LEVY OF GST ON PARTIALLY COMPLETED FLATS – APPEAL DISMISSED BY AAAR ON TIME LIMITATION

[Dr. Sanjiv Agarwal]

When any Authority for Advance Ruling (AAR) pronounces a ruling, an aggrieved party can prefer an appeal before Appellate Authority for Advance Ruling (AAAR) in terms of section 100 of CGST Act, 2017, i.e. within 30 days from the date of receipt of order of AAR which is being challenged. This is however, subject to further extension of 30 days on showing satisfactory cause to the said Authority.

In one of the rulings in the matter of Durga Projects & Infrastructure Pvt. Ltd., assessee was a company engaged in construction and sale of residential apartments and residential complex based under joint development agreement. The Applicant had executed projects under JDA with land owners, and the construction was commenced during pre-GST regime and also continued under GST regime. The applicant was of the view that that their activity of construction related to immovable property falls under the definition of "Works Contract" and accordingly, in terms of Schedule II of the CGST Act, 2017, their activity was liable to be treated as a supply of service.

The applicant sought Advance Ruling on the applicability of GST on partially completed fiats i.e.:

1)    Partially completed flats having identified customers before GST regime

2)    Partially completed flats, where customers are identified after implementation of GST regime

3)    Partially completed flats, where no customers are identified.

The Authority for Advance Ruling observed that no tax shall be payable under the CGST /KGST Act to the extent that tax was leviable under the erstwhile Finance Act, 1994 for the services rendered during the currency of the said Finance Act, and hence service tax was liable to be paid on the services provided up to 30.06.2017 and the GST was liable to be paid under the CGST /KGST Act 2017, on the services provided after 01.07.2017.

The Authority for Advance Ruling, ruled vide Order dated 25.07.2019 as follows:

1)   In respect of partially completed flats having identified customers before GST regime, the Applicant is liable to pay service tax under the Finance Act 1994 proportionate to the services provided up to 30.06.2017 and from 01.07.2017 onwards liable to pay GST proportionate to the services provided effective from 01.07.2017, in terms of Section 142(11)(b) of the CGST Act 2017.

2)   In respect of partially completed flats, where customers are identified after implementation of GST, the Applicant is liable to pay GST on the transaction value of Supply.

3)   In respect of partially completed flats, where no customers are identified the applicant is not liable to GST as no supply is involved. However, if the supply is made prior to the issuance of completion certificate then GST is liable to be paid the transaction value of supply, as answered in (b) above.

[ IN RE: M/S. DURGA PROJECTS AND INFRA STRUCTURE PRIVATE LIMITED - 2019 (8) TMI 472 - AUTHORITY FOR ADVANCE RULING, KARNATAKA ].

Being aggrieved by the ruling, assessee preferred an appeal u/s 100 of the CGST Act, 2017 before the AAAR, Karnataka (AAAR) on 23.10.2019. It was submitted that  the ruling given that the Appellant is liable to pay GST on the entire value in respect of partially completed flats where customers are identified under GST regime but work commenced prior to GST regime, runs contrary to the definition of “works contract” as defined under section 2(119) of GST Law as well as the law declared by the Hon’ble Supreme Court in the case of M/S. LARSEN & TOUBRO LIMITED & ANOTHER VERSUS STATE OF KARNATAKA & ANOTHER [2013 (9) TMI 853 - SUPREME COURT].

The AAAR observed that the appeal is on the limited point of the applicability of GST on partially constructed flats whose construction commenced before the implementation of GST but customers for the flats were identified only after the implementation of GST. It was only after 01,07.2017 (implementation of GST) that the customer for the flats were identified and agreements were entered into with the customers for sale of the flats. Therefore. in terms of the time of supply provisions under the GST law. The taxable event of supply occurs after 01.07.2017 and hence the entire value is liable to tax under GST.

The AAAR also noted that there has been a delay in filing the present appeal. The order of the Authority of Advance Ruling dated 25,07.2019 was admittedly received by the appellant on 8111 August 2019. The appeal was filed before this Appellate Authority on 23rd October 2019 after a period of 77 days from the date of receipt of the order of the AAR.

On a plain reading of the provisions of Section 100 of the CGST Act, 2017, it was apparent that the same mandates that an appeal should be filed within 30 days from the date of communication of the advance ruling order that is sought to be challenged. However, in view of the proviso thereto, the Appellate Authority is empowered to allow the appeal to he presented within a further period of 30 days if it is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the initial period of 30 days. Thus, the Appellate Authority is empowered to extend the period for filing an appeal for a further period of 30 days and no more in other words. The total limitation period during which an appeal can be preferred before this Authority is 60 days from the date of communication of the advance ruling order, on showing sufficient cause. The proviso does not mean that the appeal can be presented after 60 days. If it is presented beyond the period of 30 days but within the further period of 30 days as stipulated by the proviso, then, the Appellant has to satisfy the Appellate Authority that there was sufficient cause which prevented him from presenting the appeal within the period of 30 days.

In view of the settled legal position, it is evident that this Appellate Authority being a creature of the statue is empowered to condone a delay of only a period of 30 days after the expiry of the initial period for filing appeal. As far as the language of Section 100 of the CGST Act is concerned, the crucial words are “not exceeding thirty days” used in the proviso to sub-section (2). To hold that this Appellate Authority could entertain this appeal beyond the extended period under the proviso would render the phrase “not exceeding thirty days” wholly otiose. No principle of interpretation would justify such a result. Therefore, AAAR held that it is not empowered to condone the delay of 77 days in filing this appeal.

It held that since the appeal cannot be allowed to be presented on account of time limitation, the question of discussing the merits of the issue in appeal which is the eligibility to GST on partially constructed flats whose construction commenced before the implementation of GST but customers for the flats were identified only after the implementation of GST not arise.

The appeal was thus dismissed on the ground of time limitation, itself without going into the merits. [IN RE: M/S. DURGA PROJECTS & INFRASTRUCTURE PVT. LTD. - 2019 (12) TMI 1242 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA].