GST on Transfer of Property under Tripartite Agreement

[CASanjay Kumawat]

(Continue from Part-I)

STAGE III: SALE/TRANSFER OF FLATS BY THE LANDOWNER

1. Taxability of transfer/sale of flats by the landowner

In normal parlance, in tri-partite agreements, the under-construction flats are transferred by the builder to the land owner. The tax on these flats is paid as and when the pre-defined level of construction is reached. Thus, the builder pays the tax on these flats just like he pays the tax on the flats sold to independent buyers. However, if the land owner further sells these under construction flats, he shall also be liable to pay the tax as it will be treated as an independent transaction.

As per Clause 5(b) to Schedule II to CGST Act, 2017 read with Section 7 of the CGST Act, 2017, reads as follows:-

"(b) 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."

Accordingly, the construction of complex, building or civil structure or a part thereof for sale to buyer except where the entire consideration has been received after issuance of completion certificate or after its first occupation whichever is earlier. Therefore, the above language is clear and it does not distinguish between the actual service provider and one who actually sales. The only thing to be taken care of is that the entire consideration should not be received after completion certificate or after its first occupation, whichever is earlier. Therefore, in such cases, the land owner is also required to take the registration under GST and pay the tax accordingly.

In other case, where entire consideration has been received after completion certificate or the occupancy certificate, whichever is earlier, and then in that case GST shall not be applicable in accordance with Clause 5 of the Schedule-III of the CGST Act, 2017.

STAGE IV: SALE/TRANSFER OF FLATS BY THE BUILDER/DEVELOPER

2. Taxability of transfer/sale of flats by the Builder/Developer

In case of builder/developer, same ratio shall apply as discussed in case of the sale of flats by the landowner. Accordingly, if builder sales under construction flats then it will be considered as supply of construction services in accordance with Clause 5(b) of the Schedule-II of the CGST Act, 2017, accordingly, GST will be applicable.

Alternatively, where entire consideration has been received after obtaining completion certificate or the first occupancy certificate, whichever is earlier, and then in that case GST shall not be applicable in accordance with Clause 5 of the Schedule-III of the CGST Act, 2017.

STAGE V: TIME OF SUPPLY

3. Relevant provisions for time of supply of services and goods under GST

As per section 13 of the CGST Act, 2017,- Time of supply of service,

1. The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section.
2. The time of supply of services shall be the earliest of the following dates, namely:-

1. the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or

2. the date of provision of service, if the invoice is not issued within the period prescribed under sub-section (2) of section 31 or the date of receipt of payment, whichever is earlier; or

3. the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply:

As per section 12 of the CGST Act, 2017,- Time of supply of goods,

(1) The liability to pay tax on goods shall arise at the time of supply, as determined in accordance with the provisions of this section.

(2) The time of supply of goods shall be the earlier of the following dates, namely:-

1. the date of issue of invoice by the supplier or the last date on which he is required, under sub-section (1) of section 31, to issue the invoice with respect to the supply; or
2. the date on which the supplier receives the payment with respect to the supply.

STAGE VI: VALUATION

4. Relevant provisions for Valuation under GST

As per section 15 of the Act, 2017, (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.

(2) The value of supply shall include–––

1. …………..
2. …………..
3. …………..
4. …………..
5. …………..

(3)The value of the supply shall not include any discount which is given––

  

1. …………..
2. …………..

 

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. Accordingly, as per Rule 27 of the CGST Act, 2017, Value of supply of goods or services where the consideration is not wholly in money where the supply of goods or services is for a consideration not wholly in money, the value of the supply shall,-

(a) be the open market value of such supply;

(b) if the open market value is not available under clause (a), be the sum total of consideration in money and any such further amount in money as is equivalent to the consideration not in money, if such amount is known at the time of supply;

(c) if the value of supply is not determinable under clause (a) or clause (b), be the value of supply of goods or services or both of like kind and quality;

(d) if the value is not determinable under clause (a) or clause (b) or clause (c), be the sum total of consideration in money and such further amount in money that is equivalent to consideration not in money as determined by the application of rule 30 or rule 31 in that order.

STAGE VII: INPUT TAX CREDIT

5. Relevant provisions for Input Tax Credit under GST

As per section 16 of the CGST Act, 2017,

(1) 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.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(b) he has received the goods or services or both.

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

(3)……………………

(4)……………………

As per section 17 of the CGST Act, 2017,

(1) Where the goods or services or both are used by the registered person partly

for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

(4)……………………………

(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

1. ……………….
2. ……………….
3. 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,

4. 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;

5. …………

6. …………..

7. ………….

8. ………….

1. …………

6. Taxability, Time of Supply, Valuation, Rate of Tax and eligibility of Input Tax Credit

1. Transfer of development rights(TDRs)/License to occupy land [from landowner’s view]:

1. Result in transfer of interest in land (TDRs result in Sale of land):
   1. Taxability: Not taxable under GST as per Clause 5 of the Schedule-III of the CGST Act, 2017 read with Section 7 of the CGST Act, 2017.

2. Input Tax Credit: Common credits need to be reversed as per section 17(2) & (3) of the CGST Act, 2017.

2. Result in non-transfer of interest in land (License to occupy land):
   1. Taxability: Taxable under GST as per Clause 2(a) of the Schedule-II of the CGST Act, 2017 read with Section 7 of the CGST Act, 2017.

2. Time of supply: Receipt of license amounts to advance receipt of consideration in kind. Hence, date when license are received will be time of supply.

3. Valuation: Value is to be determined as per Rule 27 of the CGST Rules, 2017.

4. Input Tax Credit: Input tax credit is available as per section 16 read with section 17 of the CGST Act, 2017.

5. Rate of Tax- 18%

2. Transfer of flats by the builder/developer to the landowner [from builder’s/developer’ view]

1. Taxability: GST is payable as it is supply of services as per clause 5(b) of the Schedule-II of the CGST Act, 2017 read with Section 7 of the CGST Act, 2017.

2. Time of supply for Continuous supply of service:

Clauses (a) and (b) of sub section (2) of section 13 are not applicable in this case, as neither any invoice is raised by the builder on landowner, nor any payment received. As per clause (c) ibid, the time at which the landowner shows the receipt of service in his books of accounts would be the time of supply.

If the landowner is retaining such flats for his own use, he would recognise the same as his capital assets and if the landowner is going to again sell such flats, he would recognise the same as his stock in trade. So, the builder would be liable to pay GST at the time, when the landowner recognizes the receipt of flats from the builder.

Practically, after entering into TDRs/Joint Development Agreements, various approvals are sought by the builder and after obtaining the requisite approvals, the flats meant for landowner and builder are identified and a Supplementary Agreement is entered into for this purpose. It can be said that upon entering into such Supplementary Agreement the landowner recognises the receipt of services in his books of accounts. Or sometimes, the landowner may recognises the receipt of services (flats) only at the time of handing over of flats to him. But from builder’s point of view it would be very difficult to conclude when the landowner recognises receipt of service. In this connection, a person may refer to the CBEC Instruction F.No.354/311/2015 Dt. 20.01.2016, wherein in the context of point of taxation under service tax it has been clarified as,

“Service tax is liable to be paid by the builder/developer on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument (e.g. allotment letter)”.

Accordingly, it can be concluded that the builder is liable to pay GST in respect of the services supplied to landowner, at the time of when the flats are identified for the landowner and communicated.

3. Valuation: Value is to be determined as per Rule 27 of the CGST Rules, 2017.

4. Input Tax Credit: Input tax credit is not available as it is restricted by section 17(5) (c) & (d) of the CGST Act, 2017.

5. Rate of Tax- 18%

3. Transfer of flats by the landowner to the customers

1. Entire consideration received after obtaining completion certificate or first occupancy certificate, whichever is earlier (Sale of flats):
   1. Taxability: Not taxable under GST as per Clause 5 of the Schedule-III of the CGST Act, 2017 read with Section 7 of the CGST Act, 2017.

2. Input Tax Credit: Common credits need to be reversed as per section 17(2) & (3) of the CGST Act, 2017.

2. Entire consideration received after obtaining completion certificate or first occupancy certificate, whichever is earlier (Construction services):

1. Taxability: GST is payable as it is supply of services as per clause 5(b) of the Schedule-II of the CGST Act, 2017 read with Section 7 of the CGST Act, 2017.

2. Time of supply for Continuous supply of service: On stage of completion of supply and date on which advance received.

3. Valuation: Value is to be determined as per section 15 of the CGST Act, 2017 read with Rule 27 of the CGST Rules, 2017, if required.

4. Input Tax Credit: Input tax credit is not available as it is restricted by section 17(5) (c) & (d) of the CGST Act, 2017.

5. Rate of Tax- 18% subject to paragraph 2 of the Notification No. 8/2017-Integrated Tax (Rate) dated 28.06.2017 (i.e., value of land is to be received where consideration includes the same)

4. Transfer of flats by the builder/developers

1. Entire consideration received after obtaining completion certificate or first occupancy certificate, whichever is earlier (Sale of flats):
   1. Taxability: Not taxable under GST as per Clause 5 of the Schedule-III of the CGST Act, 2017 read with Section 7 of the CGST Act, 2017.

2. Input Tax Credit: Common credits need to be reversed as per section 17(2) & (3) of the CGST Act, 2017.

2. Entire consideration received after obtaining completion certificate or first occupancy certificate, whichever is earlier (Construction services):

1. Taxability: GST is payable as it is supply of services as per clause 5(b) of the Schedule-II of the CGST Act, 2017 read with Section 7 of the CGST Act, 2017.

2. Time of supply for Continuous supply of service: On stage of completion of supply and date on which advance received.

3. Valuation: Value is to be determined as per section 15 of the CGST Act, 2017 read with Rule 27 of the CGST Rules, 2017, if required.

4. Input Tax Credit: Input tax credit is not available as it is restricted by section 17(5) (c) & (d) of the CGST Act, 2017.

5. Rate of Tax- 18% subject to paragraph 2 of the Notification No. 8/2017-Integrated Tax (Rate) dated 28.06.2017 (i.e., value of land is to be received where consideration includes the same).