Purchaser Of Residential Property Liable To Pay GST If Property Booked Before Construction Is Completed: Karnataka HC

The Karnataka High Court has reiterated that if the transaction of booking a residential house is entered into before the completion of construction and the consideration was paid (partly or fully) before issuance of completion certificate, the same would amount to supply of services requiring payment of the service tax (GST) by the purchaser. Justice M G S Kamal recently dismissed a batch of petitions filed by B g Parmeshwara and others which had challenged the endorsement issued by Bangalore Development Authority (BDA) calling upon the petitioners to pay amount towards the service Tax (GST) under the provisions of the Central Goods and Services Tax Act, 2017, before registration of the apartment. The petitioners contended that the very notification/advertisement which was published by the respondent- BDA, General Public was called upon representing "pick a flat of your choice by submitting applications across the counter", as such it has to be presumed that the apartment offered by the respondent-BDA to the petitioner was completed in all respects. Further, it was said “What was offered to him was a fully completed apartment and there was no pre-construction agreement between the petitioner and respondent-BDA. As such, there was no question of payment of any service tax. There was no supply or exchange of any service between the petitioner and the respondent- BDA, the imposition of tax towards the GST was unjustified as the services tax is inapplicable in respect of a complete and ready apartment.” The BDA opposed the plea submitting that petitioner had filed an application for allotment of apartment on 28.03.2018 and the construction of the said apartment was completed on 31.12.2018. The cost of the apartment was Rs.44,00,000/-. In addition the petitioner was required to pay Rs.91,250/- towards electricity and water charges and Rs.5,28,000/- towards 12% of GST. The said payment of GST is as per Section 7 and Schedule II of CGST Act, 2017. Since the petitioner agreed to purchase the apartment and made the payment part of consideration prior to completion of construction, he is liable to pay the GST. Findings: In referring to judgements of the Apex court, the bench said “Perusal of the provisions of Central Goods and Services Tax Act, 2017 extracted hereinabove and in the light of the judgement of the Apex Court extracted hereinabove, makes it abundantly clear that if an agreement is entered into after the apartment/flat or unit is already constructed, then there would be no works contract. But so long as the agreement is entered into before the construction is complete, it would be a work contract, which would invariably attract payment of service tax at the given rate.” It noted that BDA issued the notification on 09.08.2017, when the advertisement/notification was issued the construction was still in progress and allotment made to the petitioners was only provisional. The project was completed on 31.12.2018. Then it said, “The payment schedule and the completion certificate would indicate that the project was completed only in the month of December, 2018, by which time, the petitioner had paid 4 instalments towards the cost of the construction, clearly indicating that the petitioner having paid the part of consideration during the process of construction. In other words, payments were made even before the completion of construction in terms of an agreement that had been entered into between the petitioner and the respondent -BDA.” Accordingly it dismissed the petitions. However, it clarified that petitioners would be entitled to completion of the transactions, including execution of deeds of conveyance, delivery of possession, if not already executed and delivered, as the case may be, after the payment of GST as demanded by the respondent -BDA at the applicable rate in accordance with law. Appearance: Advocate Monesh Kumar, Raghavendra for the G. Gayatri, for Petitioners. Senior Advocate G S Kannur FOR Advocate Basavaraja H T for R1. Advocate AKASH B. SHETTY, for R2. Advocate B Sukanya Baliga, AGA for R3 Citation No: 2025 LiveLaw (Kar) 122 Case Title: B G Parmeshwara AND Bangalore Development Authority & Others Case No: WRIT PETITION No.51001 OF 2019 (BDA) C/W WRIT PETITION No.7028 OF 2022 Click Here To Read/Download The Order

Purchaser Of Residential Property Liable To Pay GST If Property Booked Before Construction Is Completed: Karnataka HC

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Purchaser Of Residential Property Liable To Pay GST If Property Booked Before Construction Is Completed: Karnataka HC

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