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Cus - Export of non-basmati rice - Notification 20/2023 insofar as it denies the benefit of the transitional arrangement as contained in para-1.05 of the FTP 2023, is bad in law: HCCus - Refund of SAD - 102/2007-Cus - Areca Nut and Supari are one and the same - Objections with regard to name, nature and status of importer or buyers or the end use of goods purchased by them etc. are extraneous: HCCX - Interest on Refund - Since wrong order annexed by petitioner in paper book, Bench is unable to proceed further - Petition is dismissed with liberty to file a fresh one: HCGST - No E-way bill - When petitioner imports machinery and after Customs clearance, transports same to his own factory, it cannot be said that such a transportation would fall within the definition of term 'supply' - Penalty imposable under second limb of s.129(1)(a): HCGST - Fix responsibility on officers who allowed BG to lapse - Petitioner not justified in not renewing BG - Cost of Rs.15 lacs imposed, to be paid to PM Cares Fund: HCGST - Since the parties agree that petition can be disposed of on the basis of records available before Appellate Authority, petitioner is directed to enclose all documents filed before Appellate Authority in a compilation, in form of a paper book: HCWrong RoadST - Whether any service is used for personal consumption or not is certainly question of fact and being question of fact, no substantial question of law arises: HCGovt proposes to amend Geographical Indication of Goods Rules; Draft issued for feedbackST - If what has been paid as tax is without authority of law, Revenue should refund the same - Denial of credit would result in the whole exercise being tax neutral: HCWarehousing Authority notifies several agri goods to be stored in only registered warehousesST - Even if the petitioner may have a case on merits, it is best left to be decided by the Appellate Authority under the hierarchy prescribed under the FA, 1994: HCUS FDA okays Eli Lilly Alzheimer’s drugGST - Petitioner challenges jurisdiction of assessing officer - Petitioner is entitled to file an appeal u/s 107 by availing an alternate efficacious remedy: HCFive from Telangana killed in car accident on Pune-Solapur HighwayGST - Existence of an alternative remedy is a material consideration but not a bar to the exercise of jurisdiction: HCHush money case against Donald Trump - Sentencing deferred to Sept 18GST - It is open to a trader to take goods by whichever route he opts, unless the law otherwise requires, destination point being intact: HCDeadly hurricane Beryl smashes properties in JamaicaGST - Conclusion that taxable person is providing a service to supplier while taking the benefit of a discount by facilitating an increase in the volume of sales of such supplier is ex facie erroneous and contrary to the fundamental tenets of GST law: HCIsrael claims 900 militants killed in Rafah since May monthGST - Order expressly records that personal hearing notice was returned with endorsement 'no such person at address' - Since petitioner has shifted to a new premises, it is just and necessary to provide an opportunity to contest demand: HC116 die in stampede at UP ’Satsang’I-T- Application for revision of order dismissed in limine on grounds of delay; case remanded for re-consideration: HCWe are deepening economic ties with India, says US officialI-T- As per Section 119(2)(b), power to condone applications relate to claims for amount exceeding Rs 50 lakhs are to be considered by CBDT; however it is impermissible for CBDT to pass order on merits: HC8 Dutch engineers build world’s longest bicycle - 180 feet, 11 inchesI-T- Additions framed u/s 68 for unexplained income & u/s 69 for unexplained expenditure not tenable where complete transactional details are furnished & not doubted: HCRailways earns Rs 14798 Crore from Freight loading in June monthI-T- Delay in filing ITR is per se insufficient reason to estimate assessee's profit @15% on turnover, more so where audited financial report is filed in timely manner: ITATMoD inks MoU to set up testing facilities in Unmanned Aerial System in TN Defence Industrial CorridorI-T- For invoking section 69A, assessee should be found to be owner of any money, bullion, jewellery or other valuable article & which is not recorded in the books of account: ITATGovt proposes Guidelines for ethical approach to Coal MiningI-T- TDS credit can be allowed based on AIS, where details pertaining to TDS, advance tax & other payments are reflected in Form 26AS: ITATVaishnaw to inaugurate Global IndiaAI Summit 2024I-T- Lending money with the primary intention of earning interest can be considered a business activity, but nature and manner of lending, as well as the frequency, should be taken into account: ITAT
 
GST on Real Estate - A cobweb of complex legislative framework

 

MAY 17, 2019

By Arvind Baheti, Executive Director and Rahul Dhanuka, Principal Associate, Khaitan & Co

TAXABILITY of real estate transactions has always been a contentious issue more so in light of the various innovative models of joint development agreements being adopted by the developers and the inter-play of various taxes and duties.

In its 34th meeting held on 19-March 2019, the Goods and Services Tax council (GST Council) vowed to reduce the tax incidence on the construction services to give a boost to the real estate sector and obviate the working capital challenges being faced by the land-owner/promoter combine.

The recommendations of the GST Council have been operationalized through issuance of 7 different notifications, all dated 29 March 2019, with a multi-pronged approach to reduce the tax rates on the outward supply of construction services; defer the time of payment of goods and services taxes (GST) on cross supply of construction services vis-à-vis development rights (TDR)/ floor space index (FSI) to improve cash flow positioning; instill discipline among the promoters by advocating purchases from registered suppliers and devise a mechanism for computation of input tax credit (ITC) in light of the amendments.

Though the underlying intent is noble and the Notifications, at first blush, appear to be reasonable, the Notifications are complex in their remit and extremely onerous to implement. In addition, the said Notifications are in some instances counterproductive and fail to achieve the stated objectives, for the reasons discussed below:

- The intention behind deferring the liability to pay tax on transfer of TDR or FSI or long-term lease and the corresponding supply of construction services in lieu of such TDR or FSI or long-term lease, to the date of completion certificate (CC), was meant to ease the working capital woes of the developers. However, the same may create an issue in the hands of the landowner promoter who wants to sell such units before receipt of CC. While ITC is allowed in the hands of the landowner promoter in respect of tax charged by the developer promoter, the same may just be a cost in case the landowner promoter sells his share prior to the issuance of the CC.

- Notification No. 3/2019 - Central Tax (Rate) dated 29 March 2019 requires the promoters to maintain project wise accounting in respect of inward supplies. Further, Notification No. 16/2019 - Central Tax dated 29 March 2019 requires the promoters to compute ITC for each project separately. Therefore, the intent appears not to allow cross utilization of ITC against different projects in the same state, thereby having an adverse effect on the cash flow position.

- Notification No. 3/2019 - Central Tax (Rate) dated 29 March 2019 requires the promoters to source 80% of their inputs and input services from registered suppliers during a financial year. The promoter shall have to pay tax at 18% (other than cement) and at 28% for cement on any shortfall below the said limit. This could lead to situation wherein the promoter pays tax under reverse charge for any particular year which is a cost to him and sources more than 80% of the inputs and input services in subsequent years. The purchases in excess of 80% is not available as set-off against the shortfall in any particular year. This may increase the cost of the project.

- The contents of Notification No. 3/2019 - Central Tax (Rate) dated 29 March 2019 and the illustrations given therein are inconsistent as regards inclusion or otherwise of cement sourced from unregistered suppliers in computing the 80% threshold. The developer may keep wondering whether cement is in or out for computing the threshold for registered procurements.

- Notification No. 4/2019 - Central Tax (Rate) dated 29 March 2019, inter alia, prescribes that the value of TDR or FSI by a person to a promoter against consideration in the form of commercial apartments shall be deemed to be equal to value of similar apartments charged by the promoter from independent buyers nearest to the date on which such TDR or FSI is transferred. The said provision does not prescribe any deduction towards value of land. Therefore, in case of commercial apartments, the transfer of TDR or FSI shall be subject to tax at 18% on the entire value of apartment including the value of land. This will go on to increase the tax cost in the hands of the developer.

- Projects wherein CC has been issued prior to 31st March 2019 and in respect of which some portion of payments from buyers are still due after 31st March 2019, neither qualify as new projects nor as ongoing projects. The exercising of option for transition to new rates only applies to ongoing projects. If the option is not exercised, the new rates are automatically applicable. However, the new rates itself only applies only to new and ongoing projects. Hence, the same lead to confusion amongst the promoters for such projects.

These aberrations are just the tip of the iceberg. Suffice to say that transition to the new regime will not be short of a roller-coaster ride for the real estate sector.

[The views of the author(s) in this article are personal and do not constitute legal/professional advice of Khaitan & Co.]

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

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