2025 (4) TMI 1142 - HC - GST

Levy of GST - apartments and duplex row houses allotted to the petitioners - whether the petitioners had entered into agreement with respondent-BDA at the time prior to completion of the construction? - HELD THAT - The completion certificate as produced by the respondent- BDA at Annexure-R2 would indicate that the project has been completed on 31.12.2018 - Reading of the completion certificate with the payment schedule and the completion certificate produced at Annexure-R2 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. The petitioners in these writ petitions had applied for allotment of apartment/houses which even as seen in the notification calling upon for application by the respondent-BDA were still under construction. The said notification also specifically points out that applicable GST to be paid separately by allottees. The payment schedule referred to above would indicate that the part of the sale consideration was paid during the process of construction and much prior to issuance of completion certificate. It may be that there is no separate work contract entered into between the petitioners and the respondent- BDA but what is the essence of law as found at Section 7 and Schedule II to the Central Goods and Services Tax Act 2017 extracted above as well as the law laid by the Apex Court in the case of Larsen and Toubro Limited 2013 (9) TMI 853 - SUPREME COURT is that if the transaction 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. Conclusion - The petitioners had entered into contracts and made payments during the construction period prior to issuance of completion certificates. Therefore the demand for GST by the respondent-BDA is in accordance with the provisions of the CGST Act 2017. Petition dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

(a) Whether the demand for payment of Goods and Services Tax (GST) by the respondent-BDA on apartments and duplex row houses allotted to the petitioners is legally sustainable under the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), particularly when the apartments/houses were allegedly completed at the time of allotment or payment.

(b) Whether the petitioners are liable to pay GST when the allotment letters were issued and payments were made after the completion certificates were obtained.

(c) Whether the imposition of GST on the petitioners is discriminatory and violative of the principles of equality, given that GST was not demanded on certain blocks completed before 30.06.2017 but demanded on others completed later.

(d) Whether the petitioners are entitled to writs in the nature of certiorari to quash the endorsements demanding GST and in the nature of mandamus to compel registration of sale deeds, delivery of possession, and refund of amounts paid illegally (such as car park sale proceeds).

(e) Whether the petitioners can be compelled to pay GST at the rate of 12% instead of the reduced rate of 5% applicable to affordable housing.

(f) Whether the petitioners are entitled to exemplary costs for the alleged illegal actions and statutory lapses by the respondent-BDA.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Legality of GST Demand on Apartments and Houses

Relevant legal framework and precedents: The primary statutory provisions considered were Section 7 of the CGST Act, 2017, defining the scope of "supply" including sale or agreement to sell goods or services, and Schedule II of the Act, particularly item 5(b), which treats construction of a building intended for sale as supply of services liable to GST, except where the entire consideration is received after issuance of the completion certificate or first occupation, whichever is earlier.

The Apex Court's judgment in Larsen and Toubro Limited vs. State of Karnataka (2014) was pivotal. The Court held that a contract for construction of flats prior to completion constitutes a "works contract" and is taxable. The Court clarified that if the agreement is entered into after the flat is constructed, it is not a works contract and GST is not applicable. The Court elaborated that the essence of a works contract includes (i) existence of a works contract, (ii) involvement of goods in execution, and (iii) transfer of property in goods to a third party.

Court's interpretation and reasoning: The Court examined the timing of allotment and payments vis-`a-vis the date of completion of construction. The notification issued by the respondent-BDA explicitly stated that GST is payable separately by allottees and that the flats/houses were offered on a "first come first served" basis with construction still in progress. Payment schedules showed multiple instalments paid by petitioners before issuance of completion certificates (31.12.2018 for apartments and 31.01.2019 for duplex houses), indicating that agreements were entered into and consideration paid during construction.

The Court held that, consistent with the Apex Court's precedent, such transactions attract GST as they constitute supply of services under a works contract. The absence of a separate construction agreement was not determinative; the essence was the timing of the contract and payments relative to construction completion.

Key evidence and findings: The payment schedules, allotment letters, notifications, and completion certificates were crucial. For W.P.No.51001/2019, the petitioner paid four instalments before the completion certificate was issued. For W.P.No.7028/2022, petitioners applied and made payments between 2017 and 2018, while the project was completed in early 2019.

Application of law to facts: The Court applied the legal principle that GST liability arises when the contract is entered into before completion and payment is made before completion certificate issuance. Since the petitioners paid during construction, GST was rightly demanded.

Treatment of competing arguments: Petitioners contended that the apartments/houses were completed at allotment, no separate construction agreement existed, and GST was wrongly demanded at 12% instead of 5% for affordable housing. The Court rejected these contentions, emphasizing the timing of payments and the explicit notification about GST liability. The claim of no separate construction agreement was held irrelevant as the essential element was the timing of contract and payment. The rate of GST was not specifically adjudicated but the demand at 12% was not challenged on merits beyond submissions.

Conclusions: The demand for GST was lawful and in accordance with the CGST Act and Apex Court precedent. Petitioners were liable to pay GST on the transactions.

Issue (c): Allegation of Discrimination in GST Demand

Relevant legal framework and precedents: Principles of equality under the Constitution and statutory provisions requiring uniform application of tax laws.

Court's interpretation and reasoning: The Court noted that exemption from GST was only applicable to houses in Blocks 1 to 5 completed before 30.06.2017. The petitioners' houses were in Blocks 9, 13, 18, and 22 completed after 30.06.2017. Therefore, the factual distinction justified differential treatment.

Key evidence and findings: Office notes and completion certificates established the timeline of construction completion for different blocks.

Application of law to facts: Since GST was legitimately exempted for completed projects before the specified date, no discrimination arose in demanding GST for later completed projects.

Treatment of competing arguments: Petitioners alleged discrimination due to varying GST demands. The Court rejected this, finding the factual basis for differential treatment valid.

Conclusions: No discrimination or violation of equality principles was found.

Issue (d): Entitlement to Writs of Certiorari and Mandamus

Relevant legal framework and precedents: Writ jurisdiction under Article 226 of the Constitution for quashing illegal orders (certiorari) and compelling performance of public duties (mandamus).

Court's interpretation and reasoning: Since the GST demand was lawful, the endorsements demanding GST were not illegal or arbitrary and thus not liable to be quashed. Similarly, mandamus to compel registration and possession was contingent upon payment of GST. The Court clarified that petitioners are entitled to complete transactions, including registration and possession, only after payment of GST.

Key evidence and findings: Endorsements and representations by petitioners, payment schedules, and notifications.

Application of law to facts: The Court held that mandamus cannot be issued to compel registration or possession without fulfillment of lawful conditions, i.e., payment of GST.

Treatment of competing arguments: Petitioners sought refund of illegally collected amounts and execution of sale deeds without GST payment. The Court found no illegality in the GST demand and thus rejected these claims.

Conclusions: Writs of certiorari to quash GST demands and mandamus to compel registration without GST payment were not justified.

Issue (e): Applicable GST Rate

Relevant legal framework: GST rates as prescribed under the CGST Act and applicable notifications for affordable housing.

Court's interpretation and reasoning: The Court noted the petitioners' contention that affordable housing GST rate is 5%, not 12%. However, the Court did not specifically adjudicate this issue in detail, focusing instead on the legality of GST demand generally.

Conclusions: The issue of applicable GST rate was not conclusively determined in the judgment.

Issue (f): Imposition of Exemplary Costs

Relevant legal framework: Courts' inherent power to impose costs for frivolous or vexatious litigation or illegal actions.

Court's interpretation and reasoning: The Court found no statutory lapses or illegal actions by the respondent-BDA warranting exemplary costs.

Conclusions: Petitioners' prayer for exemplary costs was rejected.

3. SIGNIFICANT HOLDINGS

"If an agreement is entered into after the apartment 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 works contract, which would invariably attract payment of the service tax."

"The law laid down by the Apex Court in Larsen and Toubro Limited holds the field and is applicable to the facts of the instant case."

"The petitioners had entered into contracts and made payments during the construction period, prior to issuance of completion certificates. Therefore, the demand for GST by the respondent-BDA is in accordance with the provisions of the CGST Act, 2017."

"Exemption from GST was only in respect of houses completed before 30.06.2017. The petitioners' houses were completed after that date. Hence, no discrimination or violation of equality principles is made out."

"Mandamus to compel registration of sale deeds and delivery of possession cannot be granted without payment of GST as demanded by law."

"The writ petitions are dismissed. Notwithstanding dismissal, petitioners are entitled to complete the transactions including execution of deeds and delivery of possession after payment of GST."