop the land. The two parties come together with the common intention of developing the land and sharing the revenue accruing for the sale of the developed plots in the land. However, the landowners give the rights of using the land to the developer in exchange for which, the developer gives the service of developing the land of the owners. While the Joint Development agreement is entered into for the two parties to jointly reap the benefits of the sale of the land to customers, there is a clear rendering of a service by the developer to the landowner in developing the land which belongs to the landowner. Therefore, we hold that the activity of developing the land is a supply of service by the Appellant. Rule 31 applies in the instant case and the value of the supply is equal to the total amount received by the applicant, which is equal to 25% of the market value of each plot 03/06/2022 CA Payal (Prerana) Shah 43

44. … REVENUE SHARING AGREEMENT… Schedule III “5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.” 03/06/2022 CA Payal (Prerana) Shah 44

45. …REVENUE SHARING AGREEMENT Consideration is received by both the parties viz. landowner as well as developer only when plots are sold to ultimate buyer Merely an appropriation of revenue What if plot is never sold? Developer may not earn anything Therefore, development rights may not be treated as consideration. There needs to be some element of benefit for supplying service which can be materialised Example: If seven horses are pulling the cart, the horses are not supplying services to each other but supplying it to the person riding cart 03/06/2022 CA Payal (Prerana) Shah 45

46. ITC ON CONSTRUCTION & WORKS CONTRACT 03/06/2022 CA Payal (Prerana) Shah 46

47. ITC ON CONSTRUCTION OF IMMOVABLE PROPERTY USED FOR BUSINESS… Mr. Richie is engaged in the business of renting commercial properties. He wishes to construct a shopping mall and rent the mall after construction. Can Mr. Richie claim ITC of inputs used in construction of such shopping mall? 03/06/2022 CA Payal (Prerana) Shah 47

48. … ITC ON CONSTRUCTION OF IMMOVABLE PROPERTY USED FOR BUSINESS… S. 17(5) of 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:- (c) 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; (d) 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. Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation , to the said immovable property; 03/06/2022 CA Payal (Prerana) Shah 48

49. … ITC ON CONSTRUCTION OF IMMOVABLE PROPERTY USED FOR BUSINESS Safari Retreats Pvt. Ltd. 2019 (25) GSTL 341 (Orissa. HC) dated 17.04.2019 [ further challenged in Supreme Court 2020 (32) GSTL J120 (SC)] 20. In that view of the matter, in our considered opinion the provision of Section 17(5)(d) is to be read down and the narrow restriction as imposed, reading of the provision by the Department, is not required to be accepted, inasmuch as keeping in mind the language used in (1999) 2 SCC 361= 1999 (106) E.L.T. 3 (S.C.) (supra), the very purpose of the credit is to give benefit to the assessee. In that view of the matter, if the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, it is required to have the input credit on the GST , which is required to pay under Section 17(5)(d) of the CGST Act. 03/06/2022 CA Payal (Prerana) Shah 49

50. CANCELLATION OF UNIT BOOKING 03/06/2022 CA Payal (Prerana) Shah 50

51. CANCELLATION OF UNIT BOOKING… Mr. Raman had booked a Unit in an under-construction project of Raghav Builders in the month of Jun’20. In Apr’21, he cancelled the Unit due to cash crunch. Raghav builders deducted Rs. 50,000 as cancellation charges and refunded the entire amount to Mr. Raman. In this situation the following queries arise: Is GST applicable on Unit cancellation charges? What about GST already paid by Raghav Builders on construction services? Will you answer change, if Unit was cancelled in Apr’22 instead of Apr’21? 03/06/2022 CA Payal (Prerana) Shah 51

52. …CANCELLATION OF UNIT BOOKING… S. 34 of CGST Act – Credit and Debit Notes (1) Where one or more tax invoices have 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 one or more credit notes for supplies made in a financial year containing such particulars as may be prescribed. (2) 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: Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person. 03/06/2022 CA Payal (Prerana) Shah 52

53. … CANCELLATION OF UNIT BOOKING… Clarification by circular no. 137/07/2020-GST dated 13.04.2020 03/06/2022 CA Payal (Prerana) Shah 53 Sr. No Issue Clarification 1. An advance is received by a supplier for a Service contract which subsequently got cancelled. The supplier has issued the invoice before supply of service and paid the GST thereon. Whether he can claim refund of tax paid or is he required to adjust his tax liability in his returns ? In case GST is paid by the supplier on advances received for a future event which got cancelled subsequently and for which invoice is issued before supply of service, the supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act . There is no need to file a separate refund claim. However, in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “ Excess payment of tax , if any” through FORM GST RFD-01 .

54. … CANCELLATION OF UNIT BOOKING… Clarification by circular no. 137/07/2020-GST dated 13.04.2020 03/06/2022 CA Payal (Prerana) Shah 54 Sr. No Issue Clarification 2. An advance is received by a supplier for a Service contract which got cancelled subsequently. The supplier has issued receipt voucher and paid the GST on such advance received. Whether he can claim refund of tax paid on advance or he is required to adjust his tax liability in his returns? In case GST is paid by the supplier on advances received for an event which got cancelled subsequently and for which no invoice has been issued in terms of section 31 (2) of the CGST Act, he is required to issue a “refund voucher” in terms of section 31 (3) (e) of the CGST Act read with rule 51 of the CGST Rules. The taxpayer can apply for refund of GST paid on such advances by filing FORM GST RFD-01under the category “Refund of excess payment of tax”.

55. … CANCELLATION OF UNIT BOOKING… Clarification by circular no. 137/07/2020-GST dated 13.04.2020 03/06/2022 CA Payal (Prerana) Shah 55 Sr. No Issue Clarification 3. Goods supplied by a supplier under cover of a tax invoice are returned by the recipient. Whether he can claim refund of tax paid or is he required to adjust his tax liability in his returns ? In such a case where the goods supplied by a supplier are returned by the recipient and where tax invoice had been issued , the supplier is required to issue a “ credit note ” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim in such a case. However, in cases where there is no output liability against which a credit note can be adjusted , registered persons may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01.

56. …CANCELLATION OF UNIT BOOKING Mafatlal Industries v. Union of India 1997 (89) E.L.T. 247 (SC) “So long as Article 265 is there, the State cannot be permitted to levy any tax without authority of law and if any tax has been collected unlawfully that must be restored to the person from whom it was collected. If the tax has been collected from any person unlawfully, it is the taxpayer’s money which is in unlawful possession of the State. The State has a constitutional obligation to give back the money to the tax-payer. An act done in violation of constitutional mandate is void and no right flows out of that void act to the State. The State is in unlawful possession of the tax-payer’s property. The State cannot retain it on any equitable ground nor can it give it to any other person out of any supposed equitable consideration.” 03/06/2022 CA Payal (Prerana) Shah 56

57. RATE OF GST ON CAR PARKING, DEVELOPMENT CHARGES, ETC. 03/06/2022 CA Payal (Prerana) Shah 57

58. Case Study Realcon Private Limited is a renowned builder in Mumbai and constructs high rise towers Realcon Private Limited had sold a flat for Rs. 5 crores which includes the following: 03/06/2022 CA Payal (Prerana) Shah 58 Particulars Amount (Rs.) Value of flat 4,00,00,000 Floor rise charges 50,00,000 Car Parking 20,00,000 Development Charges 15,00,000 Advance Maintenance 14,00,000 Documentation charges 50,000 Club charges 50,000

59. GST on related charges… Section 8. Tax liability on composite and mixed supplies.- The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:- (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and (b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. 03/06/2022 CA Payal (Prerana) Shah 59

60. …GST on related charges Section 2. Definitions.- (30) "composite supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; Illustration.- Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply; (74) "mixed supply" means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. Illustration.- A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately; 03/06/2022 CA Payal (Prerana) Shah 60

61. COMPOSITE SUPPLY – AS PER SUPREME COURT UNION OF INDIA & ANR. VERSUS M/S MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR 2022 (5) TMI 968 - SUPREME COURT 143 The provisions of composite supply in the CGST Act (and the IGST Act) play a specific role in the levy of GST. The idea of introducing ‘composite supply’ was to ensure that various elements of a transaction are not dissected and the levy is imposed on the bundle of supplies altogether. This finds specific mention in the illustration provided under Section 2(30) of CGST Act, where the principal supply is that of goods. Thus, the intent of the Parliament was that a transaction which includes different aspects of supply of goods or services and which are naturally bundled together, must be taxed as a composite supply. 03/06/2022 CA Payal (Prerana) Shah 61

62. RCM 03/06/2022 CA Payal (Prerana) Shah 62

63. TAXABILITY OF GOVERNMENT FUNCTIONS… In some cases, the Department is asking the builder to pay GST under RCM even on various premia, fees, etc. paid to BMC, MHADA etc. Also, ITC is not available to builders for construction of residential apartments What can be the recourse? 03/06/2022 CA Payal (Prerana) Shah 63

64. TAXABILITY OF GOVERNMENT FUNCTIONS… Firstly, is it a ‘supply’ to attract GST? Government may think it is, as they have to pass on the bucket of GST liability to end consumers Further as per section 7(2)(b) of CGST Act, 2017 read with notification 14/2017-CT(R) dated 28.06.2017 “…the following activities or transactions undertaken by the Central Government or State Government or Union territory or any local authority in which they are engaged as public authority, shall be treated neither as a supply of goods nor a supply of service , namely:- “Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution or to a Municipality under article 243W of the Constitution .” 03/06/2022 CA Payal (Prerana) Shah 64

65. …TAXABILITY OF GOVERNMENT FUNCTIONS As per Bangalore Tribunal in case of Karnataka Industrial Areas Development Board (KIADB) (2020 117 taxmann.com 69) “we are of the considered opinion that the appellant is a statutory body discharging the statutory function as per the statute KIAD Act, 1966 and hence are not liable to pay service tax in view of the ratios of the various decisions cited supra” 03/06/2022 CA Payal (Prerana) Shah 65

66. 03/06/2022 CA Payal (Prerana) Shah 66

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