Suggestions on GST Acts (July 2017) by Institute of Chartered Accountants of India
Suggestions on Construction Sector
1. Taxability of Construction portion completed prior to Sale
Entry 5(b) of Schedule II read with Section 7 of CGST Act, 2017 provides that 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.
Issue
Considering a situation where a property is 60% complete and sold later, tax is levied on the 100% value of the property at the time of sale. The 60% portion which has already been completed prior to sale has already been subject to tax and including it again in 100% would lead to dual taxation. The tax should be applicable only in respect portion of the construction which will be carried out after the execution of the agreement with the respective buyer. Following Supreme Court’s ruling in case of Larsen and Toubro Limited, the constructed portion which was already completed by the developer before execution of the agreement with the buyer should not be subject
to tax.
Suggestion
It is suggested that tax be applicable only in respect of portion of the construction which will be carried out after the execution of the agreement with the respective buyer. Further, the credits pertaining to construction without any buyer may be suitably disallowed, to match with the above principle.
Read ICAI Suggestions on GST Act to Govt : July 2017
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