2025 (4) TMI 1004 - AAR - GST

Rate of GST to be paid by the applicant on the consideration for sale of residential premises to buyers - exercise of option exercised by the then-promoter of payment of GST at the effective rate of 12% with input tax credit or can the applicant discharge GST at the effective rate of 5% without input tax credit under the Notification no. 3/2019-Central Tax (Rate) dated 29.03.2019 for sale of residential premises of the Project and also for premises already sold by the then-promoter - discharge of GST @5% to the existing as well as new customers - one-time option given under Notification no. 3/2019-Central Tax (Rate) dated 29.03.2019 is qua the project or the promoter or not. HELD THAT - The Notification provides for one-time option to discharge GST for the Project and no provisions are found for change of option during the completion of the Project either to the Promoter or the new Promoter. The entry (if) of the Notification requires that the option should be exercised by the promoter. At the time when the option was to be exercised the obligation to exercise the option was with then-promoter and he has fulfilled the obligation. When the Applicant continues with the project through the conveyance deed in December 2022 the said condition has no applicability since the exercise of the option was one-time for the project. This interpretation that the one-time option has to be exercised vis- -vis the project and not vis- -vis the legal entity promoting the project is supported by the text of the Annexure to be filed at the time of exercising the option. On perusal of the said Annexure it is evident that the focus is on the project rather than the promoter of the project who is merely a confirming or verifying party to the exercise of the option. It is evident that the entire objective of the dual entries in the notification with conditions attached to each of them is to ensure that the entire project bears a uniform tax treatment throughout its life span. Such an objective seems achievable only if the activities carried out by the Applicant are eligible for classification under clause (if) of Entry No. 3 of Notification No. 11/2017-CTR dated 28.06.2017 - Further on a perusal of the definition it is evident that the definition of ongoing project is based on the nature of the project and not the promoter or the developer involved in the project. The applicant is bound by the option exercised by the then-promoter of payment of GST at the effective rate of 12% with input tax credit for sale of residential premises and also for premises already sold by the then promoter of the Project. The applicant can discharge the GST at the effective rate of 12% (after 1/3rd deduction for land cost) with input tax credit on the balance consideration received from the buyers to whom premises are already sold by the then promoter. Conclusion - i) Rate of GST to be paid by the applicant would be normal rate of tax i.e. 18% (9% CGST 9% SGST) with ITC . Applicable deduction for value of transfer IN of land or undivided share of land which is to be 1/3rd of the total amount charged will be available. ii) The applicant is bound by the option exercised by the then-promoter of payment of GST at the effective rate of 12% with input tax credit for sale of residential premises and also for premises already sold by the then promoter of the Project. The applicant is required to discharge the GST at the rate of 12% with input tax credit on the balance consideration received from the Buyers to whom premises are already sold by the then promoter. iii) The applicant cannot discharge GST @5% to the existing as well as new customers. iv) The applicant is bound to discharge GST at the effective rate of 12% with input tax credit on the consideration received from existing as well as new buyers since the option exercised is for the project. The applicant cannot opt for two different rates i.e. the applicant cannot discharge GST at the rate of 12% for balance consideration to be received from the buyers to whom premises are already sold by the then-promoter and at a different rate of 5% without input tax credit on the consideration for sale of premises to new buyers. The Applicant is required to discharge GST at the effective rate of 12% on consideration received from existing as well as new buyers. v) The one-time option given under Notification no. 3/2019-Central Tax (Rate) dated 29.03.2019 is qua-project.

Summary

The core legal questions considered in this matter pertain to the applicability and rate of Goods and Services Tax (GST) on the sale of residential premises by the applicant, who has taken over an ongoing real estate project from a previous promoter. Specifically, the issues are:

1. What is the applicable GST rate on the consideration for sale of residential premises to buyers by the applicant?

2. Whether the applicant is bound by the one-time option exercised by the then-promoter to pay GST at an effective rate of 12% with input tax credit (ITC), or whether the applicant can opt to pay GST at 5% without ITC under Notification no. 3/2019-Central Tax (Rate) dated 29.03.2019 for sales of premises, including those already sold by the then-promoter?

3. Whether the applicant can charge GST at 5% to both existing and new customers?

4. Whether the applicant can charge GST at 12% with ITC on the balance consideration from buyers to whom premises were already sold by the then-promoter, and at 5% without ITC on sales to new buyers, and how ITC would be available in such a scenario?

5. Whether the one-time option under Notification no. 3/2019-Central Tax (Rate) dated 29.03.2019 applies to the project as a whole or to the promoter as a legal entity?

Issue-wise Detailed Analysis

Issue 1: Applicable GST Rate on Sale of Residential Premises by the Applicant

The relevant legal framework includes the Central Goods and Services Tax Act, 2017 and Maharashtra Goods and Services Tax Act, 2017, along with Notification no. 3/2019-Central Tax (Rate) dated 29.03.2019, which amended the earlier Notification no. 11/2017-CT (Rate) dated 28.06.2017. This Notification prescribes different GST rates and conditions for ongoing real estate projects.

Key provisions include Sr. No. 3(ia) and 3(if) of the Notification, which provide for GST rates of 7.5% (3.75% CGST + 3.75% SGST) without ITC and 18% (9% CGST + 9% SGST) with ITC respectively, subject to a 1/3rd abatement for the value of land. The Notification defines an "ongoing project" based on commencement certificates, booking status, and completion status as of 31.03.2019.

The court examined the facts that the project commenced before 31.03.2019, completion certificate was not issued before that date, and some apartments were booked before 31.03.2019. These facts satisfy the definition of an ongoing project.

The then-promoter exercised the one-time option to pay GST at the normal rate (18% with ITC, effectively 12% after abatement) by filing Annexure IV before the prescribed deadline. The applicant took over the project subsequently.

The court found that the applicable GST rate for the applicant on sale of residential premises is the normal rate of 18% with ITC (effectively 12% after 1/3rd deduction for land value), consistent with the option exercised by the then-promoter.

Issue 2: Binding Nature of the Option Exercised by the Then-Promoter

The Notification provides for a one-time option to be exercised by the promoter of an ongoing project to pay GST either at the old rate with ITC or the concessional rate without ITC. The use of the definite article "the" promoter was interpreted to mean a single obligation to exercise the option for the entire project.

The court noted that the one-time option was duly exercised by the then-promoter within the prescribed timeline, and there is no provision for changing this option mid-project or upon change of promoter.

The applicant, having taken over the project, is bound by the option exercised by the then-promoter. This interpretation is supported by the text of the Annexure IV form, which focuses on the project rather than the promoter as a legal entity, and by the CBIC press release dated 19.03.2019 clarifying that the option is project-specific.

Issue 3: Applicability of Different GST Rates to Existing and New Customers

The applicant sought to know whether it could charge GST at 5% without ITC to new customers while charging 12% with ITC to existing customers. The court analyzed the Notification and relevant precedents, including an advance ruling by the Kerala Authority for Advance Rulings, which held that where a one-time option is exercised for an ongoing project, the entire project must bear uniform tax treatment.

The court concluded that the applicant cannot charge different GST rates for different buyers within the same project. The entire project must be taxed uniformly at the rate chosen by the promoter (here, 12% with ITC). Hence, the applicant cannot opt for 5% GST without ITC for new buyers.

Issue 4: Charging Different GST Rates on Balance Consideration and New Sales, and ITC Availability

The court addressed whether the applicant could charge 12% with ITC on balance consideration from existing buyers and 5% without ITC on sales to new buyers, and how ITC would be available in such a case.

The court found that the applicant is required to discharge GST at 12% with ITC on all sales, both existing and new, because the option exercised applies to the entire project. Charging different rates would be inconsistent with the statutory scheme.

Regarding ITC, since the applicant is bound by the option to pay GST at 12%, it is eligible to claim ITC on inputs and input services used for the project. However, the applicant did not take over the unutilized ITC from the then-promoter's books, which is a separate issue but does not affect the GST rate applicability.

Issue 5: Whether the One-Time Option is Qua the Project or the Promoter

The court analyzed the language of the Notification and supporting documents, including the Annexure IV form and CBIC press release, to determine whether the one-time option applies to the project as a whole or to the promoter as a legal entity.

The court held that the option is qua the project, not the promoter. This means that once the option is exercised for the project, it binds all promoters of that project for its duration, regardless of any change in promoter due to conveyance or transfer.

Significant Holdings

"The one-time option given under Notification no. 3/2019-Central Tax (Rate) dated 29.03.2019 is qua the project."

"The applicant is bound by the option exercised by the then-promoter of payment of GST at the effective rate of 12% with input tax credit for sale of residential premises and also for premises already sold by the then promoter of the Project."

"The applicant cannot opt for two different rates i.e. the applicant cannot discharge GST at the rate of 12% for balance consideration to be received from the buyers to whom premises are already sold by the then-promoter and at a different rate of 5% without input tax credit on the consideration for sale of premises to new buyers."

"The rate of GST to be paid by the applicant would be normal rate of tax i.e. 18% [(9% CGST + 9% SGST) with ITC]. Applicable deduction for value of transfer of land or undivided share of land, which is to be 1/3rd of the total amount charged will be available."

In conclusion, the Tribunal determined that the GST rate applicable to the applicant on sale of residential premises in the ongoing project is the normal rate of 18% with ITC (effectively 12% after land value abatement). The applicant is bound by the option exercised by the then-promoter and cannot choose a different GST rate for new sales. The one-time option is project-specific and not promoter-specific, ensuring uniform tax treatment throughout the project's lifecycle.