#TaxmannPPT | Decoding GST for Real Estate Sector | Part 1

Decoding GST for Real Estate Sector – Part 1 By CA Tushar Aggarwal Co Founder – Tattvam Group Tattvam Advisors Copyright@

Relevant period Real estate sector – Indirect tax law Upto

1.7.2010 to

01.07.2010

30.06.2012

1.7.2012 to 30.06.2017

01.04.2019 onwards 1.07.2017 to

31.03.2019 Tattvam Advisors Copyright

Taxability of under construction units

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Real Estate Sector under GST

Section 7(1A)

Para 5(b) of Schedule II

Para 5 of Schedule III

•Where certain activities or transactions constitute a supply in accordance with the provisions of subsection (1), they shall be treated either as supply of goods or supply of services as referred to in 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, treated as supply of services

•Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. Service Tax Regime: Section 65B(44): Service definition excluded “Transfer Of Title In Immovable Property”

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Freehold vs Leasehold Freehold Land vs Leasehold Land

Freehold Superstructure sale

Leasehold

Superstructure sale

Superstructure Lease

? Tattvam Advisors Copyright

Meaning of First Occupation

Meaning of ‘First Occupancy’

General meaning of the word “first”.

General meaning of the word “occupation”.

a. Coming before all others in time or order.

a. The action of living in or using a building or other place

(a)b. (a person or thing) coming before all others in order, time, amount, quality, or importance.

(a)b. An occasion when someone moves into and starts using a building

(b)c. Preceding all others in time, order, or importance.

(b)c. The act or process of taking possession of a place or area.

(c)Cambridge English Dictionary, Merriam-Webster Dictionary & Oxford English Dictionary

(c)Cambridge English Dictionary, Merriam-Webster Dictionary & Oxford English Dictionary.

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Meaning of First Occupation

FAQ (Part I) No. 29 issued by CBIC vide Circular No. 354/32/2019TRU dated 7-5-2019

1.As per the said circular 'first occupation' means 'first occupation' of the project in accordance with laws, rules and regulations of State/Central Government or any other authority. 2.Hence, mere staying in the apartment before obtaining completion/occupancy certificate will not be considered as 'first occupation'.

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Meaning of First Occupation

Section 15-A(1) of The Uttar Pradesh Urban Planning And Development Act, 1973 provides that the person developing a project may send a notice in writing to the authority to obtain a completion certificate. Relevant excerpt is reproduced below,

1.The proviso to Section 15-A, further, provides that if completion certificate is not granted and refusal to grant it is not intimated within three months after receipt of the notice of completion, it shall be deemed that the Completion certificate has been granted by the Authority.

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Rate of Tax on commercial and residential units w.e.f. 01.04.2019

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Real Estate Sector under GST New

REP other than RREP

Meaning as assigned in RERA

Ongoing as on 01.04.2019

RREP

Carpet Area of Commercial Apartment <= 15%

Project

Real estate project defined under clause (zn) of Section 2 of RERA, 2016 means a) The development of a building or a building consisting of apartments b) Converting an existing building or a part thereof into apartments c) Development of land into plots or apartments for the purpose of selling all or some of the said apartments or plots or building includes The common areas, the development works, all improvements and structures thereon, and all easements, rights and appurtenances belonging thereto Tattvam Advisors Copyright

Snapshot of New Rates 



Residential Apartment – Apartment intended for residential use as declared to RERA Authority Commercial Apartment – Apartment other than Residential Apartment Affordable Residential Apartment – Gross amount charged less than Rs. 45 lakhs having carpet area • upto 90 sqm in non-metropolitan cities/towns • upto 60 sqm in metropolitan cities

Property

Type of Mix

Affordable

RREP REP other than RREP

Effective GST Rate

ITC

Not eligible

Residential other than Affordable

RREP

Commercial

RREP

Not eligible

REP other than RREP

12%

Eligible

REP other than RREP

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Conditions for new rates 7

1 Pay Tax by cash (No ITC)

Project-wise RCM on accounting cement from 6 Unregistered Conditions Irrespective of shortfall (monthly)

No ITC on goods 2 and services except in limited case

80% from Rgd ITC reversal as per Suppliers (RCM on Annexure I and II shortfall ITC eligibility FY wise) in hands of 5 3 landowner promoter

4 Tattvam Advisors Copyright

Cost optimization

• Reorganization and Alteration of Procurement Pattern? (Unregistered / Composition ?)

Strategy

• Creation of SPV? – Affordable 12%

• What to source directly? • What to source through Contractor? Tattvam Advisors Copyright

Taxability of various charges

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Rate of Tax on Different Charges

Basic Selling Price

EDC

Car Parking Charges

Preferential Location Charges

& IDC

Interest on Delayed Payment

Club Membership

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Rate of Tax on Different Charges Section 2(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; Section (90)

Principal Supply • means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary; Section 15(2)

Value of Supply shall inter alia includes • (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier; • (d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

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Rate of Tax on Different Charges Taxability of Preferential Location Charges (PLC) In Re : Bengal Peerless Housing Development Company Limited [2019] 105 taxmann.com 58 (AAR-WEST BENGAL) The AAR has held that the services of construction service and allied service (preferential location service) are provided in a bundle, wherein, construction service is the principal service. Accordingly, the entire sale consideration (including preferential location charges) shall be eligible for claiming 1/3rd abatement towards the value of the land. The said judgment of Authority for Advance Ruling (AAR) West Bengal was challenged by the respective Commissionerate before the Appellate Authority for Advance Ruling (AAAR) West Bengal. After hearing both the sides, AAAR concluded that the builder is charging an additional amount in the form of Preferential Location Charges. Such preferential location charges are a separate service which has no association with the land and hence the abatement cannot be available in respect of such preferential location charges.

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Rate of Tax on Different Charges Taxability of Preferential Location Charges (PLC)

Logix Infrastructure (P) Ltd. vs. C.C.E & ST., 2019 Tribunal held that PLC is part and parcel of the main service of construction of residential complex. Accordingly, the Tribunal held that PLC is bundled with supply of construction services, thus, eligible for abatement as provided in Notification No. 26/2012-ST.

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Rate of Tax on Different Charges External Development Charges:

The charges are collected by the government through builders or developers so that they can carry on the external development in order to create a township or society. These external developments include electricity, water supply, roads, drains, sewage schools, hospitals, fire-stations, sub-stations, stadium/sports complex etc. Internal Development Charges: These are the charges that are parallel to the EDC charges and again these are charged by the government. This fund is utilized by the government in building the infrastructure and in the improving of socioeconomic sectors of the state that includes highways, transportation systems, water supply facilities, electricity facilities and much more.

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Rate of Tax on Different Charges Taxability of External & Infrastructural Development Charges In re Ashiana Housing Ltd. (GST AAR Haryana) [2021] 127 taxmann.com 775 (AAR - TAMILNADU) The clause (a) of sub-section (2) of section 15 of the said Acts provides that the value of supply shall include any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the SGST Act, the UTGST Act and the Goods and Services Tax (Compensation to States] Act, if charged separately by the supplier. In view of the above, the amount of statutory charges i.e. External Development Charges and Infrastructural Development Charges, recovered by the Applicant from buyers and paid further to respective government authorities will form part of value of taxable supplies being made by the Applicant.

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Taxability on Sale of Plots

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Taxability of Plots  Sale of plots with common amenities  Common amenities • It includes compound wall, main entry gate, internal plot separation walls, drainage system, water and electricity connection, etc. • License issued by concerned authority • Common area is developed as per condition of license

• The agreed part of common area is transferred to concerned authority

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Taxability of Plots

Advance Ruling • Dipesh Anil Kumar Naik • PPD Living Space Pvt. Ltd.

Sale of Land as per Schedule III

Construction Services as per Schedule II

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Taxability of Plots Taxability of Developed Plot In re: Dipesh Anilkumar Naik, AAR Gujarat. [2022] 135 taxmann.com 99 (AAAR-GUJARAT)

The sellers charge the rates on super built-up basis and not the actual measure of the plot. The super builtup area includes the area used for common amenities, roads, water tank and other infrastructure on a proportionate basis. Sale of developed plot is not equivalent to sale of land but is a different transaction. Sale of such plotted development tantamount to rendering of service. This view has also been taken by the Supreme Court in the case of M/s Narne Construction P Ltd. reported at 2013 (29) STR 3 (SC).

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Taxability of Plots Taxability of Developed Plot In re: PPD Living Spaces Pvt. Ltd [2018] 98 taxmann.com 158 (AAR - KERALA) The proposed transaction is in respect of sale of developed plots/ land with civil structures after the issuance of Completion Certificate. Therefore, the transaction is covered by Paragraph 5 of Schedule III of the GST Act.

The applicant included the development charges in the value of land for such land sold after completion certificate. Entire payment made for a plot was to be shown in the sale deed and stamp duty and registration fee was to be paid. On the issue of taxability of the development charges the advance ruling authority held that the sale deed attract only stamp duty and registration fees and GST was not applicable.

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Taxability of Plots Taxability of Developed Plot In re: Satyaja Infratech [2020] 117 taxmann.com 260 (AAR - GUJARAT) The activity of purchase of land and selling the said land by converting into integrated residential sub-plots of varying sizes under the name of “Bliss Homes” with the basic facility is liable to GST. In re Shantilal Real Estate Services (GST AAR Goa) Here it will be important to note, firstly, that the roads, poles or drainages constructed by seller of land are at no time transferred to the purchaser of sub divided developed plot. These amenities will be available for use to every plot holder without any title to it. In the instant case, the entry 5(b) of Schedule II, cannot be applied as these roads, poles or drainages are not for sale to probable buyers of plot. Neither their ownership nor their exclusive possession shall be passed on the probably buyers of plots, rather these are intended to be eventually vested with local authorities. The principal transaction is the sale of land and these amenities are a natural part of the sale of the plot of land and these do not, in anyway, change the nature of the land or of the transaction or activity being that of sale of land. Tattvam Advisors Copyright

Taxability of Plots: Way forward

Single Pricing:  Cost of land and cost of amenities shall be included within a single price.

Separate Pricing:  Cost of land and cost of amenities to be charged separately

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Lease of 99 years plot to customer

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Lease of property

Short-term lease Long-term lease

Perpetual lease

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Long-term lease of land – GST regime Meaning of the term “immovable property” The term ''immovable property" has not been defined in the CGST Act. Section 3(26) of the General Clauses Act defines the expression “immovable property” to include “land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.” Greater Noida Industrial Development Authority vs. CCE & ST, Noida - 2015 (38) S.T.R. 1062

(Tri. Del.) The leases of 90 years, which amount to transfer of ownership and such leases are outside the purview of service tax. Subsequently, this decision of the Tribunal was affirmed by the Hon’ble

Allahabad High Court.

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Long-term lease of land – GST regime Builders Association of Navi Mumbai v. Union of India – One time lease rent paid as consideration for lease of land for residential/commercial purposes, was liable to Goods and Services Tax as any lease, tenancy, easement, licence to occupy land was covered under ‘supply of services’ under GST Act and only those transactions or activities of Government or Statutory authorities could be exempted which are specifically notified.

In re Enfield Apparels Ltd. [2020] 118 taxmann.com 339 (AAR-WEST BENGAL) The activity of assigning the leasehold land to a third party is in the nature of agreeing to transfer one’s leasehold rights on the land. Hence, it does not create any fresh benefits in the land and is in

the nature of merely compensation for relinquishing its rights over the land. Therefore, leviable to GST. Tattvam Advisors Copyright

Cancellation of units

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Cancellation of Units Credit Note • Section 34 • Excess Taxable value or tax charged • Services are found to be deficient

Refund • Section 54

• Excess Payment of Tax • Time limit- 2 year Earlier regime • Section 142(5): Refund as per earlier provisions and refunded in cash.

• Section 11B- Refund • Time limit -1 year Tattvam Advisors Copyright

Cancellation of Units Section 34 of CGST Act, 2017

(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 September 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:

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Changes in Time Limits Sr. No

Particulars Availment of Input Tax Credit

Relevant Section

Section 16(4)

Old Time Limit

New Time Limit

Due date of furnishing GSTR3B of September month of next financial year

30th November of next financial year

Issuing of Credit Notes

Section 34(2)

Due date of furnishing GSTR-3B of September month of next financial year

Amendment in GSTR-1

First proviso of Section 37(3)

Due date of furnishing GSTR3B of September month of next financial year

30th November of next financial year

Proviso of Section 39(9)

Due date of furnishing GSTR3B of September month of next financial year

30th November of next financial year

Amendment in GSTR-3B

Effective from enactment of Finance Bill, 2022 Tattvam advisors Copyright@

Changes in Time Limits Tattvam’s Comments: 01

Earlier, the input tax credit could be availed upto due date of GSTR-3B of September of next financial year. Now, the input tax credit can be availed upto 30th November of next financial year

It is pertinent to note that in GST regime, input tax credit is availed through GSTR-3B and not through input tax credit ledger in the books of accounts. Therefore, effectively the input tax credit can be availed upto filing of GSTR-3B of October of next financial year provided it is filed before 30tn November.

These amendments have delinked the ITC availment and amendments with the filing of GST returns and provided for a cut-off date after expiry of which no amendment would be permitted on GST portal. Also, with these amendments, the taxpayers have been provided with an additional time of one month to amend their returns or avail the ITC.

Extract of 43rd GST council meeting proposing this amendment (Reason of Amendment): “Law Committee has recommended that a fixed date 30th November be fixed for the same as it serves two purposes: a. In the portal, after the cutoff date no amendment would be permitted. b. It provides one more month to taxpayer to amend their returns “ Tattvam advisors Copyright@

Clarifications under GST FAQ No. 22 released by TRU dated 07.05.2019: How to compute adjustment of tax in a Credit Note to be issued u/s 34 by Real Estate Developer in case unit was booked prior to 1st April, 2019 on which GST was paid on part consideration received at the time of booking, but cancelled after 1st April, 2019. Answer: Developer shall be able to issue a Credit Note to the buyer as per provisions of section 34 in case of change in price or cancellation of booking provided that the amount received in excess if any, consequent to issuance of Credit Note, is refunded to the Buyer by the Developer before September following the end of the financial year…………

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Cancellation of Units Mr. Haresh v Kagrana (HUF) Vs. Dy. Commissioner (Refund) CGST and Cx Mumbai West (2020)- COMMISSIONER GST AND CX (APPEALS III), MUMBAI)

• Under Section 142(5), the clause notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of Section 11B(2) of the CEA is extremely crucial.  It free such claims from the fetters of limitation as provided u/s 11B(1).  The only thing that is not overridden is the requirement of fulfillment of unjust enrichment clause u/s 11B(2). • No service provided and the provision of relevant date of one year and date of payment of payment as per Section 11B of CEA cannot be made applicable. The service tax paid is in the nature of deposit and not service tax. • Even if the payment is in the nature of service tax, the date of cancellation of flat will be considered as the relevant date for calculating the time limit of one year, as the event that led to the refund of taxes is the cancellation by the buyer. If the cancellation would not have happened, the refund claim would not have arisen at all.

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Cancellation Charges or Forfeiture of Amount Section 7

Scope of Supply

• All forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

Schedule II

Entry 5(e)

• Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act treated as supply of services

Jurisprudence

Penalty Nature?

• Lemon Tree Hotel New Delhi Cestat-2019 • M.P Kshetra Vidyut Vitran Company Ltd. Tattvam Advisors Copyright

Jurisprudence on ‘Penalty’ Toleration of an Act: (Service Tax Regime) M/s. Neyvelu Lignite Corporation Limited [2021] 128 taxmann.com 405 (Chennai - CESTAT) Hon’ble CESTAT held that the liquidated damages or penalties collected from the parties could not have been towards any services and the same cannot be said towards toleration of the defaulting party. M/s Steel Authority of India Vs. Commr. of GST 2021-CESTAT-CHE-ST The recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se, since neither the appellant is carrying on any activity to receive compensation nor can there be any intention of the other party to breach or violate the contract and suffer a loss. Similar jurisprudence proposed in the following cases: M/s South Eastern Coalfields Ltd [2022] 135 taxmann.com 6 (New Delhi - CESTAT) M.P. Poorva Kshetra Vidyut Vitran Co. Ltd (2021-CESTAT-DEL-ST) M/s Repco Home Finance Ltd [2020] 117 taxmann.com 755 (Chennai - LB) Tattvam Advisors Copyright

Jurisprudence on ‘Penalty’ Toleration of an Act: (GST Regime) Maharashtra State Power Generation Company Limited, 2018 Authority for Advance Ruling held that the amount received as liquidated damages for delay in supply by the applicant under the contract shall be a toleration of an act or situation and hence taxable under GST regime. Further, the same has been upheld by the Appellate Authority for Advance Ruling in Maharashtra State Power Generation Company Limited, Similar rulings have also been pronounced in the below mentioned matters: Fastrack Deal Comm (P.) Ltd. [2021] 124 taxmann.com 399 (AAR - GUJARAT) Amneal Pharmaceuticals (P.) Ltd. [2021] 126 taxmann.com 228 (AAAR-GUJARAT) M/S TP Ajmer Distribution Limited [(2019) 103 taxmann.com 227 (AAAR-RAJASTHAN)] M/S Bajaj Finance Limited [2019] 108 taxmann.com 1 (AAAR-MAHARASHTRA) Tattvam Advisors Copyright

Jurisprudence on ‘Penalty’ Toleration of an Act: (GST Regime) Bai Mamubai Trust, Vithaldas Laxmidas Bhatia, Smt. Indu Vithaldas Bhatia v. Suchitra [2019] 109 taxmann.com 200 (Bom.) The Bombay High Court held that GST is not applicable on Damages or compensation paid to the aggrieved party for illegal occupation. The Bombay High Court relied on the principle that such payment lacks the requisite quality of reciprocity to be considered a “supply,” and hence, GST shall not be levied on such amount. The Bombay High Court did not decide on the issue of whether such damages come under the purview of Paragraph 5(e) of Schedule II of the CGST Act. The Bombay High Court’s decision is in line with the amendment to the definition of supply of services to include those activities enlisted in Schedule II, only when such activities first qualify as a supply under Section 7(1) of the CGST Act.

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Return Filing Precautions

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Return Filing Precautions : Outward Supply Matching of GSTR 3B with GSTR 1 and CRM Data • Reconciliation of all three is required • Books of account and CRM to be reconciled

Ensure proper adjustment of advances against demand notes • Tax Rate on advance and demand note to be reconciled

Correct Taxable Value and Tax Rate to be reflected in returns • •

• Backup working to be maintained

1/3rd value pertains to land

Suppose a flat is sold at Rs.9 Lacs including the value of land

•

Key Points

•

Invoice Value = 9 Lacs

•

Taxable Value = 6 Lacs

Tax Rate = 18% (it is the effective tax rate on

Non GST Supply Reporting

• Units sold after OC • Value of Land

invoice which is 12%)

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Optimization of ITC Reversal – Unsold Units

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ITC Reversal- Rule 42/43

Section 17 of the CGST Act restricts the Input tax credit on goods or services or both to so much of the input tax as is attributable to the taxable supplies including zero ratedsupplies made for the purpose of business. 1 The manner of reversal of Input tax credit is stated in the CGST Rules, 2017: • Rule 42 – Reversal of credit received on Inputs and Input services • Rule 43 – Reversal of credit received on Capital Goods

Important to note: •

The reversal of ITC to be done in every tax period.

•

Total Input Tax Credit & Reversal of ITC to be declared in GSTR 3B for the said Tax period.

•

At the year end, the reversal of ITC for the financial year to be calculated; and any short/excess reversal to be paid/claimed in GSTR 3B.

•

Reversal is to be calculated separately for CGST, SGST, IGST and CESS. Tattvam Advisors Copyright @

Manner of Reversal of ITC Rule 42 and 43 of CGST Rules, 2017

Apportionment of ITC of Input Rule 42 In cases wherein the ITC is allowed but subsequently proportionate amount relating to exempt supplies shall be reversed on the basis of turnover.

Apportionment of ITC of Capital Goods Rule 43 In cases wherein ITC on capital goods availed in the beginning but proportionate amount of ITC shall be reversed every month on the basis of turnover.

NOTE: Life of every capital goods shall be taken to be 60 months

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ITC Reversal on CC/OC 1

Reversal of ITC Availed under GST



Exempt supply includes Sale of Land; and Sale of building (after completion certificate or First occupancy.



Reversal is to be done on the basis of carpet Area.



For calculating proportionate common credit on exempt portion {C2 × (E÷F)}E = Carpet Area of : a. Apartments the construction of which is exempt. b. Apartments remaining unsold on the date of completion certificate F = Aggregate Carpet area of the project



Reversal is to be calculated finally, from commencement or 1st July 2017, till the date of completion certificate.

Calculation- Project wise or GSTIN wise

ITC Reversal on CC/OC 2

Reversal of CENVAT Credit availed under service Tax

Jurisprudence

CENVAT Credit rules on Reversal??

 CCE, Pune v. Dai-Ichi Karkaria Ltd. 1999 (112) E.L.T. 353(S.C.)  H.M.T. V. CCE, Panchkula 2008 (232) ELT 217 (Tri-LB) affirmed by the P&H HC in CCE, Panchkula v. HMT Ltd 2010

TIOL 316 HC P&H.  Hindustan Zinc Ltd. V. UOI 2008 (223) ELT 149 (Raj)  CCE & Cus, Cochini v. Premier Tyres Ltd 2008 (223) ELT 149 (Raj) CESTAT  M/s Alembic Ltd 2018-CESTATAT-AHM-ST and  M/s Shreno Limited Vs C.C.E & ST

Reversal of Transitional ITC

 Prajapati Developers vs CCT -CESTAT-Hyd 27

Reversal of Cenvat Credit and ITC : OC/CC

S.No

Description

Amount in crores

Total Cost of construction of the project

100

Service Tax Cenvat Credit availed in Pre-GST Regime

ITC (GST) availed from 1.07.2017 to 31.03.2019

Date of OC

31.3.2019

Area unsold on date of OC

33%

Reversals 6

Cenvat Credit to be reversed

ITC (GST) to be reversed on receipt of 3*33% = 1 OC

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Retention Money – GST Structuring

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Non-payment of consideration within 180 Days. Section 16(2) – Where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply of goods or services along with the tax payable thereon, within a period of one hundred and eighty days from the date of issue of invoice by the supplier, the amount equal to Input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed.  The recipient shall be entitled to avail Input tax credit on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.  What does failure to pay means?  What if contract term provide that payment is to be made within 200 days from date of issuance of invoice?

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Reversal of Input Tax Credit As per rule 37

Reversal of input tax credit in case of non- payment of consideration

Failure of Payment within 180 days from the date of issue of invoice shall furnish the details of such supply, the amount of value not paid and amount of ITC availed but not paid to the supplier in FORM GSTR-2 for the month.

Provided that the value of supplies made without consideration as specified in Schedule I shall deemed to have been paid for the purpose of second proviso to sub section (2) of section 16.

Rule 37(2): The amount of ITC which is not paid to the supplier shall be added to the output tax liability of the registered person for the month in which details are furnished.

Rule 37(3): The registered person shall be liable to pay interest at a rate as specified u/s 50 for the period starting from the date of availing such credit till the date when such amount is added in output tax liability is paid.

Rule 37(4): The time limit as specified u/s 16(4) shall not apply to a claim for re-availing of any credit, in accordance with the provision, that has been reversed earlier.

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Meaning of Non – Payment or failure to pay

The word Failure means “Non-fulfilment of an obligation imposed”.

Ram Kishore Vs. Bimla Devi and Ors. The word fails cannot connote the meaning of voluntary refusal. These words do not give a discretion or right to the person

Kavungal Kooppakkattu Zeenath Vs. Mundakkattu Sulfiker Ali “Failure means not doing something that one is expected to do”

Thattessara Subbaraya Vs. Chinne Gowda &Ors. “Failure means the there is an omission on the part of the person to do something which it is possible for him to do

In Malaysian Airlines Vs. Union of India – Failure to pay means non-payment, which means failure to pay when due. In the said case, there is a penalty imposed if amount of foreign travel tax collected is not paid to the government, within fifteen days from the date of collection. It was held that failure to pay within this prescribed time frame would mean non-payment or failure to pay. If any persons fails to pay within the statutory period, then such person is well within the sweep of the words “failure to pay’’ Once the statutory period is over and breach in payment of tax is committed, then it is immaterial when the defaulter in future is making the payment. Applying the said judgement, second proviso of section 16(2) of the CGST Act should only trigger when payment is due.

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Retention Money: Way Forward Accounting adjustment:

Disclose the performance/retention amount as performance guarantee from supplier to company instead of showing it as payable to the vendor. Confirmation/acknowledgment from supplier: Letter of acknowledgment. to be taken from the supplier with respect to receipt of the payment on the invoices raised by the supplier. Change in contractual clauses: Modify/insert the below paragraph in its purchase order/contracts to substantiate that the retention money is held for performance guarantee. “The Company shall retain …. % of the invoice value on behalf of the contractor as a security for guaranteeing the performance of the contract. Such amount kept on behalf of the contractor shall be released by the Company after the expiry of the defect liability period/maintenance period.” Tattvam Advisors Copyright

Optimization of ITC on Construction of Immovable property for renting

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Optimization of credit Registered Person

Civil Work

Land

Free Hold

Leasehold

Pre-Construction

Factory Sheds?

Immovable Plant & Machinery

Buildings?

Lift/ HVAC

During Construction

Project P&M

Civil Foundati on/ Support structure

Movable Plant & Machinery

Computer

Furniture

Post Construction

How to maximize credit and minimize dispute

Separate Work orders / PO / Agreements

Separate Invoicing for eligible and non eligible credit

Accounting and recording of credit

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JD-2C, 2nd Floor, Pitampura, Metro Pillar No. 355, New Delhi- 110034 No. 1371, Sri Nikethan, 1st Floor, 31st B Cross Road, 4th T Block East, Jayanagar Bengaluru, Karnataka – 560041 501, Sheetal Enclave, Mindspace, Nr. Tangent Showroom, Off New Link Road, Malad (W), Mumbai - 400064, India www.tattvamadvisors.com info@tattvamadvisors.com 91 9953 107 107 / +91 9650 777 079 / +91 9818651716