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Consult Construction

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Recent blog posts
  • CESTAT upholds service tax liability of sub-contractor engaged in rendering service of erection, commissioning and installation despite discharge of tax by main contractor;
  • Rejecting assessee’s contention that such levy would result in double taxation, CESTAT observes that main contractor has been granted abatement under Notification No. 1/2006-ST for the reason that it has foregone credit of duty paid on inputs and input services, while on the other hand, sub-contractors have already paid duty on value of their inputs and input services;
  • Accordingly, rules out applicability of revenue neutrality while stating that if assessee’s contention was accepted, every provision of service to another taxable service provider would not attract service tax, thus defeating the very purpose of Notification and leading to chaos;
  • States that earlier ruling in Akruti Projects is based on HC ruling in L&T Ltd in respect of VAT on works contract involving construction of land and therefore, is inapplicable to present case where assessee is not providing service to owner of land and there is no direct transfer of property from sub-contractor to main recipient of service; On the other hand, applies ratio of co-ordinate bench in Sunil Hi-Tech Engineers and remands matter for identification of documents required for quantification of the demand : Mumbai CESTAT
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Looking to the complexities faced, GST council on its 23rd meet has made the variety of changes to promote ease of business, reduce the rate on various items, rectifying drafting mistakes and so on. Notifications for change in rate of tax has been issued by various States.

We have compiled changes which are relevant to Construction sector and it includes:-

S.N

Particulars

1

Change in Rate of tax –

  1. Goods on which GST Rate recommended for reduction from 28% to 18%.
  2. Goods recommended to be retained at 28% GST Rate.
  3. Change recommended in GST Rate on certain goods.
  4. Changes in IGST Rate recommended on certain goods.
  5. Modification in definition/ clarification in respect of changes in GST/IGST rates on goods
  6. Clarifications on tax rate for IPR’s

2

Changes made in lower rate benefits Notification

3

Clarification on inter-state movement of goods on wheels

4

Changes recommended in Composition Scheme

5

Changes for supporting ease of doing business 

 

  1. Change in Tax rates

Major recommendations of the Council are summarised below.

A. Goods on which GST Rate recommended for reduction from 28% to 18%

Chapter / Heading / HSN references

Description

2515 12 20, 2515 12 90

Marble and travertine, other than blocks

2516 12 00

Granite, other than blocks

6802

All goods of marble and granite [other than Statues, statuettes, pedestals; high or low reliefs, crosses, figure of animal, bowls, vases, cups, cachou, boxes, writing sets, ashtrays, paper weights, artificial fruit and foliage etc., other ornamental goods essentially of stones;]

6809

Articles of plaster or of compositions based on plaster; such as Boards, sheets, panels, tiles and similar articles, not ornamented

6810

Articles of cement, of concrete or of artificial stone, whether or not reinforced; such as Tiles, flagstones, bricks and similar articles,  Building blocks and bricks, Cement bricks, Prefabricated structural components for Building or civil engineering, Prefabricated structural components for building or civil engineering

6901

Blocks, tiles and other ceramic goods of siliceous fossil meals (for example, kieselguhr, tripolite or diatomite) or of similar siliceous earths

6904

Ceramic flooring blocks, support or filler tiles and the like

6905

Chimney-pots, cowls, chimney liners, architectural ornaments and other ceramic constructional goods

6906

Ceramic pipes, conduits, guttering and pipe fittings

6907

Ceramic flags and paving, hearth or wall tiles; ceramic mosaic cubes and the like, whether or not on a backing; finishing ceramics

6914

Other ceramic articles

7016

Paving blocks, slabs, bricks, squares, tiles and other articles of pressed or moulded glass, whether or not wired, of a kind used for building or construction purposes; glass cubes and other glass smallwares, whether or not on a backing, for mosaics or similar decorative purposes; leaded lights and the like; multi-cellular or foam glass in blocks, panels, plates, shells or similar forms

7324

Sanitary ware and parts thereof of iron and steel

7615

All goods other than utensils i.e. sanitary ware and parts thereof

8302

Base metal mountings, fittings and similar articles suitable for furniture, doors, staircases, windows, blinds, coachwork, saddlery, trunks, chests, caskets or the like; base metal hat-racks, hat-pegs, brackets and similar fixtures; castors with mountings of base metal; automatic door closers of base metal

8413

Concrete pumps [8413 40 00], other rotary positive displacement pumps [8413 60], [other than hand pumps falling under tariff item 8413 11 10]

8427

Fork-lift trucks; other works trucks fitted with lifting or handling equipment

8428

Other lifting, handling, loading or unloading machinery (for example, lifts, escalators, conveyors, teleferics)

8429

Self-propelled bulldozers, angledozers, graders, levellers, scrapers, mechanical shovels, excavators, shovel loaders, tamping machines and road rollers

8430

Other moving,  grading,  levelling,  scraping,  excavating,  tamping, compacting, extracting or boring machinery, for earth, minerals or ores; pile-drivers and pile-extractors; snow-ploughs and snow-blow

Goods recommended to be retained at 28% GST Rate:

Chapter/ Heading/ Sub- heading/ Tariff item

Description

2523

Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers

3208

Paints and varnishes (including enamels and lacquers) based on synthetic polymers or chemically modified natural polymers, dispersed or dissolved in a non-aqueous medium; solutions as defined in Note 4 to this Chapter

3209

Paints and varnishes (including enamels and lacquers) based on synthetic polymers or chemically modified natural polymers, dispersed or dissolved in an aqueous medium

3210

Other  paints  and  varnishes  (including  enamels,  lacquers  and distempers); prepared water pigments of a kind used for finishing Leather

3214

Glaziers’ putty, grafting putty, resin cements, caulking compounds and other mastics; painters’ fillings; non- refractory surfacing preparations for facades, indoor walls, floors, ceilings or the like

8704

Motor vehicles for the transport of goods [other than Refrigerated motor vehicles]

8705

Special purpose motor vehicles, other than those principally designed for the transport of persons or goods (for example, breakdown lorries, crane lorries, fire fighting vehicles, concrete-mixer lorries, road sweeper  lorries,  spraying  lorries,  mobile  workshops,  mobile radiological unit)

8706

Chassis fitted with engines, for the motor vehicles of headings 8701 to 8705

8707

Bodies (including cabs), for the motor vehicles of headings 8701 to 8705

8708

Parts and accessories of the motor vehicles of headings 8701 to 8705 [other than specified parts of tractors]

8709

Works trucks, self-propelled, not fitted with lifting or handling equipment, of the type used in factories, warehouses, dock areas or airports for short distance transport of goods; tractors of the type used on railway station platforms; parts of the foregoing vehicles

 Change recommended in GST Rate on certain goods:

Chapter/ Heading/ Tariff item

Description

Present GST Rate

GST Recommended Rate

2621

Fly ash

18%

5%

6815

(a) Fly ash bricks

12%

5%

 

(b) Fly ash aggregate with 90% or more fly ash content.

18%

5%

Changes in IGST Rate recommended on certain goods: 

Chapter/ Heading/ Sub- heading/ Tariff item

Description

Present IGST Rate

IGST Rate Recommended

Any chapter

All goods, vessels, ships, rigs [other than motor vehicles] etc. imported under lease, subject to condition that IGST is paid on such lease amount.

At present, exemption is available for

i. Imported aircrafts and aircraft engines under lease;

ii. Imported goods for temporary period under lease;

iii. Imported Oils rigs and associated goods under lease

Applicable IGST rate

 

Nil

[On import]

 Modification in definition/ clarification in respect of changes in GST/IGST rates on goods

Chapter/ Heading/ Sub- heading/ Tariff item

Description

Present IGST Rate

Modification/clarification Recommended

 

89

 

Rigs, tools and spares, and all goods on wheels [like cranes], removed from one State to other State

 

To include these goods in within the purview of the Circular 1/1/2017-IGST dated 07.07.17, by suitably modifying / reissuing the said Circular.

No supply

To include these goods in within the purview of the Circular 1/1/2017-IGST dated 07.07.17, by suitably modifying / reissuing the said Circular.

 

Clarifications on tax rate for IPR’s 

  • Permanent transfer of Intellectual Property other than Information Technology software attracts GST at the rate of 12%; and
  • Permanent transfer of Intellectual Property in respect of Information Technology software attracts GST at the rate of 18%.

 Changes made in lower rate benefits Notification

Government has clarified that lower rate benefit of 12% available for service provided to specified person as per Notification No. 24/2017-Central Tax (Rate) dated 21st September 2017, to be restricted to composite supply of works contract service.

(vi)Services Composite supply of Works contract as defined in clause 119 of Section 2 of CGST Act, 2017, provided  to the Central Government, State Government, Union Territory, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a structure meant predominantly for use as

(i) an educational,

(ii) a clinical, or

(iii) an art or cultural establishment; or

(c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017.

  1. Clarification on inter-state movement of goods on wheels

To clarify that inter-state movement of goods like rigs, tools, spares and goods on wheel like cranes, not being in the course of furtherance of supply of such goods, does not constitute a supply. This clarification gives major compliance relief to industry as there are frequent inter-state movement of such kind in the course of providing services to customers or for the purposes of getting such goods repaired or refurbished or for any self-use.  Service provided using such goods would in any case attract applicable tax.

This clarification is a welcome change as it exempts taxability of inter-state movement of goods (on wheels), to be used for providing services in other State.

 

This exemption may not apply if goods are transported by HO and used by branch for providing service. It means if Head Office (HO) supplies any goods to branch office and branch uses such goods to provide service on its own behalf then, this exemption will not apply and transaction of transport of goods between HO and branch may not be exempted. One may argue that this clarification also grants exemption to supply of goods between HO and branch.

To conclude with, it is still doubtful that whether this clarification will apply in case of two offices in different states belonging to same entity. Therefore, this clarification needs clarification.

Changes recommended in Composition Scheme 

  • Supply of services by Composition taxpayer upto Rs 5 lakh per annum will be allowed by exempting the same.
  • Eligibile turnover for composition will be increased to Rs. 1.5 Crore per annum.
  1. Changes for supporting ease of doing business
  • Form GSTR-3B along with payment of tax by 20th of succeeding month till March, 2018.

 

  • For filing of details in FORM GSTR-1 till March 2018, taxpayers would be divided into two categories. Details of these two categories are as follows:

(a) Taxpayers with annual aggregate turnover upto Rs. 1.5 crore need to file GSTR-1 on quarterly basis as per following frequency:

(b) Taxpayers with annual aggregate turnover more than Rs. 1.5 crore need to file GSTR-1 on monthly basis as per following frequency

               

  • From October 2017 onwards, the late fee payable whose tax for that month was ‘NIL’ will be Rs. 20/- per day instead of Rs. 200/- per day.

 

  • Manual of applicationfor advance ruling

 

  • Exemption to suppliers providing service through e-commerce platform from compulsory registration if aggregate turnover does not exceed twenty lakh rupees (Rs. 10 lakhs in special category States except J & K).

 

  • Due dates for furnishing the following forms shall be extended as under:

 

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  • Introduction

Recently, Maharashtra Sales Tax Tribunal in the case of M/s Agni Construction Vs   The State of Maharashtra as reported in 2017-VIL-20-TRB dated 06.09.2017, has delivered an interesting judgement in case of VAT on works contract.

Let us discuss the judgement to find out what exactly had happened and how it is relevant for GST.

  • Relevant provisions

In Maharashtra VAT, the deduction for labour and service charges in the Regular scheme was provided in rule 58(1) (i). Before 08.09.2006, the rule stood as:-

(1) The value of the goods at the time of the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract may be determined by effecting the following deductions from the value of the entire contract, in so far as the amounts relating to the deduction pertain to the said works contract:--

(i) labour and service charges for the execution of the works where the labour and service done in relation to the goods is subsequent to the said transfer of property

On 08.09.2006 through Notification No. STR-1506/CR-38/Taxation-1, amendment was made in entry (i) and the updated entry was:-

(1) The value of the goods at the time of the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract may be determined by effecting the following deductions from the value of the entire contract, in so far as the amounts relating to the deduction pertain to the said works contract:--

(i) labour and service charges for the execution of the works

Words “where the labour and service done in relation to the goods is subsequent to the said transfer of property” were deleted in the above-stated notification.

The text of above notification is:-

22. In rule 58 of the principal rules, in sub-rule (1),--

(1) in clause (a) the words "where the labour and service done in relation to the goods is subsequent to the said transfer of property" shall be deleted,

  • Facts of case

The appellant is undertaking works contract. The appellant was assessed under MVAT Act. He had claimed the deduction of labour charges in the Regular scheme. The assessing officer, however, came to the conclusion that the said clause, during the relevant period up to 8.9.2006 provided only for deduction of labour and services that are subsequent to the transfer of property in goods.

Since there was no bifurcation available in respect of labour and services prior to and after the transfer of property, the assessing officer rejected the claims as per books and allowed the standard deduction as provided in standard deduction table.

Aggrieved by this order, the appellant filed the first appeal before the Deputy Commissioner of Sales Tax (Appeals) where the appeals were dismissed for non-attendance and non-prosecution.

The appellant has filed these second appeals against the order of first appellate authority dismissing the appeals.

  • Arguments raised by Appellant

Appellant had raised several arguments which will interest us for interpretation of any statue. Let us read those arguments.

  1.   Labour payment is not divisible as the appellant has made labour payments on the dates fixed for payment.

It is almost impossible to classify receipt of service before and subsequent to transfer of property.

  1. The major portion of the labour is after the work started. That prior to the work, very few work of labour such as earthwork etc. are done.

Imagine a situation where the works are executed by the sub-contractor in a back to back arrangement. The law as stood before the amendment was extremely rigid for us to claim labour charges in a case of back to back sub-contracting.

  1. Amendment to sub-rule does not provide the date of effect and the plain reading of the notification indicates that labour payment made is allowable for the total work and the same has to be taken as the date of effect of rule 58 came into force. That the amendment has been made to the said clause in the sub-rule, after realizing the mistake and the said has been corrected accordingly.

States had prescribed deduction in their VAT Rules as per the law pronounced by the   Honorable Supreme Court in the case of Gannon Dunkerley and Co. Vs the State of Rajasthan And Ors. on 28-02-1994.  Deductions specified in the said judgement did not had the condition that only those service charges which incurred subsequent to transfer of property will be allowed as the deduction from total taxable turnover.  The state had committed a mistake in drafting rules. To rectify such mistake, the entry was amended. Hence, the appellant argued that where omissions are made to rectify mistakes, it is deemed that the omission will apply retrospectively.

  1. Appellant placed reliance on the case of ‘M/s. Good year (I) Ltd. V/s. State of Haryana(1881 ITR 402), wherein it was held that rule of reasonable construction must be applied while construing a statute. That literal construction should be avoided if it defeats the manifest object and purpose of the Act.  

The prospective effect was defeating the purpose of omission. Appellant had raised a valid point to interpret the statue reasonably.

  1. Appellant also placed reliance on ‘R.B. Jodha Malkuthiwala V/s. CIT 82 ITR 570’ stating that proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into section 10 gives the section a reasonable interpretation, is required to be treated as retrospective in operation.
  • Arguments raised by Respondent

The rule 58(1) (a) during the relevant time expressly provided for deduction in respect of labour and services only to the extent they are incurred after the transfer of property and the same has to be given effect to. In the absence of identification of labour and service charges prior to and after such transfer of property, the assessing officer rightly followed the method of deduction under the proviso to rule 58(1).

  • Order is given by Tribunal

Thus the principle that emerges from various judgments is that anything that goes beyond the value of transfer of goods in the works contract is not within the domain of taxing powers of the State. In this case, the labour and service element prior to the incorporation of goods in the works contract clearly amounts to including labour of services for incorporation of goods in the tax net which was explicitly rejected by Hon’ble Apex Court in Gannon Dunkerly. As per law laid down by Supreme Court regarding the power of State to tax Works Contract under Article 366(29A) (b), this would clearly be a transgression into the forbidden domain.

It is, perhaps, for this purpose that the said rule was amended, from 8.9.2006 to bring it in line with the law laid down by Supreme Court. The law laid down by Supreme Court on this matter, being clear, the said deduction regarding labour charges before incorporation cannot be taxed even prior to the amendment.

Tribunal upheld appellant’s argument that the amendment was made to rectify the mistake and shall be applied retrospectively.

As such the matter and subject of this judgement is not relevant to GST. However, in the start, we have mentioned that this judgement is interesting. Let us checkpoints that this judgement teaches us to keep in mind while interpreting any statue.

  1. Tribunal has liberally supported interpretation through the principal of reasonable construction. If the concept arising from the law is itself a blunder because of drafting issues then, there is no limit that restricts the law of reasonable construction.
  1. One point to note here is that the Tribunal has set a principle that sometimes, the retrospective or prospective effect of omission should be judged by the circumstances in which the omission was done. In Indian tax system, things are very complicated and to keep a track of every change along with their justification is an onerous task.
  1. When a change is brought in the law in response to the law declared by Honorable Court, the law should be interpreted keeping in mind the objectives sought by the Court. This principal is supported by the tribunal in this case.

These three points will help interpreting the law in GST especially in the case where the law is still on maturity state.

 (Contributed by CA Pooja Jajwani from Sandesh Mundra & Associates)

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2017-VIL-566-MAD

THE STATE OF TAMIL NADU Vs IVRCL INFRASTRUCTURE AND PROJECTS LTD

Central Sales Tax Act – Work Contract - inter-State trade or commerce – inter-State purchase of Iron sheets - conversion into pipes by way of job work to fulfill the obligation under contract in the State of Tamil Nadu – eligibility for exemption under sub-section (a) of section 38 of the TNGST Act 1959
 
When the assessee takes delivery of Iron sheets and handed over the same to job works for conversion of the same into spiral pipes, whether it would confer the transaction still under inter-State trade or commerce after taking delivery of the goods so purchased from inter-state
 
HELD – Mere stoppage and conversion would not alter the character of the transaction. The stoppage and conversion occurred only at the instance of the buyer
 
The goods were moved in pursuant to the contract and the goods despatched were not meant to be sold in the open market - There is no restriction that the goods should be moved intact. It is not for the revenue to suggest that the goods must reach as it is -
 
Stoppage and conversion do not make the transaction a local sale. Because of conversion, it cannot be held that there is no movement of goods. It is only for the purpose of Section 5(3) of the CST Act that any goods undergoing commercial change is relevant. It is not for the purpose of determining the inter-State sale under Section 3(a) of the CST Act – answered in favour of assessee and revenue appeal is dismissed
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  • CESTAT holds that rent received against letting of seized property on account of recovery of outstanding dues, is taxable as “renting of immovable property” service;
  • Rejects assessee’s contention that such rent from lessee is towards recovery of dues from borrower permissible under SERFAESI Act, 2002 which cannot be treated as service charges so as to be liable to service tax;
  • States, “there is no provision in the Finance Act, 1994 for granting any exemption in respect of service charges, which is towards recovery of outstanding loan”,  while  observing that there is a lease agreement between assessee and lessee for which a lease rent is fixed and same is squarely covered under the category of “renting of immovable property service”;
  • However, finding force in assessee’s plea that in respect of one of the properties, service tax was paid by one of the parties to whom the property belonged, CESTAT remands matter for Adjudicating Authority’s verification;
  • Also sets aside demand on repair and maintenance expenditure incurred by lessee stating that same is not additional consideration for renting of immovable property : Mumbai CESTAT
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2017-VIL-557-ALH

THE COMMISSIONER Vs CENTRAL ELECTRONICS LIMITED

Central Sales Tax Act – sub-contracting of contract for supply of solar panels – payment of CST by sub-contractor – Revenue stand that since the entire consideration was received by the assessee who had also issued the Form-C it is liable to tax in accordance with Section 9 of the CST Act - subsequent sale – application of Section 9(1)

HELD – the articles utilized in the contract and its execution never entered the State of U.P. No sale or purchase of goods is stated to have been effected within the State of U.P. - there is no material to hold that there was a movement of goods which commenced in the State of U.P.

In view thereof, it is apparent that Section 9(1) would not apply – merely because the principal contractor received the entire consideration would not be sufficient to hold that there was a subsequent transfer of property in goods - once the transaction had been taxed in the hands of the sub-contractors, no subsequent transfer of property in goods occurred so as to warrant the Department taking the position that there was a subsequent sale – Tribunal order is upheld and revision is dismissed

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  • SC rules on the ‘person liable to pay service tax’ under a lease arrangement between the Govt. (lessee) and lessor; Referring to relevant statutory provisions viz., the Finance Act & Service Tax Rules, SC observes that it is the provider of service alone who is liable for paying service tax and accordingly, rejects lessor’s contention that service tax being nothing other than value added tax on consumption of service, levy under Finance Act, as amended, would fall upon lessee;
  • On a conspectus of authorities of Apex Court such as Tamil Nadu Kalyana Mandapam Assn vs. Union of India & Others, All India Federation of Tax Practitioners & Ors. vs. Union of India & Ors. and Association of Leasing & Financial Service Companies vs. Union of India, SC observes that service tax is an indirect tax i.e. it can be passed on by the service provider to service recipient;
  • Remarks, “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 less a service tax.”;
  • Reiterating that taxable event and taxable person are distinct concepts, SC states that in present case, “taxable event” is provision of service of renting of immovable property, while “taxable person” is person liable to pay tax, i.e. service provider, viz. the lessor;
  • Further, referring to Apex Court judgment in Peekay ReRolling Mills (P) Ltd. vs. Assistant Commissioner & Anr, SC observes that the expression “primarily leviable upon the lessor” in the lease deed makes it clear that lessor should be the person upon whom levy takes place – in the sense that “assessment” has to be of such person;
  • Rejects lessor’s reliance on Section 12B of Central Excise Act r/w Section 83 of Finance Act which speaks about presumption that incidence of duty has been passed onto the buyer, stating that this provision is a part of machinery for refund and cannot determine as to who is the person primarily liable to service tax;
  • However, in light of the sanction letter issued by Govt. undertaking to bear the obligation of registration charges, stamp duty, service tax etc. (if applicable) towards hiring of lease premises in present case, SC loathes to upset the finding of Single Judge Bench of Calcutta HC; Accordingly, SC refuses to exercise discretion under Article 136 of Constitution of India in favour of the Govt., but sets aside the impugned Division Bench judgment which had upheld Single Judge ruling, on law : SC
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Interest and penalty for short payment and non-payment of GST

 Introduction:-

For real-estate and works contracts, Government has specified two GST rates viz. 12% and 18%. The general rate is 18% and there are some specified services for which the rate is 12%. In this scenario, there may be issues of classification disputes.

For example-Mr.A, a contractor is providing the construction of dam services to an institute funded with the grant in aid by Central Government. In this case, Mr A charged GST at the lower rate of 12% considering the institute to be a Central Government.

However, the department held that service recipient can-not be classified as Central government and resultantly the service is classified @ 18% slab. Now, Mr Ais liable to pay the differential amount of tax along with interest and penalty on short payment.

Let us see interest and penalty provisions.

Provisions and Analysis

  • Interest for less payment

Section 50(1)Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed,shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.

AsperNotification13/2017dated28thJune,2017, interest at the rate of 18% per annum is prescribed under this Act.

In our example, Mr A was liable to pay tax at the rate of 18% but paid tax at the rate of 12%.Therefore, Mr.A has made short-payment and now Mr.A is liable to pay interest at the rate of 18% on short payment of tax for the period commencing from the due date of payment of tax to the date of actual payment of differential tax amount. Let us calculate interest for Mr A.

Tax liability(at therate of18%)

Tax liability(at therate of12%)

Differencetax to bepaid

Period commencingfrom due date toactual date ofdifference tax amount

Interest to bepaid on differential tax(On 60,000 @

18% for 60 days)

1,80,000

1,20,000

60,000

60 days

1,775

 

Section 50(3)Ataxablepersonwhomakesanundue or excess claim of input tax credit under sub-section (10) of section 42or undue or excess reduction in output tax liability under sub-section (10) of section 43,shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four.

AsperNotification13/2017dated28thJune, 2017, interest under section 50(1) is24%.

Section 42(10) talks about matching, reversalandreclaimofinputtaxcreditandSection43(10)talks about matching, reversal and reclaim of reduction in Output tax

  1. For example–Mr. X, a buyer has misreported input tax credit invoice at Rs. 200 plus GST at Rs. 36 and if the seller reports the same invoice at Rs. 100 plus GST atRs.18, then the reversal of tax credit on account of this discrepancy shall result in payment of interest at 24%.

It is pertinent to note that Section 50(1) and 50(3) are independent sections and they have no connection with each other. Sub-section (1) talks about the penalty for short payment and sub-section(3) talks about the penalty for undue or excess ITC availment and undue reduction in output tax liability.

 

Ø  Penalty for less payment

Section 122(2)Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised,—

(a)  for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or ten per cent. of the tax due from such person, whichever is higher;

(b)  for reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher.

Penalty will be levied if:-

  1. Tax is not paid at all or tax is short paid.
  2. Tax erroneously refunded.
  3. ITC has been wrongly availed or wrongly utilized.There are two scenarios envisaged in this provision.
  1. The taxable person has willingly committed above specified acts -Penalty levied will be higher of tax due or Rs.10,000.
  1. Above specified acts happened mistakenly -Penalty levied will be higher of 10% of the tax due or Rs. 10,000.

If we continue with the example of Mr.A then, we can prove no mens-rea as there was a confusion for classification of service recipient and we are not willingly paying less tax.But still, we have to pay penalty at the rate of 10% of the tax due or Rs.10,000, whichever is higher.

·         Conclusion:-

The decision resulting in less payment of tax should be taken keeping in mind interest liability of 18% p.a. and the minimum penalty of Rs. 10,000.

(Written by CA Pooja Jajwani)

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FAQ on GST in respect of Construction of Residential Complex by Builders/Developers.

S No. Questions Answers
1
 
Whether sale of a Flat / House by a builder / developer is a supply of a service or a sale of immovable property under GST law?
As per the clause 5(b) of the Schedule II of CGST, Act, 2017, construction of a flat / house / complex intended for sale is a supply of service. However, if the entire consideration towards the Flat/House/complex is received after the receipt of completion/occupancy certificate from the competent authority or after its first occupation, whichever is earlier, then such activity is neither a supply goods nor a supply of Service, as provided under Clause 5 of Schedule-III of CGST Act, 2017. Accordingly, a transaction involving sale of such immovable property after initial occupation or after receipt of occupancy certificate, is a sale of immovable property and it does not attract GST.
2
 
Is there any levy of GST on sale of Land?
The sale of “Land” (being an immovable property, which is neither Goods nor Service as per GST law) does not attract GST, as provided under Clause 5 of schedule III of the CGST Act, 2017
3
What is the applicable rate of GST in respect of supply of services relating to construction of residential Complex?
 As per Sl. No. 3(i) of Notification No. 11/2017-CT (Rate) dated 28.06.2017 construction of residential complex attracts GST @18% [CGST @ 9% and SGST @ 9%] {which includes construction of 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}. However, as the supply of service in relation to construction of Flat/House/Complex also involves transfer of “land/undivided share of land” which do not attract GST, the value of such land/undivided share of land shall be deemed to be 1/3rd of the total amount charged for such supply, as provided in Para 2 of the said Nfn. No:11/2017-CT ( R) dt: 28.06.2017. This implies that GST on a Flat/House/Complex [for which a part or total consideration is received prior to issue of a completion/occupancy certificate or it‟s first occupancy, whichever is earlier], shall be 2/3rd of the total consideration charged for such supply (thus GST payable on a Flat/House/Complex would works out to be 12% of the total consideration inclusive of the value of land/ undivided share of land).
4
 
What are all the exemptions available under GST provisions in respect of supply of „Construction Services” in relation to residential/commercial complex?
The following exemptions are available to the construction services, under GST law:

Description of services Authority

Services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works pertaining to the beneficiary-led individual house construction or enhancement under the Housing for All (Urban) Mission or Pradhan Mantri Awas Yojana.

Sl. No. 10 of Not. No. 12/2017-CT (Rate) dated 28.06.2017

Services by way of pure labour contracts of construction, erection, commissioning, or installation of original works pertaining to a single residential unit otherwise than as a part of a residential complex.

Sl. No. 11 of Not. No. 12/2017-CT (Rate) dated 28.06.2017

Accordingly, the services of construction of residential complexes (without material) under the above specified Government schemes or construction of single residential unit other than as a part of a residential complex (without material) are exempted from GST. Apart from the above, the services rendered by the departments of the Central/State Governments, Union Territories and local authorities (E.g.: CPWD or State PWD) to other Central/State Governments, Union Territories and local authorities (Recipients) are fully exempted as per Entry No. 8 of Notification. No. 12/2017-CT (Rate) dated 28.06.2017.
5
 
Whether Input Tax Credit is available on goods/inputs (Viz., sand, gravel, steel items, cement etc.) and input services (Viz: Designing, Plan drawing, site preparation, construction etc.) used in provisioning the construction service?
The builders/developers are entitled to avail credit on the goods (i.e. inputs as well as capital goods) and input- services used or intended to be used in the course or furtherance of their business, subject to the conditions provided in Section 16 read with Section 17(5) of the CGST Act, 2017. Accordingly Builders/Developers are eligible to avail ITC of the GST paid on goods viz., inputs like: sand, Gravel, Cement, steel, electrical cables, switches etc.; and Capital Equipment like: Mixer, Crane etc.; and input-services Viz: Architectural services like Designing, drawing etc.; Manpower Supply Service etc. Further, GST paid on sub-contracted construction services (with or without material) by other (sub-)contractors (suppliers) to whom certain construction services are outsourced, is also available as ITC as the same do not fall under clauses (c) and (d) of Section 17(5) of CGST Act, 2017. The sub-contractors are independent taxable persons as per GST law.
6
 
Whether Input Tax Credit is allowed on Tippers, Dumpers and JCBs used in connection with supply of construction Services in view of the exclusion clause at Sec. 17(5) (a) of the CGST Act, 2017?
In terms of Sec. 17(5) (a)(ii) of the CGST Act, 2017, Input Tax Credit is allowed on Tippers and Dumpers which qualify as Motor Vehicles (under Clause (28) of Section 2 of the Motor Vehicle Act, 1988 read with Section 2(76) of the CGST Act, 2017) used for transportation of goods. Thus, the restrictions envisaged under Section 17(5)(a) ibid is not applicable in respect of Tippers, Dumpers & JCBs; and as such Input Tax Credit of GST paid on them, is admissible.
7
 
 
Whether GST is leviable on stock transfer of inputs and capital equipment from one site to another site of the same builder, within or across a state?
Transfer of inputs or capital equipment of the builder/developer from one location to another location within a state for undertaking construction activity under the same registration, is not a taxable supply; hence such transfer can be made without payment of GST; and under a delivery challan. It may be noted that the builder/ developer who is not required to take registration in a different state (providing inter-state supplies and not having a place of business in the other state); and is required to transfer his capital equipment or inputs, is not liable to pay GST; hence such capital equipment or inputs can be transferred under a delivery challan. However, in terms of the Section 25(4) of the CGST Act, 2017, a person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory, shall, in respect of each such registration, be treated as distinct persons for the purposes of GST. Further, as per clause 2 of Schedule-I to the CGST Act, 2017 supplies between such distinct persons, even without consideration, are taxable supplies. Accordingly, in a case where the builder/developer having two different registrations for different braches/ sites with in a state/UT or in different states/UTs, then they are two distinct persons for GST; therefore, transfer of inputs/capital equipment between them would be treated as a taxable supply; and hence attract GST. However, GST paid on such supplies can be taken as Input Tax Credit by the recipient. The valuation of such supplies of shall be as per provisions of Sections 15 and 18(6) of CGST Act, 2017 read with Rule 28 of CGST Rules, 2017.
8
 
 
What are the consequence under GST law if the builder avails ITC on inputs/input services used by the builders/developers for construction of flats out of which certain flats are sold on payment of GST and remaining sold without payment of GST (when the same are sold and entire sale consideration is received consequent to issuance of completion certificate)?
In terms of the provisions of Section 17(2) of the CGST Act, 2017, where the goods or services or both are used by the registered person partly for effecting taxable supplies and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies. Further, sale of flats after issuance of completion certificate without payment of GST in terms of clause 5 of schedule-III to CGST Act are exempt supplies for the purpose of Section 17(2) ibid as specified vide Section 17(3) ibid, read with clause (b) of paragraph 5 of Schedule II and clause 5 of schedule III to the CGST Act, 2017.
In view of the above, Input Tax Credit in the above mentioned situation would be restricted to the amount as is attributable to the taxable supplies (flats on which GST is liable to be paid). The method of attribution of eligible ITC has been prescribed under the provisions of Rules 42 (for inputs and input services) and Rule 43 (for capital goods) of the CGST Rules, 2017.
9
 
 
Whether refund of accumulated input tax credit on account of invert duty structure, if any, is allowed?
No. As per Notification No. 15/2017-CT (Rate) dated 28.06.2017 issued under the provisions of Section 54(3) of the CGST Act, 2017, refund of un-utilised input tax credit is not allowed in respect of the construction services covered under clause 5(b) of schedule-II to CGST Act, 2107.
10
 
 
Whether Credit of duties/taxes paid on the inputs lying in stock as on the appointed day i.e. 01.07.2017 is allowed in respect of residential/commercial complexes which are under construction as on 1.7.2017?
In terms of Section 140(3) of the CGST Act, 2017, credit of eligible duties is allowed to the suppliers of construction services (builders/developers who were availing abatement in terms of Notification. No. 26/2012-ST dated 20th June, 2012) in respect of the inputs lying in stock as on 01.07.2017 provided that:
(i) such inputs or goods are intended to be used for making taxable supplies;
(ii) the said registered person is eligible for input tax credit on such inputs;
(iii) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under CENVAT Credit Rules, 2004, in respect of such inputs; and
(iv) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day i.e., 1.7.2017.
11
 
Whether the builders/developers are liable to pay tax again under GST in cases where the Service Tax had already been paid/payable on flats, as per earlier law?
No. In terms of Section 142 (11) (b) of the CGST Act, 2017, GST is not payable to the extent of the Service Tax was paid / payable under the provisions of chapter-V of the Finance Act, 1994. Nevertheless, the leviability of Service Tax on the subject services shall be determined by applying the Point of Taxation Rules 2011 as per which if services have been provided or deemed to have been provided on or before 30.06.2017, no GST is payable on the same.
12
 
 
Whether GST is payable on „additional charges‟ collected by the builder/developer, for modifications suggested by the buyers?
Builders/developers often charges extra amounts for providing certain additional / customised facilities / services which are like „internal/external modification (as suggested by the buyers)‟, wood-work, special - plumbing fixtures / sanitary fittings; „power backup‟, etc.(additional services). If such consideration is in respect of the additional services provided before the first occupation or before the receipt of occupancy certificate, the additional charges will form a part of the transactional value or total consideration for the supply of the construction service; and hence GST is payable on such additional charges at the rate as applicable to the subject construction service i.e: 18% on 2/3rd of the total consideration (1/3rd being the abatement permissible). If the consideration is towards the „internal/external modification (as suggested by the buyers)‟, wood-work, special – plumbing fixtures / sanitary fittings; „power backup‟, etc. (additional services), which is undertaken after the first occupation or receipt of the occupancy certificate, such additional consideration would not be treated as a part of the construction service. In such case the additional charges would be treated as towards an independent works contract service, which is distinct from the initial construction of residential complex service. Thus, such additional charges would attract GST @ 18%, without any abatement from the value.
13
 
Whether „other charges‟ collected by the builders/developers towards „prime/preferential location‟, „parking facility‟, „firefighting installation‟ etc. can be deducted from the total consideration for payment of GST ?
 
Charges towards „preferential location/floor/facing‟, „parking facility‟, „firefighting installation‟, „transformer‟, “Gen-set facility” etc., collected by the builders/developers also attract GST as applicable to the principal supply (construction service)as they are naturally bundled and supplied in conjunction with the construction service. Therefore, GST at the rate of 18% on 2/3rd of the Value for such naturally bundled services is payable on the said charges also.
14
 
Whether the builders/developers providing construction services are eligible for “Composition Scheme”?
No. Provisions of composition levy as envisaged under Section 10 of the CGST Act, 2017 are not applicable to supply of services (except supply of restaurant services).
15
 
Please clarify as to whether Service Tax or GST is payable in respect of on-going projects, for which neither occupancy certificate was received nor it is yet to be occupied, as on the appointed date i.e. 01.07.2017?
The Sec. 142(10) and 142(11) of the CGST Act, 2017 provides for the provisions to deal with the liability towards the ongoing projects. These provisions are explained with reference to the following possible situations:-

(i) when the total consideration was received prior to 30.06.2017 from the customers in respect of the property under construction (for which neither occupancy certificate was received nor it is yet to be occupied) - Service tax is/was payable on the consideration received @15% on 1/4th of the consideration; and there would be no GST on the same. ( Sec. 142(11)(b)- refers);
(ii) when a part of the consideration was received prior to 30.06.2017 from the customers in respect of the property under construction (for which neither occupancy certificate was received nor it is yet to be occupied) - Service tax (ST) is/was payable on the consideration received prior to 01.07.2017 i.e.: @15% on 1/4th of the consideration; and there would be no GST to the extent of that amount for which ST was paid/payable. For the remaining consideration paid/payable on or after 01.07.2017, GST is payable with reference to the date of payment of the balance amount or the date of invoice issued by the builder, whichever is earlier (generally invoice reckons to the payment milestones as per the agreement between the builder/developer and the buyer).
(iii) In respect of an ongoing construction project(for which neither occupancy certificate was received nor it is yet to be occupied), when the milestone for payment was achieved by the builder/developer, who raised an invoice within 30 days from the same(as required by law) prior to 30.06.2017, but the payment is received from the customers in respect of the said invoice on or after 01.07.2017, - Service tax is/was payable on the consideration so received @15% on 1/4th of the consideration; and there would be no GST to that extent. On the balance amount payable or paid w.r.t the subsequent payment milestones falling on or after 01.07.2017, GST is payable, as mentioned at (ii) above.
(iv) when the total consideration is received, as per the agreed terms, on or after 01.07.2017 from the customers in respect of a property under construction (for which neither occupancy certificate was received nor it is yet to be occupied) - GST is payable @ 18%, on 2/3rds of the consideration.
16
 
Whether GST is payable on the owner‟s share of the flats/houses/portion of the building constructed by the builder/developer and given to the land owner as per the development agreement?
The builder/developer is liable to pay GST even on the share of the land owner and given in lieu of the land received for the development, besides GST on the builder/developer‟s share of the complex/building. In the above transaction, the builder/developer receives consideration for the construction service provided by him, from two categories of service receivers: (a) from landowner: in the form of land/development rights; and (b) from other buyers: normally in cash. Thus the builder is liable to pay GST not only on his portion of the complex/building, but also on the share of the land owner.
17
 
If the answer to above query is „yes‟, then when the GST is liable to be paid; and what should be the taxable value?
As stated in the answer to the preceding question, GST is liable to be paid by the builder/developer on the share of the land owner, also. GST is liable to be paid 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). The value of the „flats/portion of the building‟ supplied to the land owner by the developer/builder has to be determined under the provisions of Section 15 of the CGST Act, 2017 read with Rules governing Valuation as envisaged under Rules 27 to 35 of the CGST Rules, 2017. In terms of Rule 27 of CGST Rules, 2017, 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; In view of the above provisions, the value of supply of those flats would be equal to the value of similar flats charged by the builder/developer from the buyers of his share of flats. In case the prices of flats/houses undergo a change over the period of sale (from the first sale of flat/house in the residential complex to the last sale of the flat/house), the value of similar flats as are sold nearer to the date on which land is being made available for construction should be used for arriving at the value for the purpose of tax.
18
 
 
Whether Layout Charges/ Development Charges, plotting Charges /conversion charges collected by the Municipal/panchayat authorities from the builders/developers attract GST under reverse charge?
As per the entry at Sl. No. 4 of Notification no.12/2017-CT(R) the services by Central Government, State Government, Union Territory, Local Authority or Governmental Authority by way of any activity in relation to any function entrusted to a municipality under Article 243 W of the Constitution, are exempted. "Regulation of land-use and construction of buildings" is listed as one of the functions entrusted to Municipality at Sl.No. (b) of 12th schedule under Art. 243W of the Constitution. Since the subject Layout Charges/ Development Charges; plotting / land conversion charges, are collected under the authority of the respective state legislation, in relation to the said functions under Art. 243W, the said charges for the concerned services are exempted under sl.no.4 of Notification No. 12/2017-CT (R) dtd: 28.06.2017. Hence, such charges collected by municipality/town planning/ Revenue authorities, including HMDA, VUDA etc., GST is not liable to be paid, since the such charges are collected for the services in relation to the functions under Art. 243W of the Indian Constitution.
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1. Vide Circular No. GujRERA/CIR/81  Date 26/09/2017 - Relaxation has been given to the public authorities engaged in doing real estate projects which have their finance departments headed by officers with differing designations such as Finance Controller, Finance Officer, Chief Accounts Officer etc. Such Finance heads of the government authorities by virtue of their designation shall be competent to issue certificates as per Form 3 and Form 5 in lieu of Chartered Accountants for the purpose of regulation under GujRERA including matters connected therewith and incidental thereto.  
 
2. Vide Circular No. GujRERA/CIR/43  Dated 16/09/2017 - Promotors have been adviced to take proper precautions while mentioning the project completion date. That is the date of completion shall take into account the period of completion of construction, obtaining occupancy certificate from the authority, conveyance of the apartment and the common areas etc.
 
3. Vide Order No. 1 dated 19/09/2017, the RERA authority has stated that the Promoter/Developer who do not apply for the registration of their ongoing projects before 1/10/2017 will be required to pay a registration fee and a penalty equivalent to the registration fee for applications during the period from 1/10/2017 to 31/10/2017. From 1/11/2017 to 30/11/2017, the amount to be paid at the time of registration would be the registration fee plus two times registration fee as a penalty. This would not in any way reduce the element of liability in the event of other defaults including intentional delay in registration, false representation etc. For every application made on or after 1/10/2017, the promoters shall furnish a letter giving the details of reasons for the delay in the registration based on which Authority would be free to take a view on the liability.
 
4. Application forms for Refund of Registration fees (paid for projects outside the planning area) and change of registration forms have been released.
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