KAAR: No ITC for Expenses Beyond GST for Under-Construction Apartments/ Flats

The expenses excluding the goods and services tax levied via the developers that were utilized for the sake of supply to the apartments beneath the works contract service do not qualify to avail the ITC, Bangalore bench of Karnataka Authority for Advance Ruling (KAAR) ruled.

The petitioner Vinod Kumari Goyal was a proprietary reference registered under the provisions of the Central Goods and Services Tax Act (CGST),2017, and Karnataka Goods and Services Tax Act, 2017, and the owner of the land and has joined the joint development agreement (JDA) with Total Environment Building Systems Private Limited, Bengaluru for development of residential apartments.

The applicant had sought an advance ruling to determine whether they were entitled to claim the input tax credit for expenses, apart from the tax charged by the developer for the provision of apartments under construction services.

Representing the applicant, Chartered Accountant Sanjay Dhariwal argued that if a transaction was already subject to taxation by the developer, it should not be taxed again when the applicant sells the apartment to the customer. This should apply even if agreements were made with customers before the issuance of the Completion Certificate, which does not involve the transfer of property in goods.

He further contended that under the new scheme, the input tax credit was restricted to the developer and not extended to the landowner, making the applicant qualified for availing credit for the tax levied via the developer.

The Authority noted that the applicant was essentially acting as a provider of works contract services to potential apartment buyers, falling under Section 7(1) of the CGST Act and therefore liable to pay tax as per Section 9(1) of the CGST Act.

The Authority also determined that input tax credit could only be claimed for the tax charged by the developer for construction services, provided all other conditions were met.

Read Also: List of Goods and Services Not Eligible for Input Tax Credit

The two-member bench, consisting of Ravi Prasad and Kiran Reddy, ruled that registered dealers at the time of supply of construction services or when the tax amount payable by the applicant for the apartment supply exceeded the tax charged by the developer for construction services, were eligible to claim input tax credit. However, they clarified that input tax credit could not be claimed for any other expenses apart from the tax charged by the developer.